Price remains hurdle in talks to secure Russian natural gas

Expectations are high that years of negotiations will pay off with 30-year deal, Du Juan reports

Agreement is still to be reached on the price China will pay Russia for gas, a Chinese official said on Tuesday.

Domestic experts said the country's diversified energy import structure will be unaffected.

Russian President Vladimir Putin's two-day visit to China started on Tuesday. Expectations from both countries are high that about two decades of negotiations will supply China with 38 billion cubic meters of natural gas annually through pipelines.

Both sides are accelerating discussions, Foreign Ministry spokesman Hong Lei said.

Under the plan, Russia's top natural gas producer, Gazprom OAO, will agree with China National Petroleum Corp to begin supplies from 2018 via the eastern gas pipeline.

Imports will increase to 68 billion cu m when the infrastructure allows.

The deal would last for 30 years. Analysts estimate it is worth $400 billion.

Wang Xiaokun, an analyst at domestic commodities consultancy Sublime China Information Co Ltd, said price remains the core obstacle.

"China has stable natural gas supply from both pipelines and liquefied natural gas imports with a diversified structure," said Wang.

Russia is under the pressure of its growing friction with the West over Ukraine. China has remained neutral. Crimea, which was part of Ukraine, joined Russia this year.

"It is understandable that China wants the price to be lower," said Wang.

Sun Yongxiang, a professor with the Euro-Asian Social Development Research Institute of the State Council's Development Research Center, said the price will be about $380 per 1,000 cu m, which is closer to Russia's export price to Europe.

"The price is higher than we expected," he said.

Sun said he is positive on China and Russia's energy cooperation since the strategic partnership between the two has to be based on stronger ties, such as signing this deal which involves huge capital trading for decades to come.

"It is not surprising either way, whether Russia and China finally sign the deal nor not," said Chen Weidong, chief energy researcher at the CNOOC Energy Economics Institute.

He said in such a diversified energy market in the world, the geopolitical landscape has deeply changed and Russia's energy advantage is weakening.

"Energy cooperation is a business behavior," Chen said. "It requires fairness and mutual benefits, which leads to a sustainable partnership," Chen said.

The shale gas revolution made the United States the largest natural gas producer in 2012, according to the US Energy Information Administration.

Iraq's oil output has been increasing rapidly, which will bring stability to the world's energy market. According to the International Energy Agency, the country's crude oil output will double from the current 3 million barrels a day by 2020.

Iraq will replace Russia to become the second-largest crude oil exporter following Saudi Arabia by 2030, the IEA said.

China - the country with the biggest shale gas reserve in the world - is investing huge money on its shale gas development. "All those factors will gradually change the world's oil and gas structure with increasing supply," said Chen.

In addition, the increasing investment in the infrastructure to deliver liquefied natural gas will push the globalization of the natural gas trading, he said.

China, the world's second-largest economy with a huge appetite for energy, has already formed a diversified energy import structure, said Chen.

Wang with Sublime China Information said the pipeline natural gas imports accountfor about half of the country's total imports. "We have good relationship with countries in Central Asia which are increasing the gas supply to China," she said.

In 2013, China imported 24.7 billion cu m of natural gas from Turkmenistan which accounted for 46.48 percent of China's total imports.

As a natural gas-rich country, Turkmenistan plans to add an additional 30 billion cu m to China in the future.

Chinese companies have been working to increase supply. They sought acquisition of gas fields and cooperation with local companies in overseas markets, including Turkmenistan, Kazakhstan and Canada.

In 2013, Russia exported about 160 billion cu m of natural gas to Europe, accounting for 30 percent of the European Union's total gas imports.

Half of this supply was delivered through pipelines in Ukraine.

"As a country whose economy is highly dependent on energy exports, Russia's high dependency on a single regional buyer is not safe," said Wang.

According to Reuters, Gazprom dragged Russian stock indexes lower on Tuesday after a spokesman for President Putin told the press about the lack of a supply deal. Gazprom and Russian stock indexes rose in the past days on hopes of a deal during Putin's visit to China.

Contact the writer at dujuan@chinadaily.com.cn