bneChart: A Russia-China gas deal? Don't hold your breath

By bne IntelliNews June 24, 2011

bneChart -

While Russian and Chinese officials spent early June insisting that they'd finally manage to thrash out a gas deal in time for the summit between Hu Jintao and Dmitry Medvedev, few expected the pair to manage to agree a price, as bne reported here.

In fact, the two sides have been trying to agree on a price since 2005, while general talks on starting gas trading have been ongoing for over a decade. Since the latest failure, Russian officials have been busy telling anyone that will listen that they're not worried and a deal will be sealed by the end of the year. However, the chart below showing the International Energy Agency's forecast for China's gas needs through to 2020 suggests any agreement could still be years away.

While bne predicted that the latest attempt to come to a consensus would fail because Gazprom's confidence has been boosted by the effects of Japan and the Arab Spring on the global gas markets, this chart illustrates that China's gas import needs over the next decade should fall far below the 68bn cubic metres a year (cm/y) supply terms under discussion. "Even by 2020, the incremental import requirement is less than the proposed 30bn cm/y capacity of the Altai pipeline gas supply from Russia," points out Colin Smith from VTB Capital. And this "demonstrates why we expect China to remain highly sensitive over the price it is willing to pay for Russian gas."

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