China and Russia fail to do gas deal

President Xi Jinping of China and Russian leader Vladimir Putin were unable to announce an agreement on a natural gas deal yesterday, despite high expectations that mutual political interests would help finally push the project through.

Instead, commercial concerns continued to dominate – specifically, the price of the gas, which China and Russia have been haggling over for nearly a decade. After the meeting between the two leaders, Mr Putin's spokesman, Dmitri S Peskov, said talks were continuing.

According to Xinhua, the Chinese state news agency, after meeting Mr Xi in Shanghai, Mr Putin said: "I'm glad to be informed that the two sides have made significant progress in the price negotiation of the east route of the natural gas project."

Soon as possible
A joint statement said Russian natural gas supplies would start flowing "as soon as possible", a phrase used after many previous negotiations between Gazprom and the China National Petroleum, and an indication the sides could not close the gap on price in time for the two leaders to announce the deal at their meeting.

Energy analysts had predicted an agreement, partly because Russia might have been willing to accept China’s hard bargaining in order to diversify Gazprom’s natural gas sales into Asia and away from a stagnant market in Europe.

Some analysts believed the countries' political imperatives were also aligned. By this reasoning, China was willing to help Russia at a time of US and EU sanctions over Ukraine, and China was interested in siding with Russia during a tense period in relations between Washington and Beijing.

“Given the political and commercial catalysts, this is a surprising result for everyone and for Gazprom,” said James Henderson, a senior research fellow at the Oxford Institute for Energy Studies in England. “There was an expectation that with Putin arriving in China and with the political issues with Europe – that would be the trigger to get it over the line.”

Mr Putin had also been expected to agree to China's demands on price in part because of the weak Russian economy. The International Monetary Fund projects Russia's economic growth in 2014 will be 0.2 per cent. But China was in no hurry to sign a deal, said Shoichi Itoh, a senior analyst at the Institute of Energy Economics in Tokyo. "China already has enough gas from Central Asia, and now Myanmar, until the mid-2020s," he said. "Unless Russia made a compromise on price, China has no reason to sign it."

Asian conference
Mr Putin arrived in Shanghai yesterday to attend a conference of Asian countries hosted by China. Mr Xi took the opportunity to give Mr Putin a warm welcome, even though it was not a state visit, making sure ships from a Russian-Chinese naval exercise in the East China Sea berthed in Shanghai and meeting Mr Putin one-on- one at the start of the gathering.– (New York Times service)