Moscow and Beijing have reached a political understanding for Russian gas giant Gazprom to supply gas to China and the agreement will be signed once the contract details are settled, sources close to Gazprom told New Europe on 11 February.
Russian President Vladimir Putin met his Chinese counterpart Xi Jinping in Sochi on 6 February before the official opening of theWinter Olympic Gamesin the Black Sea resort.
“In fact, the project has had its political ‘blessing’ already, and what is being discussed now are the contract details, including those on pricing issues. The contract will be signed once all the details, including the technical ones, are settled,” the sources told New Europe.
Experts assume that Gazprom would do its best to try and get the final draft by May so that Putin can sign it during his planned trip to the Asian country.
In January, Gazprom Chief Executive Officer Alexey Miller met with China National Petroleum Corp (CNPC) Chairman Zhou Jiping in Beijing.
Gas price remains a main obstacle as the two countries negotiate a natural gas supply deal. Gazprom has sought a breakthrough in talks on building a pipeline to China, the world’s biggest energy consumer, for more than 15 years. The two state-controlled energy giants signed the first framework accord in 1997, with talks stalling since over prices.
Alexei Kokin, a senior oil and gas analyst at UralSib Financial Corp, toldNewEurope on 11 February that if Gazprom manages to secure a deal based on the European price it will be a success.
Pipeline gas is different from liquefied natural gas (LNG) and there is not much certainty over this gas market seven-eight years from now, he said, adding that the Chinese are increasingly cautious and noncommittal. “China is less ready to commit itself to large purchases at a price that would be tied to Europe which is not really China’s reference market. So it’s understandable,” Kokin said.
Regarding the oil agreement reached between China and Russia, he explained that oil is a different commodity and China doesn’t have that much leverage over pricing. “China is very much interested in making sure that physically there is no shortage of crude pumped via the pipeline so they were quite happy to give the pre-payment to Rosneft,” Kokin said.
Meanwhile, the UralSib expert said that a potential gas deal between Russia and China would not affect Gazprom’s gas supplies to Europe since East Siberian gas and Sakhalin gas are sources that would never reach Europe.
“I think, at least in the short term, there is not going to be much competition as far as pipeline gas goes because Gazprom has some spare capacity in the existing system and the East Siberian gas and Sakhalin gas is naturally destined for China rather than Europe,” Kokin said.
But Gazprom faces mounting international and domestic competition in the LNG market. New supplies are expected to come on stream over the next decade from Australia, the US, Canada, and offshore east Africa. All these projects are aimed at Asian demand.
On the domestic front, recent moves in Moscow have put pressure on Gazprom from state-controlled Rosneft and independent producer Novatek. The gas export liberalisation bill signed in early December breaks Gazprom’s longstanding monopoly on LNG exports. Rosneft and Novatek are eager to secure contracts with energy-hungry Asia-Pacific consumers, especially China. Novatek recently reached an LNG supply deal with CNPC, which allows it to go ahead with its Arctic Yamal LNG project.