China and Russia still expected to close pipeline deal - Interfax | ..."I can't imagine the China-Russia gas deal won't ultimately go ahead. There's no doubt China has to do a deal for Russian gas," said Simon Powell, head of oil and gas at CLSA. "Domestic [production] will be part of the equation, but more and more gas will be imported from international markets. And Russia, of course, will be part of this supply situation in the future," said Professor Wang Zhen, acting dean of the Academy of Chinese Energy Strategy at the China University of Petroleum in Beijing. ... Beijing and Moscow appear to be deadlocked again over the longstanding issue of pricing, this time haggling over the cost formula. After making tangible progress in March with the signing of a memorandum for 38 billion cubic metres per year, talks between China National Petroleum Corp. (CNPC) and Gazprom appeared to come unstuck in June when it emerged CNPC wanted the price of Russian supplies indexed to the Henry Hub. (more after break)
Russia gave the proposition short shrift, with both Gazprom and the Kremlin publicly rebuffing the idea. "They've been arguing about the price since 2006. People don't negotiate that long over the price to then turn around and say 'we've changed our minds, we don't want it at all'," said Powell.
... "The memorandum of understanding that Gazprom signed with Japan Far East Gas Co. for Vladivostok LNG [VLNG] during the St. Petersburg Investment Forum underlined the dilemma Russia is facing," said Keun-Wook Paik of the Oxford Institute for Energy Studies. "Since Sakhalin 3's gas production will not be enough to justify the economics of VLNG by 2020, resources from Gazprom's Chayanda and Kovykta fields must also be used for VLNG. But without China's pipeline gas market provision, VLNG will be a white elephant," added Paik...."If Russia can only supply to China at the current Western European netback prices or oil-linkage prices with high slopes, I'm not sure if CNPC will really want to import [Russian gas] in the next few years or maybe in the next decade," said Liutong Zhang, a consultant at Asia economic consultancy The Lantau Group.