Talks stall on gas line between China and Russia

PUBLISHED : Wednesday, 29 July, 2015, 2:20am
UPDATED : Wednesday, 29 July, 2015, 2:20am

Talks on a new deal to supply natural gas from Russia to China have stalled due to differences on pricing and disagreements over the construction of a pipeline, according to Russian media.

It would be a long time before the two countries resume talks on the mega deal, which would direct as much as 30 billion cubic metres of gas a year from developments in western Siberia to the mainland over 30 years, analysts said.

Shanghai-based portal Guancha.cn citing Russian media including Sputnik news service and Vedomosti newspaper, reported the gas supply deal through a western route had been put on hold and there could be a long delay before the two countries returned to the negotiating table. "Falling global oil prices benefitted China in the negotiations as it could spend less on natural gas from Russia," said Li Lifan, an international affairs professor at the Shanghai Academy of Social Sciences.

"China has the bargaining power and can afford to wait."

World oil prices slid yesterday to around four-month lows, hurt by poorly received economic data from China, the world's top energy consuming nation. .

A strong US dollar and signs of increasing US oil production added further pressure to prices, which have already been depressed by a global oversupply of crude.

US benchmark West Texas Intermediate for September delivery fell 63 cents to US$47.51 a barrel, pulling back from a near four-month low of US$47.20 struck earlier in the day.

"The strengthening of the US dollar, weak manufacturing data from China and rise in the US rig count added to the woes of a weak crude market," said EY analyst Sanjeev Gupta.

In a sign of drillers ramping up production, US producers added 21 oil rigs last week, according to oil services firm Baker Hughes.

The Chinese government said on Monday profits of major industrial firms slipped 0.3 per cent year-on-year in June to 588.57 billion yuan (HK$744.83).

On Friday the preliminary reading of Caixin's Purchasing Managers' Index - an independent survey of China's manufacturing activity - came in at 48.2 for July, the weakest reading since 48.1 in April 2014.

China and Russia signed a US$400 billion natural gas supply deal via an eastern route in May last year.

In November, the two countries agreed to start a similar deal through a western route.

But plummeting world oil prices became a major stumbling block to a finalised deal.

Russia's top natural gas producer Gazprom and China National Petroleum Corp, the mainland's largest oil company, were in talks for the gas supply deal.

CNPC would not comment on the matter yesterday.

According to Guancha.cn Beijing suggested embarking on a public bid to pick the builders of the pipeline, hoping that some Chinese firms could participate in the construction work for the Russian part of the project.

The deal through the western route was also expected to be valued at about US$400 billion.

The Russian media said Moscow would accept a mild price reduction but was reluctant to introduce Chinese firms into the construction of the Russian section. The gas supply deals were believed to be big sweeteners for Russia, helping with the recovery of its economy.

Li said the slowing Chinese economy, which had resulted in weaker demand for energy, was also one of the reasons for Beijing's go-slow approach on the new gas supply deal.