OREANDA-NEWS. August 07, 2013. Market analysts say Chinese demand for gas will continue to grow; Beijing wants to use more gas instead of coal, and to keep more gas reserves in its underground storage facilities. Nevertheless, Russia will be able to increase sales to Chinese customers to 100bn cu.m. at the very best by 2030. Russian companies are currently hoping to achieve that figure much sooner, so questions are being asked as to how realistic their plans are.

The Chinese economy is slowing down; GDP growth fell to 7.5 per cent in the second quarter of 2013 from 7.7 per cent in Q1. That is the slowest growth rate China has reported in the past 23 years. But neither Russian nor foreign analysts expect the country to reduce its gas imports.

In early July Russian Energy Minister Aleksandr Novak insisted that Chinese demand for oil and gas would continue to grow as the country increasingly uses these fuels to replace coal. He estimates that coal currently accounts for 70 per cent of China's energy consumption.

Mikhail Korchemkin, head of East European Gas Analysis, adds that China is rapidly building new underground gas storage facilities, which will need large volumes of gas for the initial fill-up. This will negate the impact of economic slowdown on the growth of Chinese demand for gas.

It is not clear, however, whether Russia will be able to capitalize on that steady growth. Turkmenistan remains the largest supplier of natural gas to China at the moment. According to BP, Turkmen exports to China reached 21.3bn cu.m. in 2012. In late 2011 the two countries agreed that the figure would triple to 65bn cu.m. by 2015.

According to estimates by the Energy Centre at the Skolkovo Business School, Chinese demand for gas will increase to 430bn cu.m. by 2030; the country will overtake Japan and South Korea by that indicator.

Domestic Chinese gas production will reach up to 250bn cu.m. by that time; contracts for another 125bn have already been signed. Incidentally, they were signed in 2009-2011, when Gazprom was locked in fruitless negotiations on pipeline gas supplies with the Chinese.

That leaves another 100bn cu.m. worth of contracts to be signed by 2030. The Skolkovo Business School believes that at least some of those deals may be signed with Russian suppliers.

The problem is, however, that those suppliers are counting on a lot more than 100bn cu.m. in additional sales. Gazprom, for example, hopes to agree the terms of new supplies by September so as to begin the construction of the Siberian Power trunk pipeline to Vladivostok and on to eastern China.

The annual transit capacity of that future pipeline is 38bn cu.m., with a possibility of increasing that figure to 60bn at a later stage. The tentative launch date is 2018.

China is also named as one of the main markets for the three new LNG projects by Gazprom, Rosneft and NOVATEK, which will have a combined output of 35 million tonnes. Chinese LNG imports stood at only 14m tonnes in 2012.

According to calculations by Sanford C. Bernstein & Co, as reported by Bloomberg, for now it is slightly cheaper for China to buy LNG rather than pipeline gas.

Neil Beveridge, an analyst with Sanford C. Bernstein, believes that the price the Chinese are negotiating with Gazprom is 9 to 11 dollars per 1 million BTU, which translates to 321-390 dollars per 1,000 cu.m.

The current spot market price of LNG in Shanghai, inclusive of transport costs, is 315 dollars per 1,000 cu.m. The analyst also reckons that China is already losing money on gas imports from Turkmenistan, for which it currently pays almost 12 dollars per 1 million BTU.