China Gas Deal Stalls

Experts see no progress on a Russian gas deal with China.
By Michael Lelyveld

BOSTON—Russia has made little progress on a deal to deliver gas to China, despite a recent visit by Prime Minister Vladimir Putin, analysts say.

During Putin's trip to Beijing on Oct. 12-14, the two countries announced a framework agreement for Russian gas supplies through two pipelines from Siberia that have yet to be built.

But experts were quick to note that the agreement was nearly identical to one announced during a previous Putin visit in 2006.

"It seems to be some kind of a charade. I don't see anything new in this round of announcements," said Mikkal Herberg, research director for energy security at the Seattle-based National Bureau of Asian Research.

"It's increasingly bizarre each time they do these things and go over the same ground and pretend to believe one another," Herberg told Radio Free Asia.

No final agreement

The preliminary accord envisions annual deliveries of up to 68 billion cubic meters (2.4 trillion cubic feet) of Russian gas that could begin as soon as 2015, Putin said, according to the Interfax news agency.

The gas would be divided between eastern and western routes, but a final agreement has yet to be reached.

Russian officials also said they have yet to settle with China on a price for the gas. The price problem also proved to be a stumbling block three years ago, when first supplies were promised for 2011.

"This is another case where Russia comes and pretends to promise to build a gas pipeline to China, and China pretends to believe it," said Herberg. "I don't see anything different at all in this last round."

Russia's pipeline in the west is considered to be particularly problematic. The 6,700-kilometer (4,150-mile) project would pump gas over vast stretches from northern Siberia across the Altai Mountains through the deserts of Xinjiang. Russia reportedly dropped the route from its development planning over a year ago.

Analysts say the project was never realistic. Aside from the length and the $13-billion cost, they doubt that Russia has enough available gas in the region to fill the pipeline.

Competition seen

"It would be a monumental undertaking," said Robert Ebel, senior adviser for energy security at the Center for Strategic and International Studies in Washington.

"To build a pipeline, you have to have enough gas to put into the pipeline for the length of time it's in operation to make it financially viable," Ebel told RFA. "They don't have that."

Experts see Russia's announcement as an attempt to compete with the scheduled opening of a gas pipeline from Turkmenistan to China in December. The 2,000-kilometer project through Uzbekistan and Kazakhstan to Xinjiang will be China's first import line for gas, connecting with the country's second West-to-East pipeline at a total cost of some $20 billion.

Despite the obvious match between the world's biggest petroleum producer and one of the largest consumers, energy ties have been painfully slow to develop between Russia and neighboring China.

Russia started building its first oil line to China last April as part of its East Siberian-Pacific Ocean (ESPO) pipeline project, but only after Beijing agreed to lend $25 billion to Russia's state-owned oil and pipeline firms.

'Downward trend'

On Oct. 22, the Russian pipeline company Transneft said it had finished the main section of a 64-kilometer link to the border, but the line has yet to cross the Amur River. Russia signed an initial accord for the project with former Chinese President Jiang Zemin in 2001.

Moscow has tried to play up the commercial benefits of the recent Putin visit. A Kremlin list showed 34 deals that were planned to be signed, totaling $5.5 billion, Reuters reported. But China's state media reported only 12 agreements valued at $3.5 billion.

Notably absent were any big arms deals, which have been a mainstay of Russian exports to China in the past. On the eve of the visit, Russia's state arms firm Rosoboronexport told Interfax that a $1.5-billion contract for military transport and tanker aircraft has been frozen due to disagreements over costs.

Overall trade between the two countries has also suffered during the global recession. While Russian news agencies stressed that bilateral trade grew six-fold between 2002 and 2008, China's official Xinhua news agency reported that trade plunged nearly 35 percent in the first nine months of this year.

Experts say the framework agreement for gas exports will not help reverse the downward trend.

"I see nothing coming out of it, certainly over the near term," Ebel said.

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