Gas pipeline from Russia to China “sure thing” for 2014

While China has struck other big energy deals with Russia recently—with Russia’s largest oil producer Rosneft and Russia’s second-biggest natural gas producer Novatek—the world’s largest gas company and by far the biggest company in Russia, Gazprom, has been left out in the cold.

If a deal goes down, the price of the gas—which has been the sticking point the whole time—will be between US$10 and US$11 per thousand British thermal units, about the same as it costs in Europe, Chinese and Russian sources revealed to the Financial Times. This represents a compromise by China, which had insisted on a lower price close to the US$9 per thousand BTUs that it pays for its piped gas from Turkmenistan.

“Price talks have become less difficult for Gazprom now that LNG prices are high,” Julia Pribytkova, a gas analyst at Moody’s in Moscow, told FT.

Big banks also believe the Gazprom deal is inevitable this year, something the company has been after for more than a decade.

“We believe the deal with Russia is imminent,” said Artem Konchin, a JP Morgan analyst.

Credit Suisse analyst Ilkin Karimli agreed, “We expect a contract with China to be signed some time in 2014.”

President Xi Jinping’s announcement Monday that he will attend the opening ceremony of the Winter Olympics in the Russian city of Sochi could be a tacit gesture of support.

Chinese Foreign Ministry spokesman Hong Lei said this was the first time a Chinese leader had attended such a major sporting event overseas, and was a sign of the country’s close ties with Russia. Xi is expected to be in Russia from February 6-8.

“Mutual support is an important feature of China and Russia’s strategic cooperation,” Hong said, adding that Vladimir Putin had attended the Beijing Olympics in 2008.

Xi’s decision to attend is a positive development for Putin, after U.S. President Barack Obama and his German counterpart Joachim Gauck both said they would not travel to Russia for the Games, said Reuters.

In another sign of cooperation, China and Russia also agreed to conduct joint naval exercises in the Mediterranean.

“Key elements of the Russian-Chinese maritime exercises will be the practice of elements of operative interaction, deterrence of contemporary terrorist threats and joint maritime rescue operations,” the Russian Defense Ministry said.

On January 7, both countries escorted the first consignment of Syrian chemical weapons materials that has left the country on a Danish ship.

According to Chinese State Councilor Yang Jiechi and Secretary of the State Security Council of the Russian Federation Platonovich Patrushev, 2013 was “a year of harvest” for Sino-Russian relations.

On the eve of a 2013 state visit to Moscow by Xi, Putin remarked that the two nations were forging a special relationship.

Despite frequent declarations of goodwill and bilateral energy cooperation, Chinese-Russian energy relations since 1991 have been limited by mutual suspicions, pricing concerns, inadequate transportation infrastructure, and competition for influence in Eurasia.

That said, should China finally sign-off on the natural gas pipeline deal, Sino-Russian relations will be rock solid.

For the West, with most countries coming off a year of new lows for China relations, that’s not the best of news.

The US, for example, has natural gas reserves it also wants to sell to China.

More importantly, the prospect of China and Russia working together could make the US “pivot” or “rebalancing” to Asia ineffective, as The Diplomat notes, “by enlarging the spatial scope of US security responsibilities and further stretching its military’s diminished resources.”


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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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