What prevents Russian gas supplies to China?

What prevents Russian gas supplies to China?

The chairman of the board of Gazprom, Alexey Miller, met today in Beijing with the First Deputy Premier of the State Council, Zhang Gaoli, and the CNPC chairman, Wang Yilin. The negotiations on the western route of gas supplies to China "are on track" and the parties are focusing on their successful completion," the Gazprom report on the results of the meeting reads.

"The parties are going to speed up the process of negotiation and conclusion of a contract for the supply of Russian gas through the western route. Some of the technical details remain to be agreed," an informed Chinese source told Interfax.

The source speculated that the company could achieve the signing of certain documents during the upcoming visit of Russian President Vladimir Putin to Beijing on September 2-3.

At the same time, last week the director of the department of Eastern Europe and Central Asia of the Ministry of Commerce of China, Lin Chi, said that the Russian-Chinese talks on the western route are considerably complicated because of the sharp drop in oil prices, stressing that the two sides are convinced that agreement can be reached, although neither China nor Russia has set a goal of signing the contract on the western route as part of Putin's visit to Beijing.

As noted in an interview with a correspondent of Vestnik Kavkaza by the deputy director of the Energy Institute for Energy and the director of Finance, Alexei Belogoriev, to date there are two obstacles which prevent a successful outcome of the talks between Gazprom and CNPC.

"The first obstacle that has existed for many years, is uncertainty about the need for such supplies through the western route, because the Chinese authorities are not sure whether there is a demand for gas in China. That means, the demand is so too much that we can confidently talk about the need for these supplies. This controversy has always existed, and it has been central to this project," the expert said.

"The second obstacle is the current price of the oil, because while prices remain in the range of $40-60 per barrel, neither for Gazprom nor for CNPC and China is it profitable to implement this project. That is, the investment in it for Russia will be almost stranded. For China, this is also a problem, because the supply of gas from the Uighur region needs to build an infrastructure across the whole of China to the east coast, which is also very time consuming," Alexey Belogoriev said.

In turn, an assistant professor of government regulation of the economy, the deputy head of the department of state regulation of the economy on educational work of the Institute of Public Administration and Management (IGSU) RANHiGS, Ivan Kapitonov,  suggested that the final terms of the contract hinder an agreement being reached in a short time at the moment.

"The fact is that as yet it is not clear who bears the final cost of all phases of this project, and what will be the final cost of the gas to be delivered. I think that these items are on the agenda and won't be allowed to move around. It is difficult to say how soon it will be resolved; in connection with the actively changing situation on the oil market, we are seeing a downward movement of oil prices. Of course, the Chinese partners are likely to "force" the issue of gas, too, in the direction of lowering prices,’’ the expert said.