CHINA-RUSSIA/GAS (SNAP ANALYSIS) By Tom Miles BEIJING, June 17 (Reuters) - The failure of China and Russia to clinch a gas pipeline deal on Friday is unlikely to be the end of the story as the world's top producer and consumer of energy can both see a pact makes sense. After years of negotiations and increasingly optimistic rhetoric that a deal would be struck before or during a visit by China's President Hu Jintao to the St Petersburg economic forum, the bubble of belief in a deal appears to have burst. The stumbling block? Price. The two sides had long said the price of gas to be delivered -- via two pipelines, then one, and now two again -- was the sole remaining obstacle. But they seemed to wave away the seriousness of the divide by promising the deal would be finalised in mid-2011. The fact that President Hu went to St Petersburg with his foreign ministry trumpeting the near-certainty of a deal appears to suggest it was the Russians who pulled the plug on the provisional agreement. Russia may be betting that China, which is facing its worst power shortages in seven years this summer, cannot afford to say no to 68 billion cubic metres of Russian gas to feed its burgeoning gas market annually from 2015. But Hu may console himself that if Russia's Gazprom won't deal, there are many other wannabe suppliers queueing up to talk to Beijing. OTHER SUPPLIERS China already has a 30 bcm pipeline bringing gas from Turkmenistan and may build a smaller pipe from Myanmar. China's triumvirate of state oil firms is also planning a rash of gas import terminals that will pop up along China's coast, to be supplied by ships arriving from Australia, Qatar and elsewhere. That smorgasbord of suppliers gives Hu the confidence that he can walk away from St Petersburg without a deal, whereas Russian President Dmitry Medvedev, like Vladimir Putin before him, has very few export options beyond increasing dependence on Europe -- exactly the problem the China deal was meant to solve. China also holds a wild card in the shape of its own gas industry which could be gigantic, if some experts' predictions about the potential of shale gas are realised. In that case, China's reserves would rival Russia's, and Moscow would have to kiss goodbye to any chance of selling to China. But that remains a pipe dream because shale gas development has barely begun in China, and in the short term President Medvedev, and Gazprom's export chief, his namesake Alexander Medvedev, may both be banking on Hu feeling the heat at home this summer. China's latest electricity crisis has rammed home the importance of finding alternatives to coal, easily China's dominant fuel. China is already placing huge expectations on hydropower, nuclear and wind, and gas could be the best available option. The failure to sign in St Petersburg will rekindle memories of past mutual suspicion, and again raise uncomfortable questions about why the two countries -- one a huge seller and one a huge buyer of natural resources -- punch so far below their weight in bilateral trade. The only major ventures the former Cold War frenemies have undertaken together have been two long-term oil deals, both struck at moments where Moscow had little choice but to accept Beijing's terms. One was $6 billion to help Russia break up the defunct YUKOS oil firm, and which funded six years of cheap oil shipments to China. The second was a $25 billion lifeline to Russia's economy in the depths of the global financial crisis for oil to be supplied along the East Siberia-Pacific Ocean (ESPO) pipeline, a route that opened last year. The fact that the ESPO pipeline got built shows that politicians in both camps can see the strategic importance of the bigger picture, and for the same reason a gas deal is likely, one day. (Editing by Clarence Fernandez)

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