Gazprom Pushes Talks on New China Link With Beijing in No Hurry

  • Gazprom in talks on 30-year gas shipments from West Siberia
  • Global gas glut, Asian slowdown may further delay plan

Gazprom PJSC, the world’s top natural gas exporter, will keep pushing for a new contract with China as President Vladimir Putin travels to Beijing this week, even while the Asian nation’s worst economic slowdown in a quarter century batters demand.

“The talks are ongoing,” Gazprom Chief Executive Officer Alexey Miller said in Beijing on Friday before the president’s visit, declining to give any outlook on the deal. On Saturday, the state-controlled company plans to sign a cooperation memorandum on building underground storage sites and gas-fired power generators in China, he said. That accord follows more than two years of talks.

Putin clinched Russia’s first contract to ship gas to China from untapped East Siberian fields under a $400 billion deal in 2014 as relations with the U.S. and the European Union soured over the conflict in Ukraine. Gazprom planned to follow the landmark deal with another 30-year agreement to supply West Siberian gas, which feeds Europe, its most lucrative market. The deals would make China its largest export client.

In September, as the western route stalled, Gazprom instead signed a memorandum of understanding with China about a possible smaller third gas pipeline from the Sakhalin region in Russia’s Far East.

‘No Hurry’

During this visit, Gazprom held “detailed talks” on the West Siberia contract, the company said Friday after Miller met with China Natural Petroleum Corp., without providing details.

Slower economic growth in China and a global gas oversupply make it unlikely that Russia will sign a new deal in the next five years, said Li Yao, executive director of Beijing-based consulting firm SIA Energy.

China “is in no hurry” for yet another gas agreement with Russia, said Erica Downs, a senior analyst for Asia at Eurasia Group. The country looks fairly well-supplied with domestic production and already has imports contracted through 2020, she said.

China’s gas consumption expanded 3.7 percent in 2015, the slowest pace in a decade, to 191 billion cubic meters, missing a target of 230 billion, according to an annual report from China National Petroleum Corp.’s Research Institute of Economics and Technology. Gas demand growth this year may accelerate to only about 6 percent, according to the median estimate of six analysts in a Bloomberg survey conducted in May.

Gazprom has been saying it aims to expand its pipeline supplies to China to 100 billion cubic meters of gas a year, 60 percent of its current exports to Europe.

“This is a deal that Russia needs far more than China,” said Michael Bradshaw, professor for Global Energy at Warwick Business School. “China has lots of options, Russia does not.”