By Isabel Gorst in Moscow
Hu Jintao, the Chinese leader, begins a state visit to Russia today that both sides hope will culminate in signing a landmark gas agreement cementing ties between the world?s biggest energy consumer and producer.
However, Russian and Chinese gas officials were still trying on Tuesday to agree the commercial terms of a deal that would pave the way for the supply of 68bn cubic metres of Siberian gas a year to China for the next 30 years.
Mr Hu will hold talks with Dmitry Medvedev, Russia?s president, in the Kremlin on Wednesday before attending an economic conference in St Petersburg later this week, where the two men are expected to flag progress on the gas talks, even if a final deal has not been clinched.
The gas deal, following the launch of an oil pipeline to China this year, is central to Russia?s strategy to globalise its energy trade and bolster its bargaining power in European markets that absorb most of its gas exports. China needs Russian gas to help fuel its rapid economic growth and reduce the use of environmentally damaging coal.
But even as their strategic economic goals coincide, the two nations have struggled to reach an agreement on gas prices in time to meet a deadline for finalisation of a deal during Mr Hu?s visit this week.
Jiang Jiemen, president of China National Petroleum Corporation, and Alexei Miller, the head of Gazprom, met for a third day of talks in Moscow on Tuesday aimed at breaking the deadlock. In a terse statement, Gazprom said: ?Gas negotiations would be continued.?
Gazprom insists the profits on exports to China should match levels in European markets, where gas demand is expected to rise as consumers shun nuclear power after Japan?s Fukushima disaster.
China is prepared to drive a hard bargain on gas prices having contracted to import liquefied natural gas from the Middle East and Australia, and pipeline supplies from Burma and central Asia. Talks have also been complicated by disagreements on the routing of two gas pipelines Russia has proposed to build from Siberia to China.
Russia favours a pipeline originating at existing gasfields in west Siberia to Xinjiang province in north-west China that would provide arbitrage opportunities between Europe and China. Xinjiang is also the entry point for a 1,800km pipeline built by CNPC to import gas from central Asia, where Russia faces Chinese competition for energy resources in an area Moscow considers its back yard.
China, planning to boost gas purchases from Turkmenistan to 40bn cubic metres a year, would prefer to import Russian supplies through a pipeline from new fields in east Siberia to its populous, industrialised north eastern coast.
Analysts said China, which has won rights to develop a vast gas field in Turkmenistan, may demand access to Russian gas reserves as a condition for a compromise on price.
Gavin Thompson director of China gas research at Wood Mackenzie, the Edinburgh-based energy consultancy, said the dispute over gas prices would not impair the long-term prospects of a deal. ?People talk about the destiny of the deal happening, and that?s probably accurate. But . . . this has the potential to keep running for one or two more years.?
? The Financial Times Limited 2011