Sopuruchi Onwuka

The rising concern about the possible impact of the new deal between President Vladimir Putin and President Xi Jinping to develop a direct pipeline for shipping cheap Russian gas to China might not be totally unfounded; but it does not pose immediate threat to global gas supply expansion projects including the NLNG Train-7.

What would possibly result from the deal is creation of new market outlet for Russian gas which is currently under sanction by the its highly industrialized energy gulping European neighbors following the war in Ukraine.

The war which has alienated Russia from its European neighbors created an opportunity for President Putin to gravitate towards non-NATO countries with peer civilian despots in China and North Korea while collaborating with India and Iran to form new economic and military alliance.

The three presidents with the exception of representation from Iran are in China for joint military drills that is interpreted by pundits as bonding process towards new global power bloc they crave in protecting the Asian regional economy from western military and trade imperialism. Then new alliance brings Russia, North Korea and China closer to thaw down the West’s icy blocks of diplomatic isolation and trade alienation.

Oracle Intelligence analysis concluded that the ongoing meeting in China is not just a forum for military cooperation, it presents immense opportunity for the countries to address key economic and trade issues that affect energy supplies in a rapidly altering global order where military power has become important for economic resilience.

The key centroid of the ongoing meeting of the Shanghai Cooperation Organization security bloc is energy security, the solution to which Russia stands critical with its massive petroleum reserves; while China and India present huge market opportunities that sufficiently replaces the lost western demand.

Therefore, the legally binding agreement to build the long-anticipated Power of Siberia 2 gas pipeline by Russia’s Gazprom PJSC to feed supplies to China via Mongolia and other routes will form the lasting bond that holds the new alliance in place.

Gazprom’s Chief Executive Officer, Alexey Miller, said the proposed pipeline could ship as much as 50 billion cubic meters a year via the Power of Siberia 2 for 30 years. He said the price for the fuel will be lower than what Gazprom currently charges customers in Europe, accentuating the diplomatic nuances in the deal.

Miller stated in reviewed reports that the Power of Siberia 2 and the Soyuz-Vostok gas pipeline projects would provide transit link through Mongolia, boost gas shipment capacity in China. He added that the project would become the largest and most capital-intensive gas project in the world.

Our review of reports filtering from the curtained meetings in China showed that, in addition the pipeline deal, the two countries signed more than 20 cooperation agreements that center on energy.

Gazprom has also agreed to raise flows to China via the existing Power of Siberia route by another 6 billion cubic meters a year, from current annual capacity is 38 billion cubic meters.

Flows via the future Far Eastern link to China, earmarked to start in 2027, will also be above the initially planned 10 billion cubic meters a year, according to the reports.

Impact on global gas supply:

Oracle Intelligence reports that whereas Russia is under pressure to find new markets in anticipation of outright ban by EU and UK at the end of 2027, China might not run the risk of locking itself in a long term supply deal at a time global supply surge presents forecasts of price drop.

Oracle Intelligence previously reported that total global liquefied natural gas (LNG) capacity will hit significant 748 million tons per annum (mtpa) by 2030, driven by significant 253.6 mtpa of total global liquefaction projects that scaled final investment decisions and are under construction stages.

The copious spread of liquefaction projects also indicates the regional race for liquefaction capacity growth and the rising influence of the United States as leading supplier of gas for global industrial and power generation.

In his bullish trade negotiations with the leaders of European nations, President Donald Trump of the United States of America had demanded that the European Union and United Kingdom ditch cheap Russian pipeline gas for LNG shipments from the American energy factor.

It is forecast that as more gas lines and liquefaction plants come online, market forces would rebalance the supply and demand with a pull on prices. This makes a 30-year GSPA too risky for China and other parties in the deal. India and China have defied several international sanctions to mop up Russian oil and gas only on the considerations of low price opportunities. They would not likely ignore similar opportunities to switch suppliers in the future.

So, Miller’s comments on the pipeline deals still have curiosity gaps on price negotiations, binding supply volumes and delivery time frame.

Besides, most of the global gas pipeline projects including the Nigeria-Morocco Pipeline, the Trans-Niger Gas Pipeline and others conceived by North African countries target European markets where Russia’s exit provide market expansion opportunities.

Review of trends in the global energy demand patterns by Oracle Intelligence shows that global LNG liquefaction capacity grew by 6.5 mtpa in 2024 to a total of 494.4 mtpa; following the acceptability of natural gas the cleanest form of available fossil energy. And significant 253.6 mtpa of new liquefaction capacity is expected to come online by 2030.

From Africa, Mozambique LNG leads Africa’s new capacity with post-FID proposition for 12.9 mtpa, and the Nigeria LNG Limited’s (NLNG’s) follows with 8.0 mtpa Train 7 project which is currently under construction in Bonny Island, Rivers State.

Other projects that make up the new 26.5 mtpa new capacity emerging from African include Congo’s FLNG 2 project with 2.4 mtpa; Gabon’s Cap Lopez project with 0.7 mtpa; and Tortue FLNG – Phase 1 project with 2.5 mtpa. Total feedstock requirement for all Africa’s new LNG projects currently under construction amount to 36.1 Bcm/y.

Former Managing Director of NLNG Limited, Tony Attah, had told Oracle Intelligence that the company’s 8.0 mtpa Train-7 capacity is already sold in advance in GSPAs. He boasted that the company’s worked class operating efficiency and rising reputation for honoring supply obligations made project financing and GSPAs very smooth.

Our study of other LNG projects in Africa showed most of them are driven by serious international oil companies that hold significant presence in the global energy market. The business profile of the project drivers indicate full guarantee of offtakes as they are all tied to GSPAs.

So, while the heads of state at the Shanghai Cooperation Organization meeting sign off on number of highly promising gas supply projects that threaten to upset viability profile of existing capacity expansion projects, the deals do not necessarily stand in the way of investors that are far ahead in the race to capture greater market shares.

Whereas pipeline gas is logically cheaper than the liquefied molecules due to massive infrastructure investment requirement for liquefaction and regasification, it is limited in reach and too rigid in responding to changes in geographical demand patterns. On the other hand, LNG remains very flexible in reaching emerging demand centers, quick to market and available from any region of the world.