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36

Russian gas monopoly considers China venture

On the heels of a treaty of "friendship and cooperation" between China and Russia, the Russian gas monopoly is planning to expand into China. While Gazprom, which is the world's largest gas monopoly, has been considering a venture in China for years, its interest has become more serious since the treaty was signed July 16.

On the heels of a treaty of "friendship and cooperation" between China and Russia, the Russian gas monopoly is planning to expand into China.
While Gazprom, which is the world's largest gas monopoly, has been considering a venture in China for years, its interest has become more serious since the treaty was signed July 16. Gazprom has been invited to bid on a $6 billion pipeline project in China, and the company is considering building its own pipelines to sell Siberian gas in Shanghai and Japan.
Last week, a top Russian official said that Gazprom would coordinate gas shipments from a large Siberian gas field north of China that is operated by BP. BP said Gazprom would have to pay a fair price for any stake it takes in the project.
Although the announcements have been driven partly by politics, China is a giant potential market. And while it is unclear whether Gazprom's intentions will turn into concrete business projects, the outcome may give some indication of where Russia's treaty with Beijing will lead.
Gazprom supplies one-quarter of the lucrative markets of Western Europe, which is easy business based on long-term, fixed-rate contracts. But as Europe prepares to promote competition into its market, Gazprom could find itself working harder for lower prices, analysts said. Gazprom's new chief executive, Aleksei Miller, said last week that the company had stopped signing long-term contracts with Europe.
Although China now consumes only one-tenth of what Europe consumes in natural gas each year, its consumption is ready to grow as its economy expands and it replaces coal with natural gas.
Russian oil companies already have entered the Chinese market. In July, Yukos got approval for a $1.7 billion pipeline that would bring Siberian oil to China. Foreign oil companies on Russia's eastern coast are building a giant plant to liquefy gas to ease shipments to Asia.
But pitfalls abound. For one, Gazprom, burdened by billions of dollars of debt, will not have the financial might to raise the money needed for large projects.
And China remains uncommitted to buying Russian gas. Even BP, with the most developed project, has so far gotten only "a general statement of good will" -- not enough to propel the project, according to a BP spokesman in Moscow.
While China is the second-largest energy-consuming country, it is also the third-largest producer. With gas reserves of its own, China may not want to yoke itself to Russian supplies.
Neftegaz.ru