China's incoming president, Xi Jinping, will likely follow the course set by his predecessor in dealing with Russia, according to a former senior vice president at China National Offshore Oil Corporation, Victor Gao.
Xi is expected to be installed as president this week for a 10-year term that will see radical growth in China's demand for cleaner products than coal, although Gao argued that this does not mean it will accept Russia's terms for gas.
Gao told Platts on the sidelines of the Flame Conference in Amsterdam Wednesday that China would keep its dependence on Russian energy within certain limits.
It is already a major importer of Russian oil. While Russia and China share a border, the two nations have spent over a decade discussing trade of natural gas that could benefit both sides: imports through one or two pipelines, bringing 30 billion cubic meters/year in one case and 38 Bcm/year in another, from different Russian gas fields to China. But Gao told the conference that, while China is "willing to hold out its hand to Russia, the issue of pricing is very much a bottleneck." He said Russia has kept changing its mind.
But shale gas production could give Russia second thoughts, he added. "Russia has an incentive to find an effective way to re-engage China or it will be too late. Both countries have to see a deal that both will buy into and not walk away from. This takes courage," he said.
US gas production is likely to lead to growing amounts of LNG heading for Europe later this decade, unless Asian utilities are able first to cancel long-term import contracts with other producers.
China is however very keen to strike up a better relationship with North America. Gao said China has every reason to welcome US energy independence, and is "fully willing to provide capital, equipment and uptake for oil and gas that the US no longer needed."
"China is promoting the establishment of a new international order," he said. "It is time for China and the US to sit down and discuss economic and geopolitical shifts."
Canada -- which took some months to decide to allow a deal between CNOOC and Nexen -- has set up obstacles in the way of state-owned companies wanting to buy Canadian firms, Gao said, adding he hoped that Canada would reach an understanding that ownership is less important than safety, level of service and other criteria.
He said China has set aside $100 billion for investment in Canada and it would be better for Canada to sell oil and gas to Asia at parity or even a premium than to the US at a discount.
Gao said that there is a lot of headroom for Chinese gas demand: its 147 Bcm/year demand makes up just 5.5% of the fuel mix.
"Even if China quadruples its gas consumption, it will only equal the global average," he said.
