The Wall Street Journal reports,''The saga over whether Russia will supply natural gas to China has always resembled rival families negotiating a marriage dowry. For a decade, the two sides have wanted different things".
"Now a match between the world's largest gas exporter and one of the world's fastest-growing gas markets seems within reach. That's in part because Russia is afraid that the longer it waits, the less it will get in dowry. And if the deal goes through, it has the potential to change the way Asia gets its energy''.
''An outline of a deal hashed out last year would have Russia's state champion Gazprom supply counterpart China National Petroleum Corporation with 3.75 billion cubic feet a day for 30 years starting in 2018. China's current daily gas demand is about 16 billion cubic feet, which the government aims to double by 2020. Russia says the two sides have agreed on a price formula, but not an actual price. Now eyes turn to Vladimir Putin's May trip to China.
There's cause for optimism as market prices converge. The price Gazprom charges European customers has fallen to $11 per million BTU as the state giant gives discounts to ward off competition from countries such as Norway, says James Henderson at the Oxford Institute for Energy Studies''.
Meantime, China pays roughly $10 per million BTUs for pipeline gas from Turkmenistan and Myanmar. But China also recently pushed retail gas prices for the average resident in, say, Shanghai to nearly $15 per million BTU, according to Platts. Assuming it costs $4 to distribute gas from northeast China to Shanghai, China is ready for $11 gas at the border.
Gazprom's options won't get any better. Europe, the bedrock of the company's cash flow, looks sluggish, while Russian rivals muscle in on Gazprom's turf. In negotiating a price, global supply is also on China's side. The U.S. shale revolution, and U.S. moves to export gas in the next few years, provide Asia with another supply option. Then there's the more than seven billion cubic feet a day of Australian LNG capacity due to come online by 2017, says Nate Taplin at Gavekal, a research firm.
If Russia locks in a deal soon, it could spark the development of eastern Siberia as a hub to sell gas to Japan and South Korea. This would put competitive pressure on Asian LNG prices generally—something Middle Eastern and Australian suppliers would have to contend with.
When two of the planet's biggest players get together,eveyone will feel the effect.
