This week brought an increasingly familiar sight from Beijing: high-ranking Russian officials shaking hands with their Chinese counterparts. The occasion, just as it has been in recent months, was a slew of new energy deals that will further align the two countries as trading partners and bring Russia one step closer to becoming China’s primary fossil-fuel provider.
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So everyone’s happy, right? Not exactly. Conspicuously absent from the flurry of new deals was the thing that Russia actually wants the most: a long-term agreement to sell China natural gas through a dedicated pipeline. Gazprom (SIBN:RU), the world’s largest gas company and by far the biggest company in Russia, left Beijing empty handed, again. Though officials indicated progress was made toward a deal, it’s hard to say that Gazprom is all that much closer to achieving its Chinese pipe dream, something it’s been after for more than a decade.
“I can remember first hearing about this pipeline in 1997,” says Derek Scissors, an Asia scholar at the American Enterprise Institute. The sticking point appears to be the price that China is willing to pay, and the Chinese don’t seem to be budging. China can afford to be patient, while Russia is eager to lock in a price before the U.S. begins flooding the market with cheap LNG exports in the next few years. “I think the Chinese have the upper hand here,” says Scissors.
“The Russians probably need this more desperately than the Chinese,” says Erica Downs, a senior fellow at the Brookings Institution’s John L. Thornton China Center and a former energy analyst at the CIA. Downs says she’s more optimistic about the prospects for the gas pipeline than she was a few years ago, but “another round of talks with no breakthroughs continues to illustrate how big a stumbling block price is,” she says.
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It may be that the world market price might be more dangerous than the actual import of American LNG.
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