China Rejects Gazprom Gas Deal:
China Rejects Gazprom Gas Deal
Yet another round of talks on gas exports from Russia to China has fallen through after China’s CNPC refused last weekend to buy fuel from Gazprom at more than $100/1,000 cu. meters, a Kommersant source reports. Selling gas at $100 would be unprofitable for Gazprom which plans to sell it at $125 on the domestic market after 2011. Industry experts say that the first gas will be sent to China no earlier than in 2014.
Russian gas monopolist Gazprom and China’s CNPC discussed possible gas sales at the International Economic Forum in St. Petersburg last Sunday.
The two sides did not reach a final agreement as the Chinese oil and gas corporation tries to negotiate a lower price while hoping to buy fuel from Sakhalin-1, according to Gazprom foreign relations director Stanislav Tsygankov. Gazprom confirmed the schedule and amount of gas supplies from Eastern and Western Siberia, Mr. Tsyganvkov said. “But we won’t be building or producing until a purchase agreement is signed,” he underscored.
Russia is to send 48 billion of natural gas through two gas pipelines to China after 2011, under the 2006 intergovernmental agreement. Talks on gas price were supposed to finish in 2005 when the Chinese were pushing for $70 per 1,000 cu. meters. More talks in 2006 did not bring any results either. It appears that negotiations have not advanced much this year. A Kommersant source says CNPC now would not like to pay more than $100 for 1,000 cu. meters. Gas accounts for as little as 2.5 percent in the country’s energy balance. What is more, several large gas fields have recently been discovered in northern China, which makes an agreement with Gazprom less urgent.
Industry experts note that Gazprom will not be gaining any profit, selling gas at $100 while domestic prices are to reach $100 to $125 per 1,000 cu. meters of gas in 2011. “Gazprom’s shareholders would feel very negative about the deal to sell gas at $100 to China while you can sell it at more than $200 in Europe,” says Valery Nesterov, an analyst with Troika Dialog. Economists at MDM Bank expect gas exports to China to start no earlier than in 2014 or 2015.