No Russian gas deal with China - yet

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br CHINA-RUSSIA Reuters Russian President Vladimir Putin, left, and China's President Xi Jinping shake hands after signing bilateral agreements ahead of the fourth Conference on Interaction and Confidence Building Measures in Asia summit, in Shanghai yesterday. Photo: Reuters

Hong Kong and Moscow - The presidents of China and Russia gave no word yesterday on a much-anticipated gas supply deal at a meeting in Shanghai, but Vladimir Putin’s spokesman said an agreement could still come soon.

Putin and his Chinese counterpart, Xi Jinping, signed bilateral agreements that did not include the gas deal at their meeting. The two countries were working out pricing, and an agreement could be reached at any time, Dmitry Peskov, Putin’s spokesman, said.

“Talks are going on; it can happen absolutely any moment,” Peskov said.

The two countries have been in talks for 10 years to reach a deal that may be worth as much as $400 billion (R4.14 trillion).

The stumbling block has been price, although with Putin facing trade and financial sanctions from the US and EU after he annexed Crimea from Ukraine, a deal is seen as probable. China, Russia’s largest trading partner, was the only country in the UN Security Council not to censure Putin’s actions in Ukraine.

Gazprom, the world’s largest natural gas producer, plans to build a $22bn pipeline to China able to carry as much as 38 billion cubic metres annually after years of false starts. The company was expected to begin supplying China in about 2019 or 2020, Russia said earlier this year.

The pipeline’s capacity was almost a quarter of China’s current consumption and about 10 percent of its estimated demand by 2020, Gordon Kwan, the head of oil and gas research at Nomura International Hong Kong, said.

For Gazprom, it is about 20 percent of European gas sales, its 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.

Gazprom’s average price in Europe was $380.50 per 1 000m³ last year. Brokerage and investment group CLSA forecasts a price for Russia’s gas of between $335 and $350 per 1 000m³ delivered to the Chinese border.

“Better to sign a contract at a relatively low price now, than not to sign at all,” said Ekaterina Rodina, an oil and gas analyst at VTB Bank in Moscow. “Especially if China agrees to provide prepayments or loans, which Gazprom could use in pipeline construction and field development.” – Bloomberg

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