Gas
price agreement eludes Putin in
China By Robert M Cutler
MONTREAL - Moscow and Beijing again failed
to bridge their difference over the selling price
for Siberian gas during Russian President Vladimir
Putin's just concluded visit to China, but the two
sides compensated for this failure by signing a
raft of other accords for economic cooperation and
by confirming agreement on a series of anti-US
realpolitik policy positions (for example, Syria).
The two countries' boilerplate
anti-Americanism papers over their increasingly
cut-throat competition for hydrocarbon resources
in Asia and the financial means to develop them.
The "great game" between them centers on Siberia
and Central Asia.
In the run-up to the
summit, the Russian side once again expressed
hopes of reaching a price agreement for the 68
billion cubic meters per year (bcm/y) of natural
gas that it wishes to sell to China from both
Eastern and Western Siberia through two
different pipeline
systems still to be constructed. The Russian
leader, who resumed the presidency for a third
term earlier this month, took with him to Beijing
the heads of gas giant Gazprom and other energy
companies as well as six cabinet ministers.
Such a contract estimated at roughly US$1
trillion threatens to disappear like vapor. This
contract has been under discussion between the two
sides since the signature of a Gazprom-China
National Petroleum Corporation (CNPC) memorandum
of understanding in 2004. A route from Western
Siberia would carry 30 bcm/y, while another from
Eastern Siberia would carry 38 bcm/y. However, the
two sides seem never even to have agreed which
should be built first.
Negotiations since
then have also foundered over price, and in the
meantime Beijing has diversified its energy
suppliers to decrease its dependence on Russia.
Last December, Turkmenistan agreed to increase its
gas exports to China from the 40 bcm/y already
planned to 65 bcm/y; China will also soon be
importing 10 bcm/y from Kazakhstan. Those amounts
are in addition to increasing liquefied natural
gas imports from Middle East sources.
For
the Siberian gas, the Moscow business newspaper
Kommersant cited sources late last year to the
effect that the Kremlin was insisting on a price
of $400 per thousand cubic meters (tcm) to China.
However, the price of Turkmenistan's gas to China
was then reported to be about $250/tcm, and the
Russian press agency RIA-Novosti this month cited
the latter figure as the price that China was
offering to Russia for the gas from Siberia.
It is becoming apparent that Russia's
interest in selling the Siberian gas to China is
more vital than China's interest in buying it,
especially as the price of oil, upon revenue from
which the Russian state budget is highly
dependent, continues to fall.
Moscow
pretends to Beijing that it can sell the gas for
more than that to Europe. However, Putin is
complicating matters for himself by telling
European Union leaders in Brussels early this
month, just before he left for the Beijing
meetings, that they should negotiate with his
planned Eurasian Economic Union (EEU), which is
intended to include several Central Asian states,
since Russia has supposedly surrendered national
competence to the EEU's "Common Economic Space".
The EU and Russia have been negotiating a
new basic agreement for their relationship for
four years, but uncertainties about Russia's World
Trade Organization (WTO) status have stymied them
since the beginning of last year. Russia could
become a World Trade Organization (WTO) member
this year, but Moscow's creation of a customs
union with Belarus and Kazakhstan has put question
marks over the entry into force of its WTO
agreement.
In Putin's view expressed
earlier this month in Brussels, however, the EU's
European Commission "can and should" obtain a
mandate to negotiate with the EEU and "take into
account" Belarus's and Kazakhstan's commitment to
the customs union, while the idea of the EEU could
promote trade and cooperation "if based on WTO
rules".
The qualification is necessary
because the EEU does not really exist yet, and is
planned only for 2015, since its terms are still
to be drawn up by the newly established Eurasian
Economic Commission, not all members of which have
yet been identified.
How the EEU should
dovetail with the Shanghai Cooperation
Organization (SCO), a summit of which Putin was
officially in Beijing to attend, is never
explained. But then, the current SCO members have
still not even agreed on rules for admitting new
members. Its multilateralism seems mainly a shell,
and any international juridical personality is
largely passive.
The continuing failure to
establish a multilateral SCO development bank
illustrates the dynamic at work. It is fairly
clear that Russia and China, representing the two
largest national economies in the SCO, would be
the principal contributors of capital to any such
bank.
However, Russia has no reason to
promote such an institution because it can work
through the Russia Direct Investment Fund if it
wishes to promote investment in Russia and can
always rely on its bilateral relations for a
framework for its own investments in such other
SCO countries as Kazakhstan and Uzbekistan.
China's Xinhua news agency, on the other hand, headlined
a promise by the country's President Hu
Jintao to offer a loan of $10 billion "to support
economic cooperation within the Shanghai Cooperation
Organization". Nevertheless, the fine
print makes clear that this is not the long talked-about
multilateral institutional mechanism but
merely a subsidy for its own people to
study abroad, for scholarships in SCO countries, and
for sponsoring foreigners to attend Confucius
Institute language and cultural centers and other
expert-level training.
China's principal
motive in the rhetorical push for the creation of
an SCO development bank would merely be to help
make the case for the yuan as an international
currency. As Chen Yuan, chairman of China
Development Bank (CDB) said in the margin of the
SCO meeting, "We are trying to promote local
currency settlements."
Thus the CDB, which
opened an office in India in 2007, has already
lent $4.4 billion to Indian companies for projects
for building roads, telecommunications, and other
infrastructure, the Times of India reports. Chen,
who is also a member of the Communist Party of
China's central committee, noted: "We look forward
to increasing our role in India".
China
does not need an SCO bank. The CDB was created in
1994. It focuses on financing mid- and long-term
infrastructure and energy projects and claims to
be the world's largest development banking
institution. It is financing the East Siberia -
Pacific Ocean oil pipeline in Russia, which
includes a spur delivering 300,000 barrels per day
to China, as well as the Turkmenistan-China gas
pipeline and hydroelectric projects in Kazakhstan.
The CDB's investing arm, CDB Capital, was
established in August 2009 and is the only Chinese
bank subsidiary licensed to invest in yuan. Last
December, offshore investment firm CDB
International Holdings was inaugurated in Hong
Kong, tasked with running CDB Capital's overseas
investment operations, particularly direct
investment and asset management.
Nevertheless, the CDB has not participated
in the China-Russia Investment Fund (CRIF),
announced last year with a capital of between $2
billion and $4 billion. It is now formalized that
both the Chinese and the Russian side will
contribute only $1 billion each from state
sources, with the other $2 billion to be sought
from private Chinese investors, although why the
latter should avail themselves of the CRIF remains
to be seen.
In the event, the Chinese and
Russian leaderships saved the day by promising to
increase trade turnover from $84 billion last year
to $100 billion in 2015 and $200 billion in 2020.
Towards this end, they signed no fewer than 20
agreements, accords, and memoranda of understanding in
a variety of fields including energy efficiency,
nuclear power production, transport machine
building, and research and development in
high-tech industries including information
technology. An agreement on a joint venture to
develop and build long-haul aircraft apparently
eluded negotiators.
Dr Robert M
Cutler (http://www.robertcutler.org),
educated at the Massachusetts Institute of
Technology and The University of Michigan, has
researched and taught at universities in the
United States, Canada, France, Switzerland, and
Russia. Now senior research fellow in the
Institute of European, Russian and Eurasian
Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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