China-Russia natural gas pricing agreement close

08:55, January 20, 2011      

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China may reach an initial agreement with Russia on natural gas pricing - a subject of great contention for years - by the middle of 2011, industry experts close to the matter said.

"We've seen that the price gap has narrowed during the past several months. And we're cautiously optimistic that the initial price disagreement will be solved in the first half of 2011," said Wan Chengcai, director for the Russian Foreign Relations Development Research Center under the State Council.

The two countries signed a natural gas contact as early as 2006, when they agreed to construct two pipelines to transport a total of 70 billion cubic meters (cu m) of the fuel annually from Russia to China.

The first pipeline is expected to become operational this year. But disagreement on the pricing of natural gas has stalled negotiations for several years.

China has strengthened its cooperation with Russia, the world's largest energy producer since 2009, in terms of exploration and supplies of crude oil and natural gas.

The first pipeline linking Siberia in Russia and China's Daqing oil field, in the northeast of the country, started operating on Jan 1. The 16 billion yuan ($2.42 billion) pipeline is expected to carry 15 million tons of crude oil annually from Russia to China for 20 years.

"The operation of the oil pipeline is just the beginning of the countries' cooperation in the energy sector, and a deeper and broader partnership can be developed afterwards," said Huang Xiaoyong, vice-president of the Graduate School of the Chinese Academy of Social Sciences.

Russia's biggest natural gas export destination is Europe. However a trend through 2008 and 2009 saw demand for the fuel declining.

In the negotiations with China, Russia hoped to secure a price similar to that paid by its European customers, but China insisted on paying a lower price as it did with several Asian countries such as Turkmenistan.

"China is exploring closer cooperation with Russia in the field of natural gas. However, as the country's consumption power per capita lags far behind its counterparts in the West, the natural gas price is much lower and cannot compete with the West," Huang said.

China is expected to more than double the proportion of natural gas it consumes on an annual primary basis from the current level of 4 percent by 2020.

The country may consume 300 billion cu m by then, leaving a huge market for other overseas providers of the fuel to tap into.

"The cooperation between China and Russia in the energy sector will undoubtedly be increased. But the negotiation process in natural gas pricing may last for a long time, given that it involves the interests of both China as a nation and its companies. We hope the two nations can reach an agreement in the summer, and see more cooperation in the sectors of hydropower, nuclear power and coal," Wan said.

Source: China Daily
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