Russian Gas Won't Sate China's Massive Energy Appetite

Russia is scheduled to start sending China natural gas in 2018, but it's a drop in the bucket compared to the amount that China will need.

Aug 30, 2014 at 11:43AM

Russia's aggressive moves in Ukraine have led to some deals that might not have otherwise happened. One of the biggest being an agreement to send Russian natural gas to China. That gives Russia a market into which to sell gas if energy relations with Europe should become even more problematic. However, it's only a drop in the bucket for China, which needs roughly 10 times as much gas to satisfy its massive energy needs.

A deal made under pressure
After annexing Crimea, Russia has begun to push its luck with the rest of Ukraine. That's got the West more than a little bit upset. Although sanctions so far have been relatively light, they have targeted Russia's all-important energy industry. That sector alone accounts for about half of the country's federal budget revenues.

(Source: By "Myself", via Wikimedia Commons)

And Europe is a huge customer. For example, state controlled Gazprom OAO (NASDAQOTH:OGZPY) sells roughly half of its natural gas to Europe. For comparison, Russia accounts for about 30% of its sales -- making Europe more important than Russia to the company's top and bottom lines. So Russia's Ukrainian activities are a big deal for Gazprom, and Russia, should Europe decide to really inflict some pain.

That's why Russia signed a long stalled deal with China to supply the world's most populous nation with 1.3 trillion cubic feet of natural gas a year. The deal is worth roughly $400 billion, with the gas starting to flow in 2018. It's Gazprom's largest deal ever. And it's a lot of gas, but it pales in comparison to the amount that China actually needs.

A tiny deal
The U.S. Energy Information Administration, for example, projects that China's gas demand will more than triple by 2040. Russia's contribution to the natural gas pie in 2040? A touch over 7%. The EIA expects China's domestic production to increase by 6.3 trillion cubic feet.

So the Russian deal is clearly important for Russia, but it's less important for China. As an investor, you should probably look at other ways to play natural gas growth in China. For example, liquefied natural gas imports are expected to increase by 3.1 trillion cubic feet by 2040, expanding more than five-fold from today's 0.7 trillion cubic feet of supply entering the nation.


Source: EIA

This is one reason why U.S. LNG plays have such potential. A balanced way to get in on global LNG demand is Dominion Resources (NYSE:D), which has customers lined up for a planned LNG export hub and is well along the way toward export approval. Although the customers aren't Chinese, LNG demand from China should lead to supply constraints that will make toll-taker businesses like an export terminal highly valuable. It would ensure healthy demand, full utilization, and expansion potential. Meanwhile Dominion's other businesses provide a counterbalance should LNG demand not take off.

That said, a more direct play on Chinese gas supply is Halliburton (NYSE:HAL). The company recently formed a partnership with China's STP Energy Group. Halliburton will own 49% of the newly formed entity that's expected to explore for oil in the Xinjiang desert. This region holds roughly a third of China's unconventional energy reserves.

These unconventional reserves require expertise with hydraulic fracturing, and that happens to be a Halliburton specialty, particularly when it comes to water conservation -- a key plus when working in a desert. Although this deal isn't exactly huge, it gives Halliburton, and its shareholders, an important stake in supplying China's growing appetite for fuels like natural gas.

Russia ain't so big
When it comes to headlines, the Chinese/Russian natural gas deal was huge. However, when put into context, it's really not so big, at least for China. That's why you should consider other, more important sources of natural gas supply. Investing in a U.S. LNG export player should be a safe way to tap China's long-term gas demand, essentially taking advantage of the global impact it will have. However, buying Halliburton will provide direct exposure to Chinese unconventional resources, of which natural gas will be an increasingly important part.

Do you know this energy tax "loophole"?
You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Dominion Resources and Halliburton. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers