The WSJ reports,"Russia's Gas deal with China may pave the way for cheaper energy for the rest of Asia and put in question the viability of future gas developments around the world.
Beijing will help finance the development of two vast gas fields in Eastern Siberia. While much of that output will go to China, there will still be plenty of relatively cheap gas left over that Russia plans to pipe to the Pacific coast near Vladivostok and ship as liquefied natural gas to elsewhere in Asia.
That will put downward pressure on energy prices in the region and avoid Russia becoming too reliant on China. Russia made a similar maneuver several years back when it built a crude-oil pipeline to the Pacific with a spur pipeline into China.
The significance so far of the deal is mostly political given the boost it provides to Russian President as his relations with the West sour. It remains to be seen what the deal will do to prices, but that will be crucial in determining the impact on other suppliers, many of whom are already experiencing cost overruns.While good news for buyers, lower prices are a potential threat for developers of other multibillion-dollar gas projects being planned that also target Asian markets, which need to decide soon if this new supply could lose them customers and impact their profits.
The agreement "will have profound impacts on multiple fronts including political relationships among China, Russia, Europe and the U.S., domestic gas market in China, and [the] LNG market in Asia," said analysts at Bernstein Research in Hong Kong. Higher-cost LNG projects "will be less likely to be developed."
Developing sites capable of producing gas can costs tens of billions of dollars and take years to bring online, leaving their backers vulnerable to sudden changes in the market, like the recent China-Russia deal or the unlocking of shale gas reserves in North America.
Some in Australia have already been hit by big cost overruns, including projects backed by Chevron Corp., ConocoPhillips, Total SA and BG Group PLC. Others like those planned offshore Mozambique by Anadarko Petroleum Corp. and Italy's Eni SpA are awaiting a final go-ahead.
While the Russia deal and development of China's own shale reserves and offshore gas deposits may put some projects at risk, producers say things aren't that bad".
