By OGJ editors
HOUSTON, Oct. 31 -- Several gas suppliers in the Former Soviet Union appear to be pitting China against European markets in an effort to develop market diversity and leverage in negotiating prices, said analysts Wood Mackenzie, Edinburgh, which added that China may be playing a similar diversification game to secure its supply.
China recently signed gas supply memorandums of understanding with Russia, Turkmenistan, and Kazakhstan for gas deliveries via four proposed pipelines, which upset European buyers dependent on those countries.
"Possible diversion of gas traditionally exported to western markets has alarmed European consumers, whose dependence on gas imports from Russia is forecast to increase," noted Valentina Kretzschmar, WoodMac's Russia and Central Asia analyst. "The situation highlights Europe's desire for security of supply and Russian desire for security of demand."
The FSU could supply about 5.3 tcf/year of gas to eastern markets from 2012, but WoodMac estimates this amount to be roughly equivalent to what the FSU will deliver to Europe in 2012, "accounting for 37% of total FSU export potential."
"The prospect of diversifying gas export routes from Russia gives Gazprom significant leverage in price negotiations with Europe, as well as transit states such as Ukraine and Belarus," WoodMac said.
However, the analyst found a discrepancy between the agreed upon volumes and China's forecast demand. China is not likely to require FSU gas before 2015, several years after the planned start-up of the pipelines, WoodMac said. And the volumes likely needed "are only a fraction of those being discussed with Russia, Kazakhstan, and Turkmenistan and could be easily satisfied by any one of the four proposed pipelines."
Russia, which WoodMac said appears to be "the most significant player" in the gas supply game, has greater export potential than the Central Asian countries, which may be unable to diversify their gas exports because of existing contracts and price agreements.
"Turkmenistan's and Kazakhstan's ambitions to diversify their gas exports to China are unlikely to materialize," said Kretzschmar.
China appears to be intensifying competition by negotiating with a number of suppliers, Kretzschmar said, but "it is clear that Russia will hold the upper hand in future negotiations on volumes and prices."
