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UPDATE 2-China confident of gas deal breakthrough with Russia
June 7, 2011 / 10:24 AM / 6 years ago

UPDATE 2-China confident of gas deal breakthrough with Russia

* China looks to settle price issue before Hu’s visit

* Hu has made expanding energy supplies a priority

* Gazprom says profits from China deal must match Europe (Adds details throughout)

By Chris Buckley

BEIJING, June 7 (Reuters) - China said on Tuesday it hopes for a “major breakthrough” in gas talks with Russia ahead of a visit there next week by President Hu Jintao, who has made securing energy for the world’s second biggest economy a diplomatic priority.

At a briefing in Beijing, Chinese Assistant Foreign Minister Cheng Guoping did not go so far as saying agreement was assured on pricing and other prickly issues holding up a final deal for Russian natural gas supplies.

But Cheng said he was confident, and noted that “the governments and companies of both sides have been actively engaged in work and negotiations”.

“Personally, I‘m confident that if progress is smooth, then it’s quite likely that in the near future, and even before President Hu visits, both sides will achieve a major breakthrough in cooperating over natural gas,” he told a news conference about Hu’s visit.

An agreement on the gas project would be a big trophy for Hu, who has courted Russia as one of the keys to greater energy security as heady economic growth increasingly forces China to look abroad for oil and gas.

Russia has been more coy about energy cooperation, despite Moscow and Beijing both proclaiming themselves to be steadfast friends.

Last week Russian Deputy Prime Minister Igor Sechin said Gazprom and CNPC , which control the two countries’ gas pipelines, had been tasked to prepare a package of contracts for signing before June 10.

Moscow has also said it wants to settle the long-discussed gas supply deal with China in time for the visit by President Hu, which fits in nicely with repeated promises to strike a deal around the middle of 2011.

The confident anticipation of a deal from both sides suggests they have bridged the divide over prices, which officials had long said was the main obstacle to a final deal.

AMBITIOUS PLAN

Hu will visit Russia later next week after visiting Kazakhstan for a summit of the Shanghai Cooperation Organisation, which brings together Beijing, Moscow and central Asian governments to help coordinate security and economic policy in that region. After visiting Moscow and St. Petersburg, Hu will visit Ukraine.

Prime Minister Vladimir Putin, who was then Russia’s president, launched the ambitious plan for an eastern gas pipeline network during a visit to Beijing in 2006.

The prospect of an eastern gas pipeline route, following a deal on an oil pipeline that is now up and running, offered Gazprom a big second market to counterbalance its supplies to Europe, which Putin worried had too much of a hold on Russian gas exports.

For China, imports of Russian gas will provide a further pillar to prop up its rapidly growing gas market, which is already attracting growing volumes of liquefied natural gas by ship and receiving Turkmen gas via a pipeline.

To keep supply ahead of demand, China is also investing heavily in developing its own gas deposits, including alternative sources such as shale gas and coal bed methane.

According to a joint document signed in October 2009, China should start getting gas through the Russian pipeline in 2014-2015. Sechin said last week that Russia would deliver 68 billion cubic metres a year for 30 years via two routes, one to the west of Mongolia and one down Russia’s eastern seaboard.

By comparison, Gazprom’s European exports are expected to be over 150 bcm this year and China’s pipeline from Turkmenistan, which began operating in late 2009, should be running at full throttle, 30 bcm, next year.

Gazprom said on Monday it would not accept lower profits on deliveries to China than those on sales to Europe. [ID:nLDE75519Q]

Gazprom CEO Alexei Miller said European customers would pay $500 per 1,000 cubic metres in the fourth quarter of this year, 42 percent more than it forecast in February. (Reporting by Sui-Lee Wee; Writing by Tom Miles; Editing by Ken Wills and Alex Richardson)

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