After eight years of wrangling, primarily over the price of hundreds of billions of cubic metres of gas to be supplied by Russian state-owned Gazprom, Moscow and Beijing moved close to a full agreement earlier this year. But in June it unravelled again, with China National Petroleum Corporation (CNPC) demanding that the gas price be linked with the so-called Henry Hub index – named after a gas pipeline system in the United States used for gas futures contracts on the New York Mercantile Exchange.

However, Gazprom refuses to accept pricing for its gas being linked to the index because it would be less than the price it wants. At the same time, Beijing knows that Russia is becoming increasingly dependent on energy exports and needs new markets.

Beijing’s sudden stall on a firm gas deal with Moscow coincided with the safe completion of CNPC’s 900-kilometre pipeline through Myanmar into southwest China. It will soon be pumping 12 billion cubic metres of gas per year from the Shwe field in Myanmar’s Bay of Bengal waters.

China has bought most of the verified 200 billion cubic metres of gas in two blocks of the field. Two more blocks have still to be explored, so the field could yield even more.

China consumed 147 billion cubic metres of gas in 2012, which was still only 4 per cent of the world’s total consumption and less than Japan and South Korea combined. But the International Energy Agency has predicted that Chinese gas consumption will reach 260 billion cubic metres a year by of the end of 2015.

State control of gas prices and other basic commodities as a means of controlling inflation has meant that national oil companies are often forced to sell imported gas at less than the price they bought it for on the international market.

If a Sino-Russian gas agreement is not finalised by the end of this year it will have “very serious regional and global implications towards gas trading business in the coming years,” senior research fellow Keun-Wook Paik at the Oxford Institute for Energy Studies told M-Zine+ this week.

“Until 2020 China has secured sufficient gas supply, but during the 2020s there are many factors that could affect the large scale gas supply to China. When the second stage of LNG terminal development in China’s coastal provinces is completed, it could easily handle well over 60 million tonnes a year of LNG supply.

“The LNG import scale by CNPC is and will be much smaller than that of CNOOC [China National Offshore Oil Corporation]. It will be CNOOC that has to bear all the excessive LNG premiums, while CNPC has a number of supply options like domestic production and imported pipeline gas from the central Asian republics and Myanmar.

“CNPC’s dragging tactic [on a Russian deal] does not necessarily maximise China’s national consumer interest. Clearly this is an issue that has to be coordinated at the State Council level, not by CNPC,” said Paik, a specialist on Sino-Russian oil and gas issues.

With China’s conventional gas fields reaching peak production without new discoveries there has been much speculation about China reducing its import dependency by following the United States and tapping into its huge shale gas reserves. But the remote and deep locations of much of the Chinese shale, the lack of technical skills and pipeline infrastructure and the need for large volumes of water make it unlikely that this can be a short or medium-term solution.

An agreement with Russia is being further complicated by China seeking to win development contracts in Russia’s gas field development, CLSA Markets analyst Nelson Wang in Hong Kong told M-Zine+.

“The deal will be struck sooner rather than later as there is a huge supply gap to meet China’s surging demand and Beijing has to fix that. We are expecting the deal to be closed late this year or early next year. Forget about shale gas in China, it’s a non-event in China’s natural gas story as we won’t see any sizable flows before 2020,” Wang said.

Some analysts inside China think the Beijing government, ultimate owner of CNPC, could resort to coal rather than racking up more gas costs.

“If Gazprom asks for a high price, China does not have to import the gas as it could still fall back to use more coal, although this might not be ideal for combating the climate change issue,” the dean of the Academy of Chinese Energy Strategy at the China University of Petroleum in Beijing ,Wang Zhen, told Interfax.

Others speculate China may be stalling with Russia for other reasons.

“The big issue here is that such an agreement [on Russian gas] will require a huge capital investment in new pipeline capacity,” Christopher R. Knittel, professor of energy economics at Massachusetts Institute of Technology in the United States told M-Zine+.

“The value of this capacity, to Russia and China, depends heavily on the price of natural gas in China. So, if China is able to develop shale resources then it is possible building the pipeline would be a bad idea,” Knittel said.

“No one can say for sure, but I think this may be a big stumbling block for such a deal. If China does develop these alternative resources, a [Russian] pipeline does not make sense; if they can’t, then it does. Therefore, there is a big ‘option value’ for waiting.”

Most of Gazprom’s gas fields are in western Siberia nearly 3,000 kilometres from the Chinese border.

For Paik, however, a much longer wait on an agreement is not a healthy option for Beijing.

“It will be only a matter of time for the final agreement to be settled but it is difficult to predict when it will be inalised. Since 2006, Gazprom and CNPC entered into very intensive price negotiations, but no compromise was made even though the necessity was there. From the Chinese viewpoint, however, the necessity was not as strong as that of oil supply from Russia,” Paik said.

However, with 30 new Myanmar offshore blocks on the verge of being contracted to international developers, possibly including CNPC and CNOOC, perhaps Beijing sees a more pliable government in Naypyitaw as a better long-term solution than dealing with Moscow.