China Energy Exec Hints Russian Gas Deal Not Dead

The head of China National Petroleum Corp signalled on Saturday that China was still considering a deal to become Russia's largest single pipeline gas customer even as its supply options, including unconventional and liquefied natural gas, multiply.

CNPC Chairman Jiang Jiemin, visiting Moscow as part of a delegation led by Vice Premier Li Keqiang, who is on track to succeed Premier Wen Jiabao, reiterated to an economic conference that most of the key points of a gas deal were agreed.

"We have signed a buy-sell agreement with Gazprom," Jiang said, singling out the deal among successful ventures including a loans-for-oil deal, under which China receives 300,000 barrels per day via a dedicated pipeline, and joint oil exploration in Siberia.

Jiang's remark suggested CNPC was still focused on that deal, nearly finalised last year, which would have let Russia sell up to 68 billion cubic metres of pipeline gas per year to
China, more gas than it ships to any single European customer.

The two countries had agreed on everything but price and appeared on the brink of a final agreement a year ago when Chinese President Hu Jintao was preparing to come to Russia for
an annual investor showcase in St Petersburg.

But Russia's gas export monopoly Gazprom refused to accommodate Chinese price demands, arguing it could sell the same gas to Europe for a higher profit than the Chinese offer
had implied.

Frustrated by the long-running standoff, China opted to buy extra gas from a rival producer, the former Soviet state of Turkmenistan, and backed up its choice with a decision to build
a pipeline to accommodate more central Asian gas.

A Gazprom source said before the Chinese visit that talks had not progressed, nor had the company reduced its asking price for pipeline gas deliveries to China.

Analysts have said China could not afford to pay Russia's asking price without raising domestic rates and eroding its competitive advantage in manufacturing.

"As always in the course of big work there are issues which require additional attention, but we have learned to do it the way close friends do," Prime Minister and president-elect
Vladimir Putin said on Friday after Gazprom's chief executive, Alexei Miller, met Jiang.

"We are looking for compromises and are finding them," Putin said at a meeting with Li, also attended by Russia's top energy official, Deputy Prime Minister Igor Sechin, and Energy Minister Sergei Shmatko.

Russia's government - increasingly wary of Gazprom's dependence on pipelines which bind it to specific customers, and particularly of increasingly competitive European markets - has
meanwhile ordered Gazprom to build new coastal plants to liquefy
gas for delivery by tanker.

But Russia's nascent LNG strategy may not yield substantial sales to China, because Russia's sources of gas, except the fields off the Pacific island of Sakhalin, are far from the
potential sites of coastal LNG plants, far from Asian markets, or both, which could make them too costly to compete.

China is pursuing unconventional gas production at home and is confronted with a widening array of potential import options, from central Asian pipe gas to the shale fields of the United States, whose gas could be liquefied for export.