Gas Tops Agenda in Global Shuttle Diplomacy
As EU officials talk to leading gas producers about making up any shortfalls in Russian supply, the Kremlin is looking east, hoping to persuade the world's biggest energy consumer to boost its purchases of Russian gas.
Putin Courts China
Gas will feature heavily when President Vladimir Putin meets with his Chinese counterpart Xi Jinping in Beijing on Friday.
Alexei Miller, head of state-controlled gas giant Gazprom, may not be there, but Putin's entourage is expected to include Igor Sechin, CEO of oil major Rosneft — which has growing gas ambitions — and Energy Minister Nikolai Shulginov.
Putin will attend the Winter Olympics opening ceremony in Beijing and will be the first world leader to meet with Xi in person in two years.
Russian presidential aide Yuri Ushakov said the visit is expected to mark a step forward in gas cooperation.
Many agreements were being drawn up, he said on the eve of the visit, but a final list of documents to be signed still had to be approved.
Gazprom started shipping gas to China via the Power of Siberia pipeline in late 2019 under a 38 billion cubic meter per year (3.7 billion cubic foot per day) contract signed in 2014.
It sees the potential to export up to 130 Bcm/yr to China, but talks on new deals have been complicated by uncertainty about China's future demand and its growing appetite for LNG.
China recently overtook Japan to become the world's biggest LNG buyer.
Russian Pipe Dreams?
Gazprom recently completed a feasibility study for a transit pipeline to China through Mongolia — dubbed Soyuz Vostok — to link up with its proposed 50 Bcm/yr Power of Siberia 2 pipeline.
Moscow may hope to sign a gas supply agreement during Putin's visit, but Chinese sources say Beijing is in no hurry.
Gazprom has also proposed building a pipeline from Sakhalin Island to eastern China, and has offered more gas via Power of Siberia and a 30 Bcm/yr "western route" from West Siberia to western China.
Russia's ambassador to China, Andrei Denisov, said last month that the Sakhalin plans were at a "high level of final document readiness."
While pipeline talks drag along, China is signing up for more Russian LNG.
In January Zhejiang Energy agreed to buy up to 1 million tons per year from Novatek's Arctic LNG 2 project, as well as acquiring a 10% stake in A-Property's Yakutia LNG in Russia’s Far East, with equity offtake of up to 1.8 million tons/yr.
EU Looks to Azerbaijan
As Putin wings his way to Beijing, EU Energy Commissioner Kadri Simson is heading to Baku on Friday to gauge the possibility of getting more gas from Azerbaijan.
She will likely get little joy, as Azeri shipments to Europe from the BP-led Shah Deniz development are already bumping up against export pipeline capacity.
Gas from the Caspian project's second phase started flowing to Europe at the end of 2020 via the 10 Bcm/yr Trans Adriatic Pipeline (TAP), the last leg of the giant Southern Corridor pipeline network from Azerbaijan.
All of the gas is committed under long-term contracts with European buyers including Shell, Belgium's Fluxys and Switzerland's Axpo.
The Shah Deniz consortium's attempts to drum up market interest in expanding capacity to up to 20 Bcm/yr have fallen flat so far.
Shipping Turkmen gas across the Caspian for onward delivery from Azerbaijan also looks like a non-starter.
A new subsea pipeline would have to be built, and this would be opposed by Russia and Iran, which also border the Caspian.
Downbeat Message to US
Simson will likely convey a downbeat message about the prospects of procuring additional gas supplies when she attends a US-EU Energy Council meeting in Washington on Feb. 7.
She will be one of several EU officials traveling to the US capital for the periodic energy security summit, which was first held in 2009.
Concerns about securing enough gas for Europe are sure to be high on the agenda, but the summit also addresses broader issues, including energy transition priorities.
Shell Pledges Support
Meanwhile, Europe's efforts to draw in global LNG cargoes are at least finding a sympathetic ear.
Shell CEO Ben van Beurden said the UK major had been rerouting cargoes into the UK to meet surging demand, which has driven up prices.
He estimated that some 2%-3% of Shell's global LNG volumes were now being landed in the UK.
“Of course in times like this, when the shortages are clear, it does make sense, and it's also required to redirect cargoes into Europe, but the good thing is we are in a position to do so," he said.
With the largest LNG portfolio of any Western company, Van Beurden said Shell was uniquely positioned to come to the aid of the UK and Europe.
That said, Van Beurden also acknowledged that high prices have played an important role in drawing Shell cargoes into Europe.
"Let's also be honest ... the European markets are competing effectively with Asian markets and that is the reality, of course, of the global market that we now have," he said.
However, the Shell CEO also stressed that he saw a major reduction of Russian gas flows into Europe as very unlikely, noting that Russia has continued to supply Europe during past periods of geopolitical tensions.