China-Russia Gas Deal Likely to Challenge Middle East’s Grip over Beijing

Qatar may be the most immediate loser after the US$400 billion deal inked last month that involves Russia’s energy giant Gazprom supplying China National Petroleum with 38 billion cubic metres of natural gas over 30 years. Qatar has been increasingly redirecting LNG exports from Europe to Asia, partly to achieve a better price for its deliveries. An estimated 16.4 per cent of China’s gas came from Qatar in 2012, according to BP, the energy company. Barclays estimates about 10 per cent of Qatar’s gas is delivered to the world’s second biggest economy.

“With Russia’s aggressive stance to diversify markets, and Australian supply coming online, the question is whether Qatar will remain immune to the competition,” said Alia Moubayed, the director and head of research for Mena at Barclays. “We do not see any immediate risk as a large part of Qatar’s contracts are long term and oil-linked. But in the medium-term the changes in the global LNG markets could become a major challenge to Qatar.”

“We believe there is plenty of room for China to secure other sources of gas through domestic shale gas production in addition to LNG imports from Middle East, Australia, Indonesia, Malaysia and recently Papua New Guinea,” he said.

The deal is regarded as important for Russia as it is for China. As relations have soured in recent months with Europe – its primary gas consumer market – Russia has redoubled efforts to send a third of its gas exports eastwards by 2035. But it also signals China’s eagerness to diversify its energy sources – both in terms of geography and commodity.

But the rise in the proportion of China’s energy imports from the Middle East may slow as the country looks to providers elsewhere.

“The Chinese government is actively engaged in securing additional imports from other regions,” said Francisco Quintana, the senior economist at Asiya Investments, a Kuwait-based investment company. “Exports of oil and gas from the GCC will not come down. But their share of the future pie will come down.”

(thenational.ae Edited by Topco)