China and Russia Fail to Reach Agreement on Gas Plan
Here is the opening for this interesting report from the International New York Times:
BEIJING — President Xi Jinping of China and the Russian leader, Vladimir V. Putin, were unable to announce an agreement on a natural gas deal on Tuesday, despite high expectations that mutual political interests would help finally push through the project.
Instead, commercial concerns continued to dominate — specifically, the price of the gas, which China and Russia have been haggling over for nearly a decade. After the meeting between the two leaders, Mr. Putin’s spokesman, Dmitri S. Peskov, said that talks were continuing.
According to Xinhua, the Chinese state news agency, after meeting Mr. Xi in Shanghai, Mr. Putin said, “I’m glad to be informed that the two sides have made significant progress in the price negotiation of the east route of the natural gas project.”
A joint statement said that Russian natural gas supplies would start flowing “as soon as possible,” a phrase used after many previous negotiations between Gazprom and the China National Petroleum Corporation, and an indication that the two sides could not close the gap on price in time for the two leaders to announce the deal at their meeting.
Energy analysts had predicted that there would finally be an agreement, partly because Russia might have been willing to accept China’s hard bargaining in order to diversify Gazprom’s natural gas sales into Asia and away from a stagnant market in Europe.
Some analysts believed that the countries’ political imperatives were also aligned. By this reasoning, China was willing to help Russia at a time of American and European sanctions over Ukraine, and China was interested in siding with Russia during a tense period in relations between Washington and Beijing.
“Given the political and commercial catalysts, this is a surprising result for everyone and for Gazprom,” said James Henderson, a senior research fellow at the Oxford Institute for Energy Studies in Britain. “There was an expectation that with Putin arriving in China and with the political issues with Europe — that would be the trigger to get it over the line.”
Mr. Putin had also been expected to agree to China’s demands on price in part because of the weak Russian economy. The International Monetary Fund projects Russia’s economic growth in 2014 will be 0.2 percent.
But China was in no hurry to sign a deal, said Shoichi Itoh, a senior analyst at the Institute of Energy Economics in Tokyo. “China already has enough gas from Central Asia, and now Myanmar, until the mid-2020s,” he said. “Unless Russia made a compromise on price, China has no reason to sign it.”
Putin’s position could be vulnerable and it will be interesting to see if China helps him to save face by agreeing terms that Russia can accept.
A gas pipeline to China would be an expensive project for Russia. Even if a deal is agreed, it would almost certainly be at lower rates than what Europe is currently paying. We can conclude from this that energy exporters no longer have the ‘take it or leave it’ power to control prices on their terms, especially for natural gas. However, prices for crude oil are likely to remain tight for a little while longer, depending on how quickly other countries develop their own reserves via fracking technology.
See also this informative column from the Daily Telegraph: Vladimir Putin faces giving ground in China to seal gas deal.Back to top