China and Russia Circling Around Trillion-Dollar Gas Deal

Hu Jintao’s visit to Moscow this week saw a push to conclude a gas deal between the world’s largest energy producer and its largest consumer. The 30 year deal, potentially worth a trillion dollars, would see up to 70 billion cubic metres of gas piped to China each year from fields in Siberia.

For the Associated Press, the glass was half empty, with the deal “postponed”; for Reuters, it was half full, with the two parties “edging closer” to an agreement. From the latter:

An agreement on the gas project would be a big trophy for Chinese President Hu Jintao, who has courted Russia as a way of boosting energy security as robust economic growth increasingly forces China to look abroad for oil and gas.

For Russia, the deal offers state-controlled gas export monopoly Gazprom an alternative market, assuaging Prime Minister Vladimir Putin’s concern of over-reliance on European customers ….

Negotiators for China National Petroleum Corp (CNPC) have signaled they will pay no more than $250 per thousand cubic meters, sources at Gazprom said on Wednesday.

Russia’s gas export monopoly is still targeting a price that will make deliveries to China as profitable as those to their European clients, who Gazprom says will pay $500 per thousand cubic meters in the fourth quarter of this year.

From the Associated Press:

China, which currently buys piped gas from ex-Soviet Turkmenistan and Kazakhstan and also gets liquefied natural gas from Australia and Yemen, wants a significantly lower price.

Also Thursday, Deputy Prime Minister Igor Sechin said Rosneft, the country’s largest oil company, will boost crude oil deliveries to northeast China via a 4,000-kilometer (2,500-mile) pipeline. The pipeline, which went into operation this year, can currently carry 15 million tons of oil a year, but its capacity can be eventually increased to 50 million tons a year.

Sechin also said that Russia will ship 12 million tons of coal to China this year, Interfax reported ….

Past energy negotiations between China and Russia often have snagged on disagreements over prices, loan terms and other issues, including Beijing’s desire for equity stakes in Russian resources. Like China’s own state-run companies, Russia balks at ceding any control over what it views as strategically vital assets.

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