Wednesday, May 21, 2014

China-Russia natural gas deal on the way

Russia has agreed to "finalize" a prolonged negotiation on natural gas with China in a meeting between the leaders of the two countries on Tuesday.

According to a joint statement, the two countries will "establish a comprehensive energy cooperation partnership". The deal is still pending, despite of the huge progress claimed in the protracted negotiation. Sinopec, China's top oil refiner, signed a framework agreement about the east route of the natural gas project with Russia's Gazprom, the world's largest gas company, in September of 2013.

The east route pipeline is scheduled to start providing China with 38 billion cubic meters of natural gas annually from 2018. Feng Yujun, an expert on Russia with the China Institute of Contemporary International Relations, said that the key hinderance is price.

"Whether the natural gas price will be linked to the oil price or to liquefied natural gas (LNG) is still not settled," Feng said.

Liu Yijun, professor with China University of Petroleum, believes the deal will affect the pricing systems of other projects in the Asian-Pacific region. "The huge supplies from Russia and vast demands from China do not make for a quick and easy agreement," Liu said.

Natural gas has become an important option for China's sustainable development. Consumption of natural gas stood at 167.6 billion cubic meters in 2013, up 13.9 percent year on year, while the natural gas imports rose 25 percent from a year ago.

The new popularity of shale gas has reduced Russia's exports to Europe, which forced Russia turned its strategy to the Asian-Pacific market.

Chen Weidong, senior energy researcher with China National Offshore Oil Corporation, said that the global energy structure is changed as the United States became a natural gas exporter, Iraq saw larger oil production and China stressed development of shale gas and coal bed gas.

Liu suggests a new cooperation method rather than being entangled in the pricing mechanism, such as exploring breakthroughs from the entire industry chain.

"The energy partnership reflects the wishes for energy cooperation," Feng added, "but the final price will be determined by the market." 


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