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Time running out on Russia-China gas stalemate

As China's new President Xi Jinping meets Russian President Vladimir Putin, prospects are dim for substantial progress on a deal between the world's largest conventional gas producer and its fastest growing energy consumer. The failure stands in sharp contrast to the Russian-Chinese trade in crude oil, which helped finance Moscow's push to supply Asia from new East Siberian fields, and is likely to be expanded with new supply deal during Xi's visit. The gas deal has been held up by Russian gas export monopoly Gazprom's determination to match the returns it makes on high-priced European deliveries and cover the $38 billion cost of bringing its untapped East Siberian gas resources to market. China, for its part, says it cannot afford to pay Gazprom's asking price, which analysts and sources in the gas industry peg at $300 per thousand cubic metres.
Instead, sources say China National Petroleum Corp. has dug in at $250 as the price it can pay without forcing its energy firms into losses or eroding the cost advantage which makes Chinese producers competitive in the world. "The price difference remains considerably apart. Both sides have practical hurdles to overcome. It's difficult for Russia to come significantly off the levels they charge Europe," a Chinese energy industry veteran who has taken part in gas talks said. "The two sides are moving towards each other," he added, "but it would still take time."
Gazprom has said it is aiming to sign a gas deal by the end of the year, and analysts say that is realistic if Russia moves quickly and shows a newfound willingness to compromise. With competitors from Africa and Australia lined up to meet China's additional demand, Russia needs to send a clear signal to Asian markets if it wants to gain market share in China before 2030, Tatiana Mitrova, head of the oil and gas department of the Russian Academy of Sciences Energy Research Institute said.
Mitrova estimates that a supply gap begins to emerge in China in 2020 and rises to 66 billion cubic metres of gas per year by 2030. But that market niche could be filled as China moves quickly to top up existing arrangements with suppliers such as Myanmar and the former Soviet republics of Central Asia, and moves to secure new contracts for increased supplies.

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