Failure of Russian/Chinese negotiations on gas contract

2011/07/04

Failure of Russian/Chinese negotiations on gas contract

Contrary to earlier announcements from Russia and China during President Hu Jintao’s visit to Moscow and St. Petersburg on 16-17 June, no contract to supply Russian gas to the People’s Republic of China was concluded. The main obstacle remains their failure to agree on prices for the gas. Despite the failure of the negotiations at this point, it is in both parties’ interest to sign a long-term contract on supplying Russian gas to China, and so it seems that the finalisation of such an agreement can only be a matter of time.

Russian/Chinese gas negotiations have been underway since 2004. Expectations of a prompt signing of the deal rose in February 2011, after Gazprom announced that it had agreed quantitative parameters and a mechanism for establishing gas prices with the Chinese corporation CNPC. However, it turned out that the parties were still unable to agree on a price. Gazprom expects CNPC to pay a price close to that which customers in the EU pay for Russian gas; for its part China expects a significant reduction. The Russian company claims that the gas contract will be signed by the end of this year. Gas consumption in China is indeed rising fast, but in connection with the planned increase in imports from Central Asia (a new agreement between China and Turkmenistan to supply an additional 20 billion m³ of gas per year is being drawn up), Beijing is under no pressure to sign the agreement quickly, something which has made its negotiating stance tougher.
Although no gas contract was concluded, both countries ostentatiously stressed the good state of their mutual relations, as symbolised by the signature of an agreement concerning accountability in the trade in national currencies.

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