Sunday, 27 November 2011

China gas deal sidelines Russia

Russia’s position in long-standing gas negotiations with China was delivered a new blow this week when China signed an agreement with Turkmenistan to increase natural gas supplies from the Central Asian country.

The agreement, signed between the presidents of the two countries on Wednesday, will more than double the gas stream through the Turkmenistan-Uzbekistan-Kazakhstan-China gas pipeline in 2012.

Reserves in Turkmenistan’s core gas field, Southern Iolotan, were recently estimated to be the second biggest in the world, with an capacity of some 13-21 trillion cubic meters (cm).

Under the deal, Turkmenistan will supply China with some 65 billion cubic meters of natural gas a year by 2014-2015, three times current volumes, the Kommersant business said on Thursday.

Russia has been negotiating a gas supply contract to China, the world’s biggest energy consumer, for five years but the sides have been unable agree on pricing.

Sources close to Wednesday’s talks told Kommersant that Turkmenistan agreed to supply gas to China for $250 per 1,000 cm, a $150 discount on Russia’s asking price.

“The deal will decrease Gazprom’s negotiating power – it will have to continue negotiations with China under less favorable conditions,” said Elena Savchik, an oil and gas analyst at Aton investment bank.

“From China’s point of view, signing a deal with Turkmenistan is a good way to push its terms to Russia and prove they have other suppliers” she added.

China has invested some $4 billion in the development of the Southern Iolotan field and says it will continue to invest further to secure its hold on supplies from Turkmenistan.

“Beijing does not want Turkmenistan to build a pipeline to the European Union, get a different gas price on the European market and then increase it for China…Beijing will do its best to make sure the Transcaspian pipeline project is not developed,” a Chinese diplomat said.

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