Russia, China in gas price stalemate

When I started writing this column six years ago, negotiations on sales of Russian gas to China was a key issue in energy relations between Moscow and Beijing. But the two sides have repeatedly failed to reach a final agreement on gas supplies amid disagreement over price.

On 6 December, Russian Prime Minister Dmitry Medvedev met his Chinese counterpart Wen Jiabao in Moscow. However, officials from both countries appeared to make little progress on the price and route of Russian natural gas deliveries to China.

“Neither side has shown the flexibility that is needed to make these gas sales actually happen,” Julian Lee, senior energy analyst at London’s Centre for Global Energy Studies (CGES), told New Europe. “I’ve been hearing since 2006 that a deal on gas sales is imminent. Six years on, we are waiting for it,” he said.

Europe remains the main market for Russian gas. On 6 December, Konstantin Simonov, head of Russia's National Energy Security Fund (NESF) in Moscow, told New Europe that the main driver in Russia’s negotiations with China is still the position of the European Union. The EU has called for gas-to-gas competition and has launched an anti-trust probe into Russian gas monopoly Gazprom. “The European Union is trying to press Russia with the idea of diversification,” he said. “So Mr. [Russian President Vladimir] Putin is trying to find an answer to this challenge. And a very simple answer is: ‘If you don’t want to buy our gas, we’ll give it to China,’” Simonov said, adding that the gas fields in Western Siberia, including Urengoy, are the resource base for Europe. “With the help of Altai pipeline it’s the easiest way to show to Europe that we really can sell this gas to China,” he said.

In the context of the Chinese Premier’s visit to Russia on 6 December, Gazprom Chairman Alexey Miller and China National Petroleum Corporation (CNPC) President Zhou Jiping confirmed their interest in the Altai project, which envisages building a gas pipeline to supply natural gas from fields in Western Siberia to China via the western part of the Russian-Chinese border. But Gazprom noted that the Altai pipeline construction will start only after a gas purchase and sale agreement is inked with the Chinese side.

I wouldn't hold my breath on a price deal though. Simonov noted that in the western half of China there is no shortage of gas and its economy lags behind the coastal regions of eastern China. “For Russia there is no commercial need to build this pipeline. There is only political need. That is why we don’t want to give discounts to China and China also doesn’t want to give in this process of negotiations,” Simonov said. “Speaking about economy, in my opinion there is no need to build the Altai pipeline,” he said.

He said Russia and China should begin negotiations about the price of gas from East Siberia. Gazprom has announced plans to begin the construction of a gas pipeline from Yakutia to Vladivostok. Simonov said the more logical step is to sell gas to eastern China. “Maybe with the help of this pipeline we can have some breakthrough with China.”

By Kostis Geropoulos

NE, December 9, 2012