Gazprom’s decision to put off construction of a $38 billion trans-Siberian gas pipeline for a year will trouble Moscow more than Beijing. The delay is because the two countries continue to be apart on pricing for new Russian gas exports to China.
China, for all its energy hunger, is the more ready of the two to wait to get the pricing it wants on the 38 billion cubic meters of gas it has agreed to buy annually from Gazprom. Russia, on the other hand, is anxious to get its oil and gas companies selling to Asia to cut their reliance on European markets.
The International Energy Agency recently estimated that China will absorb one-third of new LNG supplies worldwide over the next five years as its demand grows by 12% a year. In June, Rosneft signed a contract to supply 2.6 billion barrels of crude oil to China National Petroleum Corp. (CNPC) over the next 25 years, with CNPC also taking its first stake in a Russian gas-export project, 20% of Novatek’s Yamal LNG fields. Novatek, as Russia’s second-largest gas producer, is a Gazprom rival. CNPC will import 4 billion cubic meters of gas a year under its deal, likely starting in 2016.
Earlier this week, CNPC secured a deal to buy more gas from Turkmenistan. State-owned TurkmenGas will up its annual sales from 40 billion cubic meters a year to 65 billion cubic meters a year by 2020. China last year imported 20 billion cubic meters from Turkmenistan. The extra 25 billion cubic meters will come from opening up the second phase of TurkmenGas’s giant Galkynysh field. CNPC will do the development which is being paid for with Chinese financing. Gazprom can wait.
We’ve noted before China’s expanding reach into energy-rich Central Asia. A sign of how strategically important that is to Beijing is President Hu Jintao’s presence (again) in the Kazakhstan capital Astanta on Saturday to open the Kazakh leg of the new 1,800 kilometer pipeline connecting China and Turkmenistan.
Hu will be going onto Ashgabat, the capital of Turkmenistan, for the official opening on Tuesday of the whole pipeline, which runs from a CNPC-operated gas field there back to Xinjiang, itself a reminder of the delicate balance Beijing has to strike between its handling of its Muslim minorities and its Muslim Central Asian neighbors whose oil and gas it is extracting.
Another sign of the shifting sands in the region is that while in Turkmenistan Hu will attend a summit of Central Asian leaders. They rarely gather except at meetings organized by Russia.
Add Turkmenistan to the lengthening list of countries doing loans-for-energy deals with Beijing. China will lend $3 billion to develop Turkmenistan’s South Yolotan natural gas field, one of the five largest in the world, Turkmen state media reported Saturday (via AFP). Work on a 7,000-kilometer pipeline from Turkmenistan to China, started in 2007, with the capacity to deliver 40 billion cubic meters of gas per year is expected to be finished by the end of the year.
In April, Kazakhstan struck a $10 billion deal with PetroChina’s parent CNPC. It followed similar deals in Brazil (also $10 billion), Venezuela ($4 billion) and Russia ($25 billion) as Beijing taps its foreign exchange reserves to buy energy assets. The Turkmenistan deal also gently loosens Russia’s grip on the central Asian country’s gas exports.