‘Strategic outlook needed’ for gas talks

BEIJING – Negotiations on China-Russian natural gas cooperation need a strategic outlook to ensure a breakthrough in the upcoming rounds of talks, according to analysts.

Talks between Russian gas giant Gazprom and China National Petroleum Corporation (CNPC) have lasted for five years without reaching a final agreement, deadlocked by differences over pricing, sources said.

Russian news agency Interfax reported that Deputy Head of Gazprom Alexander Medvedev will visit Beijing this week for another round of negotiations with CNPC.

Citing an unnamed source with CNPC, Interfax said it’s unlikely that the sides will be able to sign a contract by the regular meeting of the two countries’ prime ministers in the fall.

“There can hardly be any breakthrough if there is no strategic thinking, especially in cooperation on energy resources like oil and natural gas,” Xing Guangcheng, an expert on Russian studies at the Chinese Academy of Social Sciences (CASS), told a forum attended by Russian and Chinese scholars and diplomats in Beijing earlier this month.

A widely expected deal failed to be reached by the middle of June, when President Hu Jintao made a state visit to Russia.

Despite the political will of the two countries’ leaders, sources have said the prices cited by the two companies have differed by as much as $100 for 1,000 cubic meters of gas.

Feng Yujun, head of Russian studies at the China Institutes of Contemporary International Relations, said a “multi-step process” had a greater chance of achieving progress.

Gazprom has been insisting that China’s prices should be on a par with those in Europe. According to Feng, the gap between China’s natural gas price and the international level will take time to be narrowed.

“Let’s say, China’s natural gas price has to stay at this level for now, but it is possible to reach another level in a few years’ time,” said Feng.

“If we both accept such a ‘multi-step process’, we may achieve more breakthroughs in the negotiations.”

Russia also has concerns over how much natural gas China actually needs from it, considering the scale of growth of China’s natural gas consumption and its imports from other countries.

Gazprom and CNPC signed a framework agreement in 2009, under which Russia will supply China with 68 billion cu m of gas annually over the next 30 years starting in 2015.

According to a CNPC report earlier this year, China’s consumption of natural gas may rise to 230 billion cu m in 2015 from 130 billion this year.

Russia is seeking to diversify its energy trade away from its core European markets.

Meanwhile, China has been deploying four strategic channels to secure its sources of oil and natural gas, according to Wu Hongwei, a researcher with the Institute of Russian, Eastern European and Central Asian Studies of CASS.

Construction of the China-Myanmar oil and gas pipeline is due to finish in 2013, which will be the fourth way for oil and natural gas to enter China, after ocean shipping, the Sino-Kazakh pipelines and the Sino-Russian crude oil pipeline.

“Some Russian experts have talked about the possibility that if the Russia-China cooperation on natural gas doesn’t go well, Russia may be excluded from China’s natural gas market,” said Wu.

“However, though China has invested a lot in natural gas and has a very complete plan for energy resources, China is, after all, a very big and stable consuming market. If China-Russia natural gas cooperation goes well, both sides will benefit,” said Wu.

When the natural gas supply is bigger than China’s consumption demand, the price that the Russian side insists on will not be an attractive one, said Andrei Ostrovsky, deputy head of the Institute of Far Eastern Studies at the Russian Academy of Sciences.

“Our gas negotiators say we can still wait. Yes, we can. But we may also well lose the opportunity,” said Ostrovsky.

In late June, Gazprom CEO Alexey Miller said the company was “completely ready” to start the construction of a natural gas pipeline to China, but did not mention the estimated costs of the project, according to RIA Novosti news agency.

It was earlier reported that Gazprom may begin the construction this summer.

An initial agreement was signed between Beijing and Moscow in 2006 over the construction of the Altai pipeline system to China.

Source: China Daily

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