Keun-Wook Paik: Russia and China Moving Closer to Elusive Gas Deal
Mikhail Krutikhin: Are the Chinese coming?
Keun-Wook Paik, a senior research fellow at the Oxford Institute for Energy Studies, presented his new book, ‘Sino-Russian Oil and Gas Cooperation. The Reality and Implications’ in Moscow on May 21. Addressing an audience at the Institute of Global Economy and International Relations (IMEMO), he quoted his sources in Beijing and stated that a gas supply contract could be signed between Gazprom and CNPC before the end of the year.
He said officials of CNPC were incredibly excited about the perspective, ‘as they had never been before.’ The sudden enthusiasm, he added, was caused by a prospect of associating terms of the future contract with a big cash advance, a loan to finance the development of East Siberian gas reserves and a new pipeline from Yakutia to the Chinese border.
It might be the same sort of arrangement CNPC used for obtaining two long-term contracts for oil deliveries from Russia: one when Rosneft badly needed cash to pay for assets of dismembered Yukos in 2005; and the other one when Rosneft and Transneft were desperately short of cash in 2009.
Shortage of cash is exactly what Gazprom is suffering from even as President Putin keeps instructing the company to launch new super-expensive megaprojects. Upstream development on the Yamal Peninsula and on Sakhalin III; the Chayanda project in Yakutia and Power of Siberia pipeline system; an LNG plant near Vladivostok; expansion of the Nord Stream and construction of the South Stream; to say nothing of participation in financing the Olympic Games and other politicized projects… The company will have to double its capex for the next five years to be able to carry out all the orders of the national leader.
For the Chinese, it seems a perfect moment to jump out of the ambush they had been sitting in for almost a decade of negotiations on the Russian gas contract—and grab the prize.
Several factors are at work to make the agreement possible. Gazprom will develop Chayanda and build the pipeline regardless of costs and even without the contract because President Putin says so (while the capex is so large that payback might be unreachable.) However, domestic prices of gas in China keep growing, and the gap with the Russian idea of the supply price is narrowing. Besides, the Russians may begin with delivering wet gas across the border instead of pure methane, and the Chinese will get a premium of feedstock components for their petrochemical industry.
In early December, Deputy Prime Minister Arkady Dvorkovich admitted that the Russian government was actually considering the Chinese proposal of advance payments under the future gas supply contract.
The stage is set for a final move.
Our thanks to RusEnergy, an independent privately-run company established in 2000 by a group of Russian experts with a long experience in consulting and publishing business. Based in Moscow, it specializes in monitoring, analysis and consulting on oil and gas industry of Russia, Central Asia, Azerbaijan and Ukraine. RusEnergy is a Natural Gas Europe Media Partner.
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Keun-Wook Paik is Associate Fellow, Energy, Environment and Resources Programme, Chatham House & Senior Research Fellow, Oxford Institute for Energy Studies (OIES). Dr.Paik is the author of the recentlly published work Sino-Russian Oil and Gas Cooperation: The Reality and Implications.