Russian natural gas deal edges toward conclusion

BEIJING - Long-stalled negotiations between China and Russia on pipeline gas are expected to conclude before the end of this year, as the price gap has narrowed after several rounds of talks, industry experts said on Wednesday.

"Both sides are very upbeat on the natural gas cooperation, even though the price differences are still there," said Pang Changwei, director of the Institute for International Oil Politics at the China University of Petroleum in Beijing.

He said that an agreement would be reached before the end of this year, after Russia's parliamentary election in December.

"The latest information shows that the wide price gap has narrowed, which will push forward the negotiations," he said, without giving specific figures.

China and Russia reached an initial agreement as early as 2006 during then-Russian president Vladimir Putin's state visit to China, under which Russia promised to supply 68 billion cu m of natural gas annually for 30 years from eastern and western Siberia through two pipelines.

The price disparity has held up talks for years, however, and even President Hu Jintao's state visit to Russia in June, during which an agreement was widely expected, didn't result in a final deal.

"The final decision may be made during the Russian prime minister's visit to China in late October. He is the key figure to propel the deal from the Russian side," a source close to the situation told China Daily on condition of anonymity.

There has been no official confirmation from the Ministry of Foreign Affairs that Putin will visit China at that time.

But Cheng Guoping, assistant foreign minister, said in July that he was optimistic that the natural gas deal could be finalized ahead of Putin's state visit to China, scheduled for the fourth quarter of this year, according to Xinhua News Agency reports.

The latest round of natural gas talks finished in late July between the Russian gas giant Gazprom and China National Petroleum Corp (CNPC), China's biggest energy company. No official information about the negotiations has been revealed so far.

Gazprom in early July demanded a $40 billion advance payment from CNPC for the natural gas deal, which was deemed by the Chinese side to be an unreasonable demand that doesn't meet international practices.

"Natural gas cooperation has huge risks from cross-border infrastructure construction to domestic pipeline network development. We're even not sure where is the gas source in eastern Siberia," Pang said.

However, the Russian side questioned the natural gas market in China, where gas prices are much lower than international levels, a situation that has led to huge losses for domestic importers.

China's natural gas market is far from mature, said Igor Tomberg, head of the Center for Energy and Transport Research of the Russian Academy of Sciences' Institute of Oriental Studies, speaking in Russian through an interpreter.

"The era of cheap natural gas has gone," said Tatiana Mitrova, expert of the Institute for Energy Studies of the Russian Academy of Sciences, also via an interpreter.

She added that natural gas buyers, such as China, should evaluate domestic market demand and global price trends.

It's necessary for China to have natural gas pricing reform to make better use of the less-polluting fossil fuel, Pang said, adding that this would be a long procedure, particularly when domestic inflation remains high.