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Development of Russian-Chinese energy talks

Russian state authorities represented by Igor Sechin, the chief negotiator with China, have declared about settlement of a Russian-Chinese conflict around oil supplies. The PRC has started paying off debts to Rosneft and Transneft for the oil delivered through ESPO. If all disagreements on oil are eliminated, there will be an opportunity to agree on gas prices by the St. Petersburg Economic Forum. The Russian side promises that gas will be supplied in the period of 30 years at least and Chinese credits in this case allegedly will not be part of agreements, i.e. they will not oblige Gazprom to stick to strict conditions of the scheme that was stipulated in the accords signed by Rosneft, Transneft and CNPC. Russian authorities also do not rule out that China may take part in gas production in Russia.

However, in reality it is still quite a long way to settling disputes on oil and gas. There is information that CNPC has not fully paid off the debts to Russian companies yet. According to the Chinese side, the complete settlement of accounts is possible only if it is provided a discount taking into account the so-called transportation coefficient “T” that influences the price of oil transportation depending on the transportation distance. In fact they demand a new accord on ESPO from Russia or its new interpretation, which is almost the same.

The situation around gas is even more complicated. Gazprom does not demonstrate readiness to provide large discounts to the PRC compared to European prices, which is quite understandable. The EU demand for Russian gas (actually an alternative buyer) is likely to increase due to unrest in the Middle East and dissemination of anti-nuclear sentiments after the Fukushima accident.

By Stanislav Mitrakhovich, NESF leading expert

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