Which gas will China prefer, Turkmenistan's or Russia's?

Baku, Azerbaijan, May 7

By Aygun Badalova - Trend:

Russia could be a competitor to Turkmenistan on the Chinese gas market, but for some reason China seems to prefer Turkmenistan, an expert on Central Asia, Bruce Pannier believes.

"For example, the deal China has with Russia is for 38 billion cubic meters per year (although "Power of Siberia" pipeline should have capacity for 60 bcm when fully built), while China has a contract with Turkmenistan for 65 billion cubic meters per year," Pannier told Trend.

Expert believes that there is also probably a price issue with Turkmenistan, who is willing to settle for a lower than Gazprom would accept.

"We don't the exact price China pays for gas but China has loaned Turkmenistan billions of dollars to develop gas fields, especially the Galkynysh chain of fields, and Beijing has funded construction of the pipelines leading from Turkmenistan to China," Pannier said.

"I heard, when gas was selling for between $350 to $400 per 1,000 cubic meters, that China was paying Turkmenistan $195. Again, there is no proof of this price, it's just a rumor I heard that sounded plausible," he said.

"So, with the price of gas going down and likely to be somewhere around $225 per 1,000 cubic meters in the coming months, China is likely already considering lowering the price it pays Turkmenistan," Pannier added.

Expert also said that Chinese officials know Russia is in a difficult position due to EU plans to cut back on Russian gas imports and also the fact Ukraine is also buying less gas from Russia, a trend that is likely to continue.

"Russia seems to be counting on replacing its losses from gas sales in Europe with sales to China. So the Chinese can wait and try to take advantage of Russia's weakened position at the bargaining table when gas shipments are the topic," Pannier said.

"If one day China can get a better deal from Russia than Beijing can get from Turkmenistan there is nothing to prevent China from switching sources and Turkmenistan would be the loser," Pannier added.

Currently China is the biggest importer of Turkmen gas. In 2014, Ashgabat exported 25.9 bcm to China.

By 2017, the capacity of the system from Turkmenistan to China is expected to increase to 80 bcm of gas, and by the end of 2021, Turkmenistan will annually supply 65 billion cubic meters of gas under the agreement signed between China National Petroleum Corporation (CNPC) and Turkmengaz.

It is reported that the capacity of the first two lines of the pipeline amounted to 30 billion cubic meters of gas at the end of 2010. The construction of the third line with capacity of 25 billion cubic meters of gas per year was completed at the end of 2014.

As of 2015, the capacity of the pipeline from Turkmenistan to China is 55 billion cubic meters per year.

At the same time, according to the recent Russian Gazprom's statement, the company intends to pursue a Eurasian strategy instead of the European one, and in case if Europe refuses Russian gas, it can be redirected to Asia.

The company has already started construction of the Power of Siberia gas pipeline from eastern Siberia to China.

The first supplies via the pipeline are scheduled for 2018.

The Russia-China intergovernmental agreement was signed in Moscow on October 13, 2014, following Gazprom's $400-billion gas supply deal with CNPC, signed in May 2014. Gazprom is set to export 38 billion cubic meters of Russian gas to China annually over a 30-year period.

Follow the author on Twitter: @AygunBadalova

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