China stumbles in forging Russia gas deals

China is a power behind global commodity flows as well as prices. But Beijing has been slow to understand that it is the horse that pulls the cart; the whip hand belongs to the coachman.

Chinese negotiators have already made one colossal mistake in pricing their supply of liquefied natural gas (LNG). They are making a second in trying to draw out of Russia a discount for natural gas. For China to insist on tying Gazprom down to the extraction cost of Siberian gas – at a fraction of the price Gazprom sells its gas to Western Europe – is producing an impasse in current negotiations and slowing down Russia’s readiness to

invest in the pipeline systems, on which Chinese calculations depend.
President Dmitry Medvedev visited China last month. Ahead of the visit, he was reported as cautioning that Russian plans to export natural gas to China were under way, but that “technological details are still being discussed” and “negotiations were ongoing to finalize the price formula of Russian gas supplies to Chinese consumers”.

Gazprom’s press office was asked if this was a hint of an obstacle or of progress in the negotiations, which have been going on now since March 2006, when Gazprom chief executive Alexei Miller and Chen Geng, then head of the China National Petroleum Corporation (CNPC), signed a memorandum of understanding for the delivery of natural gas to China. CNPC is a state enterprise; since 1999 PetroChina has been its publicly listed shareholding arm, holding most of the CNPC’s gas operations. “We don’t disclose what we have agreed on,” Gazprom’s spokesman said – nor, he implied, what the two sides continue to argue over.

A communique issued on May 27, following talks in the joint working group of Gazprom and CNPC, claimed the group had “considered the progress in the commercial talks as part of the Project on natural gas supply from Russia to China”. It avoided saying the talks had achieved any progress.

Asia Times