Russia's state-owned gas giant Gazprom was reported on September 4 to have delayed construction of a key gas pipeline linking to China. The route was the basis of the closer energy ties the pair has been trying to agree for years - however, Russia faces ever-greater competition from Central Asian suppliers such as Turkmenistan to slake China's huge energy thirst.
"Gazprom delayed the start of construction on the Power of Siberia gas pipeline to transport gas to China from November to the first quarter of 2014," Russian business daily Vedomosti reported, citing unidentified sources.
Moscow now looks to be running out of time to close the long mooted major gas deal with Beijing, with China's need for Russian gas diminishing. Turkmenistan began pumping gas eastwards on September 4 from the vast Galkynysh field near the Afghan border. That will help the Central Asian state boost exports to China in the coming years to 65bn cubic metres (cm), according to officials in Ashgabat, having sent 20 bn cm last year.
The failure to either close a gas supply deal with China is a blow for the Kremlin, which is actively re-orientating its foreign policy away from the west towards the rising powers in the east. To make that strategy work, Russia needs to move closer to China, which is already its biggest trade partner with $88bn worth of business crossing the border per year.
Ties don't get tighter than pipelines, which are the geo-political equivalent of marriage. However, without the pipeline, Russia runs the risk of being jilted by China further down the road, which would leave it increasingly isolated on the world stage.
A ground-breaking initial agreement was signed between Gazprom and China National Petroleum Corporation (CNPC) in March to much pomp and ceremony. It envisages annual exports of up to 30bn cm. But embarrassingly, the two sides have been unable to agree on a price since. Several times in recent months the Russians have said that a deal is "imminent".
However, Gazprom's decision to ice the pipeline project for the meantime suggests an impasse instead. During a September 3 telephone conference on Gazprom's results, a spokesmen ducked a question asking whether a final deal with China could be signed this year. In its February presentation for investors, Gazprom estimated that about $60bn is to be invested to build the "eastern" route of the Power of Siberia gas pipeline.
The Kremlin had been hoping to seal the deal at the G20 summit, which kicks off on September 5 in St Petersburg and will be attended by Chinese president Xi Jinping. Previously the idea was to announce a deal at the St Petersburg Economic Forum in St Petersburg this summer.
While Moscow and Bejing have been wrangling over the price of gas for years, China has been actively, and very successfully, courting other suppliers. Xi pointedly spent the week ahead of the Russia-hosted G20 summit in Central Asia, kicking off his trip in Turkmenistan, where he joined President Gurbanguli Berdymukhamedov for the start of gas production at Galkynysh. Previously known as South Yolotan, the field is thought to be the world's second largest gas field, holding up to 21.2 trillion cm, according to British auditor Gaffney, Cline & Associates.
It's a double whammy for Moscow. Previously, authoritarian and secretive Turkmenistan was limited by infrastructure to exporting its gas to Russia. That allowed Gazprom to buy its output at cut prices to then sell on at huge profit to Europe.
However, China has fast supplanted Russia as the main importer of Turkmen gas, having financed the Central Asia-China (CAC) gas pipeline, which was commissioned in late 2009. Alongside the launch of Galkynysh, Xi and Berdymukhamedov oversaw the signing of a package of energy deals, which will boost Turkmen gas exports by 25bn cm and see CAC expanded.
The key to its rapid takeover of Central Asian energy production in recent years, Beijing also agreed to use its huge state reserves to finance second phase development at Galkynysh. Gas from the field - whose initial three production facilities were built in the barren desert by CNPC and partners from South Korea and the UAE - is also expected to eventually help supply the planned TAPI pipeline. That route would pass through Afghanistan to supply Pakistan and Asia's other energy hungry giant India.
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