Russia Tries Italian Card, Amid Difficulties With China, Production
While experts came up with a downward revision of Chinese gas demand, Gazprom confirmed its commitment to its main projects and historic partners, despite some new difficulties. Meanwhile, BP wrote in its annual review of world energy that Russia added the most oil and gas reserves during the last year.
Using data released by Russia for the first time, BP wrote that Russia reported the largest gain in terms of gas reserves, adding 1.35 trillion cubic metres.
However, the good news came amid some difficulties on several fronts. Firstly, Russian gas production significantly decreased in 2014, while global production went in the opposite direction.
‘Global natural gas production grew by 1.6%, below its 10-year average of 2.5%. Growth was below average in all regions except North America. The US (+6.1%) recorded the world’s largest increase, accounting for 77% of net global growth. The largest volumetric declines were seen in Russia (-4.3%) and the Netherlands (-18.7%)’ BP wrote on Wednesday.
Secondly, consultancy firm Wood Mackenzie reported that China will be faced with weaker gas demand.
‘Gas demand growth in China has been reduced significantly with demand now expected to reach around 360 billion cubic metres (bcm) and 560bcm in 2020 and 2030 respectively compared to 420bcm and 640bcm previously. This is due to short-term and structural drivers’ Wood Mackenzie wrote in a separate statement, referring to low oil prices and high domestic gas prices (short-term factors) and switch from industrial production to the service sector (long-term factor).
The company also argued that China will incur oversupply.
‘Chinese companies have signed around 66bcm per annum of term LNG contracts. Of this total, new contracts will ramp up through 2015, ultimately supplying an addition of approximately 23bcm per annum of gas into the domestic market by 2018. Given the significant downward revision in demand, China’s NOCs are now pursuing numerous channels to reduce volumes.’
These two factors - decrease in gas 2014 production and gloomy prospects for Chinese gas demand - put additional pressure on Russia, which is already called to take a decision on its gas contracts with Ukraine by the end of the month.
Finally, Gazprom has also to do with a planned maintenance of its Sakhalin II LNG plant. According to Reuters, production from the plant will halve between mid-June and mid-July. Sakhalin Energy is a joint venture comprising Russian gas export monopoly Gazprom (50%), Shell (27.5%), Mitsui (12.5%) and Mitsubishi (10%) are the partners in the field.
Against this backdrop, Russian companies are trying to strengthen ties with Europeans and Chinese companies. Gazprom, which will soon hold a conference about its Asia-Pacific strategy, is trying to limit the damages mainly referring to its traditional partners.
‘Milan hosted today a working meeting between Alexey Miller, Chairman of the Gazprom Management Committee and Claudio Descalzi, Chief Operating Officer of Eni. The parties addressed the cooperation in the gas sector as well as Russian gas supplies to Europe, particularly to Italy. Alexey Miller and Claudio Descalzi paid attention to the Turkish Stream project and the future capacity creep at the Blue Stream gas pipeline’ Gazprom wrote on Tuesday.
On Wednesday, Russia’s President Vladimir Putin was in Milan, where he met Italy’s Prime Minister Matteo Renzi. Also officials of Russian energy companies took part to the meeting.
'Rosneft Chairman of the Managing Board took part on June, 10th in Russian-Italian top-level talks in Milan, during which the President of Russia Vladimir Putin and the Prime minister of Italy Matteo Renzi discussed key issues of the economical cooperation between two countries' reads a Rosneft's emailed note.