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. Last Updated: 07/27/2016

China Courts Turkmens As Russian Gas Sputters

BEIJING -- China is hedging against a slow-going Russian gas deal by aggressively pushing for imports from Turkmenistan, which could force Moscow to accept Beijing's price demands or watch its Asian strategy unravel.

China's plan to buy 30 billion cubic meters of Turkmen gas per year -- more than half its current consumption -- shows Beijing is as ready as its resource-rich northern neighbor to play pipeline politics to its own advantage.

At stake in the tussle are multibillion-dollar, long-term gas sales contracts for Gazprom and a more diverse supply of cleaner fuel for China's economic juggernaut, now running mostly on coal.

"Moscow has long used the prospect of selling gas to China as a bargaining tool in price negotiations with Europe. Turkmenistan has taken a cue from this playbook and is looking to tap the China market as a hedge against Russia, its sole market," said Trevor Houser, of New York-based China Strategic Advisory.

"China knows how to hedge its bets too."

The involvement of China National Petroleum Corporation, the state energy firm, in detailed commercial discussions shows Beijing is serious about the deal as it seeks to meet gas demand expected to triple to 200 bcm per year by 2020, with domestic production providing 120 bcm.

Given Beijing's reluctance to pay for costlier liquefied natural gas, Moscow grew confident that its offer of another 60-80 bcm would be impossible to turn down, analysts say.

"They were a little bit arrogant and pompous with regard to exporting their gas to China. China didn't appreciate that," said Keun-Wook Paik at the Oxford Institute for Energy Studies. "Beijing's stance was: We've been waiting very patiently, but if you don't deliver what we want, we will find alternatives. If you drag your feet, we are going to prioritize Central Asian gas."

Gas makes up only 3 percent of China's energy consumption, but Beijing's push to boost that share offers an opportunity to feed China's economic boom with long-term sales along a brand new east-west route instead of to traditional European markets.

In two state visits to Beijing within two weeks in July, Turkmenistan agreed to let CNPC develop a giant gas field.

The two sides also neared agreement on prices of gas via a 2,000-kilometer pipeline to the border, making substantial progress from an agreement in June 2006, when Turkmenistan was still ruled by eccentric autocrat Saparmurat Niyazov, who died in December.

By contrast, Gazprom has put its plan for Chinese export pipelines on hold, citing China's unwillingness to pay a reasonable price. It now hopes to get a commercial deal by the end of this year, almost two years after President Vladimir Putin first announced the scheme.

Gazprom, which has forced Turkmenistan to supply Ukraine instead of more lucrative Western Europe, has been buying up gas in the Far East to cement its hold on exports there. The only project outside its control, ExxonMobil's Sakhalin-1, has been told by officials not to sell to China.