Russia on verge of signing huge gas supply deal with China
20 May 2014
Russia is reportedly close to signing a decades-long contract to supply natural gas to China at a price that would value the deal at about $400 billion, according to prime minister Dmitry Medvedev.
Medvedev's boss President Vladimir Putin arrived in Shanghai on Monday to try and complete an agreement after more than 10 years of talks. The stumbling block has been the price, but with Putin facing trade and financial sanctions from the US and European Union after he annexed Crimea from Ukraine, a deal is seen as probable.
''It's time we reached an agreement with the Chinese on this issue,'' Medvedev said in a Bloomberg Television interview in Moscow on Sunday. ''It is very likely that there will be a contract, which means long-term contracts.''
OAO Gazprom (OGZD), the world's largest natural gas producer, aims to sign a contract with China National Petroleum Corp during the visit, Russian executives and officials have said. China, Russia's largest trading partner with $94.5 billion of business last year, was the only country in the United Nations Security Council not to censure Putin's actions in Ukraine.
A final deal on price is likely to be made by Putin and his Chinese counterpart Xi Jinping at the meeting in Shanghai today. Most other elements of an agreement are in place, according to Gazprom.
''We are just one digit away,'' Gazprom's chief executive officer Alexey Miller said on Russian state television before flying to Beijing for a meeting with CNPC chairman Zhou Jiping on 17 May. ''There's just one issue, which is the so-called P-zero, or basic starting price in the formula.''
Gazprom plans to build a $22 billion pipeline to China able to carry as much as 38 billion cubic metres annually after years of false starts. The company may begin supplying China in 2019 to 2020, Russia's energy minister Alexander Novak said in March. That amount of gas is almost a quarter of China's current consumption and about 10 per cent of its estimated demand by 2020.
For Gazprom, it is about 20 per cent of gas sales in Europe, the company's largest export market.
The deal has been delayed because Russia wanted to use sales contracts in the EU as a benchmark price, while China proposed a lower price, based on its imports from central Asia.
'''I believe that in the long-run the price will be fair and totally comparable to the price of European supplies,'' Medvedev said on Sunday.