Forget it, Vlad. It’s Chinatown

Moscow and Beijing did not sign a massive gas supply deal that envisages construction of pipelines and long-term delivery contracts at the economic forum in St Petersburg on 17 July. Hardly a surprise since Russian gas monopoly Gazprom and China National Petroleum Company (CNPC) have failed to agree on a price for gas deliveries from Russia to China. “The problem with China is very simple. China does not want to pay enough money for Russian gas and that is why, of course, China is not a comfortable substitute to Europe,” Konstantin Simonov, the General Director of the National Energy Security Fund in Moscow, told New Europe.

Chinese President Hu Jintao was in Russia for a four-day visit and had been expected to sign the gas-supply agreement with Russian President Dmitry Medvedev. Russian Prime Minister Vladimir Putin accompanied Hu on a visit to Gazprom’s Moscow headquarters on 16 June where the two men participated in energy talks.

While it would have been nice to sign the contract during the St Petersburg forum, time is on Gazprom’s side. “This is an excellent time for Russia to wait,” Simonov said, adding that China is in a very difficult situation now. China, already the second-largest economy in the world and still growing at a rapid pace, expects its gas consumption to rise significantly but there is no possibility to seriously increase domestic production, Simonov said. After the Fukushima plant disaster there will be an increasing of gas consumption in Japan. China and Japan will struggle for the same gas producers – for example Australia and Qatar. Moreover, the closing of nuclear stations in Germany and the last referendum against nuclear power in Italy are likely to increase the level of gas consumption in Europe. “Excellent news for Gazprom,” Simonov said.

For Russia, the gas deal offers a way to diversify beyond the European market. But Simonov said that Moscow’s real intention is to use the possibility of a deal as pressure against Brussels. “In my opinion this negotiation with China is like an attempt to press on Europe because during the last two years Europe was saying that the situation in European gas market is seriously changing: There is no need for Russian gas, there is gas-to-gas competition, they have LNG from Qatar, and they will have shale gas from Poland,” Simonov said. “Brussels tried to press on Putin and Gazprom. The position of Gazprom is very simple: ‘Okay, if you have no need in Russian gas we will give this gas to China.’”

As countries such as Germany cool toward nuclear power after Fukushima, Gazprom CEO Alexei Miller has sought prices equivalent to those his company receives in Europe. Gazprom said China should pay market prices for Russian gas. “We are speaking about our exports to China but for us European market is more interesting,” Simonov said. Under the deal, Russia is expected to supply 68 billion cubic meters of natural gas to China annually for the next 30 years. “If we sign this contract it will be impossible to find this gas, we will have a need to take some amount of gas from Europe,” Simonov said.

By Kostis Geropoulos

New Europe, June 19, 2011