For more than a decade, the Russian government has sought to increase energy exports to the Far East, while the Chinese government has searched the world over for new sources of energy imports. Nonetheless, six years after a memorandum of understanding and three years after the signing of a “framework agreement,” the two sides still have not reached an agreement on a long-term natural gas deal. While some uncertainty remains regarding pipeline construction and supply volumes, the key sticking point is and has been price. It is sometimes tempting to believe that an appropriate price exists and that one side or the other is refusing to acknowledge this reality. Alternatively, some observers argue that the gas negotiations, which have dragged on longer than similar discussions over oil, are more difficult precisely because there is no world gas price as markets are too fragmented. This memo argues that there is no “correct” price, only a price on which two sides can agree. At the same time, there are forces—including world markets—that can affect the range of acceptable prices in understandable ways. […]
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