Gazprom says talks on second China gas export deal ‘slow moving’

PUBLISHED : Wednesday, 01 March, 2017, 8:05pm
UPDATED : Thursday, 02 March, 2017, 9:19am

Talks between Russian gas supplier Gazprom and Chinese officials on a deal that would channel gas from Siberia to northwest China have slowed because of uncertainty amid ongoing energy industry reform in the nation and weaker demand.

Gazprom deputy chairman Andrey Kruglov told the South China Morning Post in written comments ahead of meetings with investors in Hong Kong on Thursday that China’s slowing economy was a factor in the gas-supply negotiations, which are considered a follow up to a 30-year gas export deal, worth US$400 billion, that was agreed in 2014.

“We continue negotiations on Russian gas supplies to China through the western route,” he said. “The process of talks has slowed down a little bit due to objective reasons.”

He said “transformational changes” of China’s economy have had an impact on gas demand, while China’s natural gas industry is undergoing reform.

“These factors add a degree of uncertainty ... [but] we are still confident that this project will be mutually beneficial for both Russia and China.”

China’s natural gas consumption grew 6.6 per cent in 2016, after easing to around 4 per cent growth in 2015, a far cry from 15 per cent annual growth in the preceding 10 years.

Last year’s rebound was helped by Beijing’s ongoing policy to encourage the usage of cleaner-burning gas to replace more pollution prone coal and oil as northern China is often shrouded in smog caused by burning dirty fuels during winter months.

The rebound was also partly driven by a 28 per cent cut to the state-stipulated wholesale prices in late 2015, which has helped to restore the competitiveness of natural gas against petroleum-based alternatives after crude oil prices dived in mid 2014.

Beijing has also introduced further reform to let prices - previously state-stipulated - to be more market-oriented to better reflect demand and supply.

Kruglov told the Post in 2014 that Gazprom hoped to seal an export deal on the “western route” by the end of that year.

This route would see the construction of a 30 billion cubic metre (bcm)-a-year pipeline to link China’s northwest to existing gas fields in West Siberia.

Gazprom and state-owned China National Petroleum Corporation, parent of listed PetroChina, in May 2014 signed a 30-year agreement under which Russian gas will be exported to China’s northeast via the “eastern route”.

Some 38 bcm of gas would be sent annually to northeast China from new fields in East Siberia under the route.

Kruglov said at the time that the pipeline will deliver gas in 2018 in the “best case” and in 2020 in the “conservative case”.

A person close to Gazprom said the delivery time frame is now expected to be between 2019 and 2021, “depending on infrastructure readiness on Chinese territory”.

It is still in line with the terms of the export contract, under which delivery was expected to start any time between May 2018 and May 2021, he added.

Asked if the oil price slump since the gas deal was signed means the gas price will be revised downward, Kruglov said it is defined by an undisclosed formula.

“[Since] changes in prices of energy sources certainly affect the end price of Russian gas ... it is too early to talk about what will be the price level [when delivery starts].”

CNPC’s spokesman could not be reached by phone and has not responded to emailed request for comments.

Separately, Kruglov said Gazprom has continued its exploration of feasibility of a secondary listing in Hong kong.

“In order to strengthen Gazprom’s strategic presence in Asia’s capital markets, attract additional [investors] as well as to diversify country, political and financial risks, we [have been considering] listing our depository receipts on Hong Kong’s stock exchange,” he said.

“Still, it is too early to speak about concrete details. We continue our work with the stock exchange.”