China and Russia close in on second major pipeline deal, writes Russian InterFax. Russia has signed a preliminary agreement with China to supply gas along the ‘western route’ from the region in Siberia that supplies Europe. The G 20 Economic Global Meetting in Australia, might push the Russians towards more Economic cooperation with The Peoples Republic of China. President Xi Jangping and president Vladimir Putin will move the Economic BRICS-growth to Mosco during Xi`s visit in Moscom next May, writes Nordic News.
China National Petroleum Corp. (CNPC) Chairman Zhou Jiping and Gazprom Chief Executive Alexei Miller signed a memorandum of understanding (MOU) and a framework agreement in Beijing recently, as part of a package of energy agreements between the two countries. Chinese President Xi Jinping and Russian President Vladimir Putin brokered the deal just a day before United States President Barack Obama arrived in the Chinese capital for a meeting of world leaders. Moscow has drifted closer towards Beijing’s orbit since the Crimea crisis in March plunged Russian relations with the West to their lowest level since the Cold War.
Eastern Route
The MOU comes less than six months after Beijing and Moscow struck a $400 billion deal for Gazprom to pump 38 billion cubic metres of gas annually to China for 30 years along the ‘eastern route’, beginning in 2018 (see The deal heard round the world, 21 May 2014).
-Under these accords, the western route is becoming our priority gas cooperation project, Miller told reporters in Beijing on Sunday. He said the documents listed the main terms for deliveries along the route and that further steps have been outlined, such as the signing of a sales contract and of an intergovernmental agreement the Altai route
Deliver Gas Eastwards
Gazprom said in a statement it is discussing deliveries of 30 bcm/y from fields in west Siberia to China’s western flank of Xinjiang along the route of the Altai pipeline. A Russian diplomatic source in China, who spoke on condition of anonymity, told Interfax the purpose of the MOU was to show the willingness of both parties to speed up the completion of the final contract before the end of this year. The source added it was doubtful the contract would be signed by then. -However, the certain thing is that negotiations this time will be less complicated and could make use of some items on the eastern line contract, the source said.
Gazprom and CNPC
Moscow may also be calculating that the announcement of the MOU will show the US and Europe that talks over the western route are nearing completion. CNPC and Gazprom started discussions just days after signing the contract for eastern supplies in May (see Western route to China the holy grail for Moscow, 25 September 2014). But initial optimism that a deal could be done quickly dissipated after Chinese Premier Li Keqiang departed Moscow last month without making progress. Observers now expect an agreement in early 2015.
May agreement
-I expect the final contract will be signed during President Xi’s visit to Russia next year, probably in May, said Wang Haiyun, director of the Energy Diplomacy Research Centre at the China Foundation for International Studies. That would give CNPC and Gazprom enough time to resolve remaining differences, Wang told Interfax. Other factors will drive Beijing and Moscow to strike a deal sooner rather than later. At stake for China is social stability, as public anger has spiralled over air pollution caused by decades of coal burning. Boosting the supply of cleaner-burning gas could help wean China off its unhealthy dependence on coal.
One third of Delivery
The conclusion of the western route would see Russia pump up to 68 bcm/y to China by the middle of the next decade. That would be more than a third of the 192.5 bcm of gas CNPC expects China to consume this year through domestic production and imports. Miller said at the press conference that China would not make an advance payment for the eastern route of $25 billion. “We held negotiations [with China] – we had an advance payment as an element of negotiations on the price,” he said. “But considering that we reached a final agreement on the price, we’re not considering the possibility of raising an advance as a financial instrument to further reduce the price.”
Quick Return on Investment
The advanced payment plans helps protect the Russian company’s pricing power and may force it to concentrate on projects with the quickest return and lowest execution risks, analysts at Moscow brokerage Otkritie said in a note. Miller said a third pipeline is being considered to replace plans for an LNG plant at Vladivostok. Gazprom has received a proposal from the Japan to build a pipeline to the country and to participate in gas and electricity distribution, he said. Miller and China National Offshore Oil Corp. Chairman Wang Yilin also signed an MOU on cooperation in the oil and gas sector, reports Interfax.
