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Signing a contract on the supply of natural gas from Russia to China via Altai pipeline (known as Power of Siberia–2) is postponed for an indefinite period, two federal officials told Russian newspaper Vedomosti.
China’s growth in demand for gas is slowing down, while declining oil prices make liquefied natural gas (LNG) deliveries more accessible, for example from Australia, according the SberBank CIB analyst Valeriy Nesterov.
According to BP data, in 2012-2013 China’s gas consumption grew by 12-13%, while in 2014, the increase was by 8.5% amounting to 185.5 bcm. In H1 , the growth was only by 2%, Nesterov said, which shows that in such circumstances Russian energy giant Gazprom will not be able to contract high price for gas transportation through Altai pipeline.
"Gazprom offers CNPC a high price, attributing this to high costs of Altai pipeline construction. China is ready to build cheaper gas pipeline and offers holding the open auction to enable Chinese companies to participate and ensure transparent costs assessment," said the Chairman of the Russian-Chinese Centre of Trade and Economic Co-operation Sergiy Sanakoev, adding that Gazprom has rejected the idea while China is in no rush regarding the issue.
Gazprom representative declined to comment.
China offered to supply resources, equipment and manpower, said Deputy Chairman of Gazprom's Management Committee, Member of Gazprom's Board of Directors Vitaliy Markelov in May, while in late June Deputy Chairman of the Management Committee Aleksandr Medvedev assured that there had been no need in attracting them to Russia’s territory, and there would be no need for this in the future.
According to the Energy Research Institute of the Russian Academy of Sciences, China’s gas demand is expected to reach 700 billion cubic meters by 2040, with half of the amount being satisfied by means of own production and the rest supplied from Russia and Turkmenistan through pipelines, as well as by means of LNG supplies, for example from Iran. China may also shift focus on renewable energy and reduce dependence on imported gas.
A similar situation is said to be regarding the negotiations on the Power of Siberia gas pipeline. A 30-year contract with China on supplying 38 bcm of gas per year (exports to be launched in 2018-2020) is a political decision intended to demonstrate the world that Russia has a new gas market, according to Sanakoev.
Earlier, Gazprom’s Deputy Chairman of the Board of Directors Aleksei Miller and Russian Energy Minister Aleksandr Novak stated that the second gas contract with China could have been signed until mid-May 2015. Gazprom and CNPC only signed an agreement on basic delivery terms (without price clauses) of 30 bcm of gas per year through Altai pipeline to the west of China, while the issue of the pipeline construction was not officially considered.
In early September, Russian President Vladimir Putin will travel to China and the negotiation process, currently slow in action, may be given a new impetus, another source told the newspaper.