Gazprom gas price for China climbs to $171/1,000 m3 in Q3 from $147 in Q2, pipeline gas imports hit record

MOSCOW. Sept 20 (Interfax) – The price of Russian gas exports to China rose to $171 per 1,000 cubic meters in the third quarter of 2021 from $147 in the second quarter and $121 in the first quarter, data from Chinese customs show.

China imported a total of 4.868 billion cubic meters of pipeline gas in July 2021, an all-time record. With spot prices for gas rising steeply, maximizing offtake of pipeline gas and LNG under long-term contracts is a way for buyers to shield themselves from price shocks.

Prices

The contract for gas supplies to China through the Power of Siberia pipeline is linked to the price of fuel oil and gasoil with a nine-month lag, and the gas price is changes quarterly. Since supplies began at the end of 2019, the price has only fallen with the downward trend in oil prices, hitting bottom in the first quarter of 2021.

Russia still supplies gas to China at a lower price than other suppliers of pipeline gas. The price of gas supplies from Turkmenistan was $238 in July, while prices for gas from Uzbekistan, Kazakhstan and Myanmar were $193, $195 and $362, respectively.

The Platts JKM (Japan Korea Marker), which reflects spot prices for liquefied natural gas deliveries to Japan, South Korea, China and Taiwan, rose to $503 per 1,000 cubic meters, while Russian LNG was sold at an average of $441 in China in July. At Europe’s TTF hub, the average spot price was also $441 in July.

Negotiations on Russian gas supplies to China dragged on for a long time. The framework agreement on the basic terms of supplies was signed back in October 2009 and the countries took their time, each hoping to secure the most favourable price. The talks accelerated after Crimea became part of Russia, a development that dramatically changed the country’s relations with Europe, the main buyer of Gazprom’s gas.

Russia needed a breakthrough in the East and exactly two months passed between the signing of the decree on Crimea becoming part of Russia on March 21, 2014 and the signing of the contract to supply gas along the "eastern route" on May 21.

A few days after the signing of the contract, former Gazprom deputy CEO Alexander Medvedev advised against asking the company about the price of its gas supplies to China. "Now every housewife wants to know the price of the gas, but this is inappropriate."

Volumes

Russia supplied 888 million cubic meters of gas to China in July, which was up from 862 mcm in June, although daily shipments still averaged 29 mcm.

Gazprom Dobycha Noyabrsk, the subsidiary of the Russian gas giant that is developing Chayanda, reported that four gas wells were launched at this field in July in the area of the No. 3 Gas Treatment Plant, and that the commissioning of a low-temperature gas separation unit at the plant was continuing.

China increased imports of pipeline gas to a record 4.868 bcm in July 2021 from 4.37 bcm a year earlier. This included 2.77 bcm from Turkmenistan, 888 mcm from Russia, 302 mcm from Kazakhstan, 572 mcm in Uzbekistan and 335 mcm from Myanmar.