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Accounting for about half of total imports and a quarter of
total supply, pipeline imports play a vital role in maintaining
China's gas supply security and diversification. The dynamics
between demand and supply options create different roles for
pipeline imports in China's regional markets.
In 2020, China's total pipeline imports declined 5% despite the
ramp-up Power of Siberia (POS) delivered volumes. This was mainly
the result of intensifying the competition between various supply
sources, including policy-favored domestic production and cheap
term and spot LNG.
We expect China's pipeline imports to rebound in 2021. Oil price
is the pricing linkage for the majority of Chinese pipeline imports
and LNG term contracts. LNG contracts typically have a short lag
time—about three months—to the oil price and an average
slope of about 12-13%. In contrast, regression analysis on the
landed prices of pipeline imports against oil prices shows that
Chinese pipeline imports have a long lag time, single-digit slope,
and high fixed price portion. Central Asian and POS gas imports
have a 6-7% slope with a 10-12-month lag time to the oil price. As
a result, the 2020 oil price collapse led to declining landed
prices of LNG term imports within just a few months but won't be
reflected in pipeline import prices until 2021.
Central Asian gas' competitiveness will also improve in 2021.
The 2021 average landed price of Central Asian gas import will be
$0.3/MMBtu lower than the 2020 average. The landed price of LNG
imports, on the other hand, will increase almost $2/MMBtu for term
contracts and at least $4/MMBtu for spot purchases on average,
given the current oil price and global LNG dynamics. As a result,
Central Asian gas imports are expected to recover from the 2020
lows but still remain below the pre-COVID-19 levels at 42 Bcm in
2021.
Beyond 2021, pipeline imports will remain an important supply
source to China's regional markets. With the low border prices,
Russian pipeline gas imports will represent a major growth area in
China's supply mix over the next decade, particularly for
northeastern and coastal markets. In addition, Gazprom has been
actively promoting the 50 Bcm/y Power of Siberia-2 pipeline to
China. Non-Russian gas faces supply stability issues owing to
upstream development challenges, export policy, and pricing
considerations, but is crucial to regional supply security
including for markets along the West-East pipeline system for
Central Asian gas and the southwestern region for Myanmar's gas. In
the current IHS Markit current outlook, total pipeline imports will
reach 88 Bcm in 2025, up from 48 Bcm in 2020.
