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Saturday 19 Aug 2017 | 06:40 | SYDNEY
Saturday 19 Aug 2017 | 06:40 | SYDNEY

A China-Russia gas deal, at last?

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5 October 2011 11:53

With Russian Prime Minister Vladimir Putin arriving in China for a working visit on 11 October, the big question will be whether gas price negotiations between Russia and China will finally end in a concrete agreement that allows work on even one of the two much talked-about gas pipelines from Russia to China to actually start.

China's growing international standing is straining its relations with Russia. Moreover, two of the main drivers of the relationship a decade ago — arms sales and energy cooperation — are flagging. That's the main conclusion from a new SIPRI report about China's security and energy relations with Russia, which I wrote with former colleagues at the Stockholm International Peace Research Institute before moving to Sydney and the Lowy Institute.

In 2010, oil imports from Russia constituted just 6% of China's total oil imports and Russia was only China's fifth-largest supplier of oil. China's concerted efforts to diversify reliance on any one supplier of either oil or gas have weakened Russia's bargaining position, despite the fact that Russia is the world's largest producer of oil and the second largest of natural gas.

China and Russia have discussed natural gas pipelines since the mid-1990s. Several feasibility studies have been conducted. In 2006, China National Petroleum Corporation and Gazprom, Russia's largest natural gas producer, agreed to construct a western line from Taishet in Russia's Altai Republic to China's Central Asia pipeline in Xinjiang province (the Altai project), along with an eastern line from Sakhalin Island to the north-east of China.

But to date, these plans exist on paper only. The problem has been agreeing on a price for the gas that China will commit to purchase from Russia. The Russians demand European-level prices while the Chinese want the price to be based on (much lower) Chinese domestic prices.

Top leaders of both countries have declared extensive gas collaboration a priority. They have invested substantial political capital trying to make energy cooperation the glue which will cement the so-called strategic partnership between Russia and China. A breakthrough was expected when China's President Hu Jintao visited Russia in June. Now expectations are high before Putin's visit to China.

According to a Gazprom representative, delivery conditions are the only remaining contentious issue. But this could merely be a roundabout way of saying that negotiations are still ongoing. Presumably some form of progress in bilateral gas cooperation will be announced by Putin and his Chinese counterpart, Premier Wen Jiabao. But disagreements over delivery conditions could in reality signal a new chapter in an ongoing saga of a troubled energy relationship.

Photo by Flickr user Max.

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