China's Shale Gas Announcement: It's Really All About Gazprom

China has just announced the latest estimate of the country's shale gas reserves. It's as we would expect, a very large number and the largest reserves claimed by any country so far:

“The resources ministry said on Thursday that preliminary surveys showed the country had explorable shale-gas reserves of 25.1 trillion cubic metres, in theory enough to meet China's gas needs for the next two centuries.

“This is slightly lower than earlier figures but well ahead of the reduced US estimates of 13.6 trillion cubic metres, down from 23 trillion in earlier studies. The fields are mostly in Sichuan or in sparsely populated regions in the interior.

The thing is though this announcement isn't most important for China, shale gas, nor even climate change. The people this is most important to are Gazprom. As the Streetwise Professor points out, Russia/Gazprom have been trying to settle a pricing deal with China for some years now. At what price will the country take the Siberian gas that the Russians want to export?

The two sticking points have been the gas price and the gas price calculation mechanism. Gazprom absolutely does not want to have gas prices determined by reference to the spot price. They'd also like it to be a high price but that's less important than it being a stable and controlled one.

If China really does have two centuries' worth of shale gas that is recoverable then there's not much indication that they even want Siberian gas piped into the country. And absolutely no indication whatsoever that they'll accept a pricing structure of the sort that Gazprom desires.

And even if China doesn't have that much shale gas then they've still strengthened their negotiating position with the annoucement, haven't they?