China National Petroleum Corporation (CNPC) has decided to back-out of an agreement with Russian gas giant Gazprom for the construction of a natural gas pipeline from western Siberia to the Xinjiang region, according to Chinese state radio.

The Power of Siberia-2 route, previously known as the Altay route, was expected to supply 30 billion cubic meters (bcm) of gas a year to China.

An agreement to construct the 2,800km pipeline was signed by Russian president Vladimir Putin and his Chinese counterpart Xi Jinping in November.

The western Siberian pipeline was in addition to another from eastern Siberia to China, called the Power of Siberia pipeline, which is still going ahead. Construction of that line officially began on 29 June this year.

State-owned broadcaster China Radio International (CRI) reported that CNPC “has reportedly decided to back-out” on 29 July, following earlier reports in Russian media that the western Siberian pipeline had been “delayed indefinitely”.

Talks were hampered by disagreements over the price of the Russian gas, and whether Chinese companies could tender to build the Russian segments of the pipeline, according to Sergey Sanakoev, president of the Russian-Chinese Center of Trade and Economic Cooperation.

According to state-owned RT.com, Sanakoev told Russian-language business newspaper Vedemosti that the high cost of pipeline construction in Siberia was pushing the price of the gas up, and that Gazprom denied requests from the Chinese side to open construction to Chinese bids, which could bring construction costs down.

Another factor is the slowing growth of demand for gas in China, which is facing an economic slowdown, another analyst told Vedemosti.

Despite CRI’s report, however, there is some doubt over the exact status of the talks. On 28 July a Kremlin spokesman told Russian state news agency Sputnik that an agreement on the western gas route could be signed during President Vladimir Putin’s visit to Beijing in September.

Source: Global Construction Review