Gazprom delays China pipeline: another project hold-up

Another day, another project delay from Gazprom. On Tuesday it was the start of production from the first giant field to be developed on the Yamal peninsula that was put back; on Wednesday it is the planned gas pipeline to China that is being deferred.

Reuters reports Gazprom as attributing the delay to the fact that Russia “still cannot reach a pricing deal with Beijing” for its gas. The squeeze on Gazprom’s capital spending caused by its financial problems, which have forced a 15 per cent cut this year, is also a factor.

The problems with the China pipeline are even more serious for Gazprom than the Yamal delays. Gazprom can be pretty confident that sooner or later, the EU will need Russian gas.

Exports to China, however, have been a strategic priority for Russia for years, giving it an alternative market for its gas and reducing its reliance on sales to the EU. Just as Europeans worry about security of supply, Russians worry about security of demand.

Beijing has outmanoeuvred Moscow by securing supplies from gas-rich Turkmenistan and Kazakhstan, which means its need for Russian imports and hence its dependence on Gazprom is much lower. So China can afford to play hardball in its negotiations with the Russians, even when president Hu Jintao is on a state visit to Moscow.

For Russia, the position is very disappointing.

Time for a rousing chorus of the Gazprom song!

Related links:

Gazprom warns on delay to key field (FT, 16/06/09)
The Gazprom song, and the responses (FT Energy Source, 15/06/09)
State banks help troubled Gazprom with Eni option (FT Energy Source, /04/09)

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