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Gazprom: Talks On Second China Gas Deal Slowed By Weaker Demand

Irkutsk gas

Weaker Chinese gas demand and China’s ongoing energy reform have slowed down progress on talks between Gazprom and Chinese authorities on a second gas export route from Russia to China, Gazprom’s deputy chairman Andrey Kruglov told the South China Morning Post on Wednesday.

We continue negotiations on Russian gas supplies to China through the western route,” Kruglov said in written answers to questions by the Chinese daily. “The process of talks has slowed down a little bit due to objective reasons,” the Russian manager added.

These factors add a degree of uncertainty ... [but] we are still confident that this project will be mutually beneficial for both Russia and China,” Kruglov told the Chinese newspaper.

Chinese natural gas consumption increased by 6.6 percent last year, up from a 4-percent growth in 2015, but still below the average 15-percent growth in the 10 years before that. The 2016 uptick in consumption compared to 2015 was mainly attributed to China’s efforts to fight pollution by replacing coal-fired power generation with cleaner-burning gas.

In May 2014, Gazprom and China National Petroleum Corporation (CNPC) signed the Purchase and Sale Agreement to supply Russian gas via the Eastern route, which is a 30-year deal to deliver 38 bcm of natural gas annually to China from Yakutia and Irkutsk gas production centers via the Power of Siberia gas trunkline.

Related: Is U.S. LNG Too Expensive For Asian Markets?

Later in the same year, Gazprom and CNPC signed a framework agreement for gas supplies via the Western route, for supplies of 30 bcm of gas per year over 30 years from Western Siberia’s fields via the Power of Siberia-2 pipeline. The parties are currently negotiating the Purchase and Sale Agreement, according to Gazprom’s website.

Last month, Alexey Miller, Chairman of the Gazprom Management Committee, held talks in Beijing with Chinese officials and CNPC managers to review the progress of the eastern route, as well as the prospects for gas supplies via the western route and from Russia’s Far East. Construction of the Power of Siberia gas pipeline, that is, the eastern route, was going according to schedule, with preparations underway for the construction of the cross-border section, Gazprom said.

By Tsvetana Paraskova for Oilprice.com

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