FACTBOX: US sanctions on Myanmar, Russia pose risks to Asia's gas and LNG supply

In a span of three days, two sets of US sanctions have impacted gas and LNG projects that expose Asian importers to supply risks.

On Oct. 31, the US Department of the Treasury's Office of Foreign Assets Control (OFAC) published a new directive that prohibits US persons from providing certain financial services to Myanma Oil and Gas Enterprise (MOGE) aimed at cutting revenue flows to the military regime.

The sanctions on MOGE prevent importers of Myanmar's oil and gas – mainly Thailand and China -- from making payments in US dollars through conventional banking channels linked to the US financial system, according to legal experts. It also threatens to choke future gas developments in Myanmar.

On Nov. 2, the OFAC imposed sanctions on Russia's Arctic LNG 2 project to cut off new fossil fuel revenue streams to Moscow. The LNG project was expected to start operations in coming months and its customers in Asia include gas companies in Japan and China.

Prices

• Platts, part of S&P Global Commodity Insights, assessed the December JKM at $15.541/MMBtu Nov. 9, down 8 cents/MMBtu on the day. JKM had reached $19.1/MMBtu on Oct. 18, its highest value since January 2023.
• Asian spot LNG prices are forecast to average just over $19/MMBtu for the balance of winter (December 2023–March 2024 delivery), according to S&P Global's November LNG price outlook.
• The global LNG market is expected to remain relatively tight until the next large wave of new liquefaction capacity in 2025–26, and market conditions are expected to loosen in the late 2020s, according to S&P Global research.

Trade Flows

Myanmar to Thailand/China

• Myanmar's domestic gas production averaged 1,612 MMcf/d in 2022 out of which around 1,070 MMcf/d, or 66%, was exported to Thailand and China via pipelines, according to S&P Global data. The country's gas production has been relatively stable at around 1,650 MMcf/d over the past five years. In 2022, Myanmar's pipeline imports split between China (35%) and Thailand (65%).
• In 2022, Thailand's total gas demand was 4,274 MMcf/d out of which 22% was from LNG and around 16% from Myanmar pipeline gas, according to the official data. For China, Myanmar accounts for around 1% of total gas consumption and 6% of total pipeline gas imports.

Russia to Asia

• In 2021, before official data was restricted, Russia was the third-largest natural gas supplier to China, including both pipeline gas and LNG, accounting for around 10% of China's total gas imports of 121 million mt.
• In 2022, around 59% of China's total gas imports were seaborne LNG, and around 11% was pipeline gas from Russia. Russia was China's fourth-largest supplier of LNG in 2022, accounting for around 11% of the country's total LNG imports.
• Russia was the fourth-largest LNG exporter in the world in 2022 at around 33 million mt after Qatar, Australia and the US, and only slightly ahead of Malaysia. Its largest customer was Japan, followed by China, France, Belgium, Spain and South Korea. China's share has gone from 3% to 18% in a span of five years.

Infrastructure

• Myanmar's four largest gas fields are Yadana, Yetagun, Shwe and Zawtika and state-owned MOGE has a share in each project via joint venture.
• Before the 2021 military coup, international oil and gas companies in Myanmar included Thailand's PTTEP, TotalEnergies, Chevron, Petronas, Japanese consortiums, POSCO, Kogas, Woodside Energy, India's ONGC and GAIL. Most of them have gradually exited in recent months.
• Arctic LNG 2 has three LNG trains of 6.6 million mt/year each, scheduled to start production in 2023. Russia's Novatek has a 60% stake in the project, France's TotalEnergies (10%), China's CNPC (10%), China's CNOOC (10%) and a consortium of Japan's Mitsui and Jogmec -- called Japan Arctic LNG – has 10%.
• In April 2019, Novatek announced two deals with China -- state-owned CNOOC acquired a 10% interest in Arctic LNG 2 project and CNODC, a subsidiary of China National Petroleum Corp. (CNPC) acquired a 10% interest.
• Novatek has signed offtake agreements from Arctic LNG 2 with several second-tier Chinese energy companies. On Feb. 25, 2021, Novatek Gas & Power Asia, and China's provincial government owned Shenergy Group signed a 15-year LNG SPA for more than 3 million mt of LNG produced from Arctic LNG 2 on a DES basis.
• On Dec. 2, 2021, Novatek Gas & Power Asia and local state-owned Zhejiang Hangjiaxin Clean Energy signed a framework agreement to ship LNG to the Hibiki LNG receiving terminal, owned by Saibu Gas in Kyushu, Japan. Hangjiaxin will then ship the LNG to its Jiaxing LNG terminal in eastern Zhejiang province using small and medium-sized LNG vessels.
• On Jan. 11, 2022, Novatek Gas & Power Asia and Zhejiang Energy Gas Group, a subsidiary of Zhejiang Provincial Energy Group, signed a 15-year LNG SPA for up to 1 million mt/year LNG from Arctic LNG 2 on a DES basis to Zhejiang Energy's LNG terminals in China, following an earlier heads of agreement.
• In 2019, state-owned Sinopec, Novatek and Gazprombank signed a heads of agreement to set up a joint venture to market LNG and natural gas to customers in China. The venture was approved by the European Commission in March 2020.