China and Russia fail to reach deal on gas plan

Jane Perlez

President Xi Jinping of China and the Russian leader, Vladimir V. Putin, were unable to announce an agreement on a natural gas deal on Tuesday, despite high expectations that mutual political interests would help finally push through the project.

Instead, commercial concerns continued to dominate — specifically, the price of the gas, which China and Russia have been haggling over for nearly a decade. After the meeting between the two leaders, Mr. Putin's spokesman, Dmitri S. Peskov, said that talks were continuing.

Russian President Vladimir Putin leaves after being greeted by Chinese President Xi Jinping at the fourth Conference on Interaction and Confidence Building Measures in Asia (CICA) summit in Shanghai on May 21, 2014.
Mark Ralston | AFP | Getty Images

According to Xinhua, the Chinese state news agency, after meeting Mr. Xi in Shanghai, Mr. Putin said, "I'm glad to be informed that the two sides have made significant progress in the price negotiation of the east route of the natural gas project."

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A joint statement said that Russian natural gas supplies would start flowing "as soon as possible," a phrase used after many previous negotiations between Gazpromand the China National Petroleum Corporation, and an indication that the two sides could not close the gap on price in time for the two leaders to announce a deal at their meeting.

Energy analysts had predicted that there would finally be an agreement, partly because Russia might have been willing to accept China's hard bargaining in order to diversify Gazprom's natural gas sales into Asia and away from a stagnant market in Europe.

Some analysts believed that the countries' political imperatives were also aligned. By this reasoning, China was willing to help Russia at a time of American and European sanctions over Ukraine, and China was interested in siding with Russia during a tense period in relations between Washington and Beijing.

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"Given the political and commercial catalysts, this is a surprising result for everyone and for Gazprom," said James Henderson, a senior research fellow at the Oxford Institute for Energy Studies in Britain. "There was an expectation that with Putin arriving in China and with the political issues with Europe — that would be the trigger to get it over the line."

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Mr. Putin had also been expected to agree to China's demands on price in part because of the weak Russian economy. The International Monetary Fund projects Russia's economic growth in 2014 will be 0.2 percent.

But China was in no hurry to sign a deal, said Shoichi Itoh, a senior analyst at the Institute of Energy Economics in Tokyo. "China already has enough gas from Central Asia, and now Myanmar, until the mid-2020s," he said. "Unless Russia made a compromise on price, China has no reason to sign it."

In recent weeks, Mr. Putin has repeatedly emphasized that Russia sees its economic future with China, which is on a trajectory to surpass the United States as the leading global economic power. Mr. Putin's focus on China is also consistent with his conservative nationalist ideology, emphasizing family values and patriotism and criticizing what he views as the West's moral decadence.

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Mr. Putin arrived in Shanghai on Tuesday to attend a conference of Asian countries hosted by China. Mr. Xi seized the opportunity to give Mr. Putin a warm welcome, even though it was not a state visit, by making sure ships from a Russian-Chinese naval exercise in the East China Sea berthed in Shanghai and by meeting Mr. Putin one-on-one at the start of the gathering.

After the leaders' meeting, Xinhua said that Russia and China had proposed establishing a comprehensive energy partnership, and that the two sides would deepen their cooperation in the oil sector.

China has maintained an official neutrality on Russia's actions in Ukraine, but that position has begun to tilt in favor of Moscow because of the "quite bad" atmosphere between China and the United States, said Shi Yinhong, a professor of international relations at Renmin University in Beijing.

If the gas deal went ahead in the coming period, Mr. Shi said, it would be "a Chinese financial assistance contract for Russia in guise of commercial payment."