PetroChina pipeline turns on gas supply

Turkmenistan has transported more than 30 billion cubic meters of natural gas to China in more than 900 days using the Central Asia-China Pipeline, an amount making up a fifth of the gas China used last year.

Of the 30 bcm, about 10.7 bcm came from the CNPC (Turkmenistan) Amu Darya River Gas Co, and Turkmenistan's Natural Gas Konzern supplied the remaining 19.3 bcm, China National Petroleum Corp said on its website on Monday.

The Central Asia-China gas pipeline, which starts in Turkmenistan and runs through Uzbekistan and Kazakhstan before connecting to a second pipeline running west to east in Chinese territory, began delivering gas on Dec 14, 2009.

China has imported about 18.4 bcm of natural gas through the country's first cross-border pipeline in the past two years, according to Duan Zhaofang, a natural gas researcher at the CNPC Research Institute of Economics and Technology.

The pipeline has been moving gas at a faster pace since around the start of the year, which will help to relieve China's gas shortage and eliminate pressures arising from negotiations with Russia, Duan said.

PetroChina Co, CNPC's listed arm and the country's largest supplier of natural gas, plans to import 24.1 bcm of natural gas from Central Asia this year. That will make up 86 percent of its total imports, according to Zhou Jiping, vice- chairman of PetroChina Co.

The company imported 13.3 bcm of natural gas last year, of which more than 85 percent came from Central Asia.

China is also in talks with Russia to import 68 bcm of gas a year using two pipelines. However, the world's leading gas user, China, and Russia, the world's leading gas producer, have yet to complete a proposed 30-year deal on that matter. In June 2009, the two countries signed a memorandum of understanding concerning natural gas.

Russian President Vladimir Putin is scheduled to make an official visit to China on Tuesday, a trip that has hopes running high again that the proposed agreement will be signed. Putin is to attend the Shanghai Cooperation Organization summit from Wednesday to Thursday.

"The global situation has been improving in recent weeks, particularly after oil prices slumped," said Lu Ying, a senior analyst with the oil market service provider oilgas.com.cn. "That may lower Russia's expectations on gas prices, which are closely linked to oil prices in the two countries' gas negotiations."

China and Russia did not sign the proposed deal in May when Vice-Premier Li Keqiang visited Moscow, but Li said China has proposed a new means of cooperating in gas matters, without elaborating.

For PetroChina and its Russian counterpart, Gazprom OAO, the biggest obstacle to reaching an agreement is differences over gas prices.

PetroChina wants to offer lower prices, while Gazprom insists setting prices at a level that is comparable to what is found in Europe. But a new pricing system adopted by China may help eliminate those discrepancies, Lu said.

In December, China began experimenting in Guangdong province and the Guangxi Zhuang autonomous region with linking the price of wholesale gas to that of imported fuels. The step was meant to liberalize gas prices, which are now controlled by the government. It caused PetroChina to lose 21 billion yuan ($3.3 billion) last year.

The experiment, even though far from fully developed, may help persuade PetroChina and its Russian counterparts to move their prices closer to each other, Lu said.

PetroChina is applying the system in places where it has recently begun offering gas services, but it is moving slowly to do so throughout the entire country, Jiang Jiemin, chairman of PetroChina, said.

"It's a commercial deal, even though political interests are involved," said Xing Guangcheng, executive director of The Shanghai Cooperation Organization Research Center.

"As such, I don't think the two countries will move quickly to close the talks before President Putin makes his visit to China."