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    China Business
     Jun 24, 2011

China's gas imports jump
By Robert M Cutler

MONTREAL - China's gas imports jumped nearly a third in May from a year earlier to a record 2.6 billion cubic meters (bcm), according to the country's National Development and Reform Commission, with half delivered by pipeline from Central Asia. The rest was in the form of liquefied natural gas (LNG).

Increased imports are helping China to achieve its goal of having gas contribute as much as 10% of its energy consumption mix by 2020, but at an ever-higher cost, as domestic prices are lower than import cost.

China National Petroleum Corporation (CNPC), the country's largest oil and gas producer and supplier, lost 5 billion yuan (US$773 million) last year on imports of natural gas from Central

Asia, according to Caijing, because domestic sales prices are lower than import prices. Losses this year will increase, with importing one cubic meter of natural gas meaning a loss of 1 yuan, the China Coal Resource web site reported in April, citing unnamed CNPC sources. China itself produced 42.6 bcm during the first five months of the year.

Turkmenistan alone provided half of China's total of 11.4 bcm pipeline-plus-LNG gas imports over the first five months of 2011, according to the CNPC newspaper, as reported by China Daily. The country has projected receiving 17 bcm of natural gas from Turkmenistan during the present calendar year, as the Central Asian Gas Pipeline (CAGP, Turkmenistan-Uzbekistan-Kazakhstan-China) ramps up to a 30 bcm/y capacity by the middle of next year on the way to the 40 bcm/y capacity planned for 2013.

Kazakhstan was expecting to provide one-quarter of the 40 bcm/y originally planned for the CAGP. However, its oil and gas ministry this week predicted that Central Asia gas exports to China would increase to 65 bcm/y, with its own exports originally planned at 10 bcm/y rising to 25 bcm/y of that total. In making the announcement, Kairat Kabyldin, the head of KazMunaiGaz (KMG), the state-owned gas and oil company, announced that additional volumes would reach China through the construction of a third CAGP string from Kazakhstan.

These reports are entirely credible insofar as China this week also announced that the infrastructure of the second string of its own West-East Gas Pipeline (WEGP) has been finished, taking Central Asian gas imported into Xinjiang, in the far west of China, from there to the energy-hungry regions further east and to the coast. The first WEGP was opened in 2005. (See Xinjiang: China's energy gateway, Asia Times Online, July 10, 2009.)

As reported here earlier, power shortages in China are the worst in at least seven years. The fact underlines the connection between present difficulty of China's natural gas situation and the current state of the national economy.

Caught in the middle, the government seeks to reduce demand for electricity through increasing prices, which it hopes will also lead power producers to increase power generation. (See Copper cooler for China, Asia Times Online, June 3, 2011.)

Domestic Chinese gas production trebled between 2000 and 2009 from 27 billion to 78 billion cubic meters per year (bcm/y), not enough to prevent the country becoming a net importer of natural gas in 2007 for the first time in 20 years. The country's gas reserves are estimated at 3 trillion cubic meters. The International Energy Agency noted in a report released last week that China accounts for one-third of all growth in global demand for natural gas and it is the fourth-largest gas consumer beyond the United States, Russia, and Iran.

The increased use of natural gas reflects the government's goal of raising the portion of natural gas in the country's energy consumption mix to 10% by 2020, from 3% in 2008. The current proportion is estimated at 6%, and the present five-year plan seeks to raise that to 8% by mid-decade.

Consequently, China is buying up gas almost wherever it is to be found. For example, it intends also to import up to 12 bcm per year of natural gas by pipeline from Myanmar. To this may be added expected LNG imports from large natural gas development projects in Australia. (See Bangladesh breathes in hope, Asia Times Online, January 22, 2010; on Australia, see Australia approves gas megaproject, Asia Times Online, August 27, 2009.)

What China will not do is to pay prices that it considers elevated. Those who make foreign direct investment decisions for Chinese capital have become quickly more experienced and critical of proposed deals than they were even a few years ago.

As a result, negotiations with Russia over possibilities to import as much as 68 bcm per year from two Siberian sources, which were expected to succeed in the run-up to the recent St. Petersburg Economic Summit earlier this month, have continued to founder over disputes about prices even though the preliminary agreement for such a deal was reached as long ago as 2004. (See Price limit on China's Russian friendship, Asia Times Online, October 16, 2009.)

Russia's Gazprom is looking east because that is where increased demand will come from. Public statements by leading political as well as industrial figures in Russia make it clear that the country would choose China over Europe for energy export if ever a choice were necessary.

Dr Robert M Cutler (http://www.robertcutler.org), educated at the Massachusetts Institute of Technology and The University of Michigan, has researched and taught at universities in the United States, Canada, France, Switzerland, and Russia. Now senior research fellow in the Institute of European, Russian and Eurasian Studies, Carleton University, Canada, he also consults privately in a variety of fields.

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