Russia-China pipeline gas deal more likely after Ukraine political crisis

Ukraine crisis likely gives impetus for a 30-year pipeline supply agreement

PUBLISHED : Friday, 11 April, 2014, 12:00am
UPDATED : Friday, 11 April, 2014, 10:13am

Russian President Vladimir Putin is more likely to sign a 30-year deal to supply pipeline gas to China after more than a decade of false starts because the crisis in Ukraine is forcing Russia to look for markets outside Europe.

While Putin and President Xi Jinping will make the final decision in Beijing next month, Russia's need for new customers means it is pushing to complete a deal first mooted in 1997, a manager at gas-export monopoly Gazprom and a government official said.

In China on Wednesday, Russia's deputy prime minister said he "hoped" a deal would be signed next month.

The crisis in Ukraine has increased the importance of Russia's relationship with China, its largest trade partner outside the European Union and the only country in the United Nations Security Council not to censure its actions in Crimea. Until a China pipeline is built, Russia has few export markets for gas outside Europe, leaving it vulnerable to sanctions and competition from US exports of shale gas.

"This time, Russia really may close the China gas supply deal considering that it'll be more flexible on the price," Ildar Davletshin, an oil and gas analyst at Renaissance Capital, said from Moscow. "China, too, needs this contract because the further use of coal is becoming unbearable in most developed parts of the country."

Gazprom CEO Alexey Miller met China National Petroleum Corp (CNPC) chairman Zhou Jiping in Beijing on Wednesday to discuss the terms of a deal. CNPC expected to sign a contract with Gazprom "as soon as possible" and talks on prices for supply from Siberia to China were in "active progress," the Chinese company said yesterday.

Miller and Zhou would meet again in Moscow later this month before Putin travels to China on May 20, the Russian firm said.

The issue of gas has added to tensions between Ukraine and Russia, with Kiev accruing US$2.2 billion in unpaid energy bills, according to the Russian gas company.

Putin yesterday sent a letter to EU leaders, expressing his "extreme concern" over Ukraine's debt for Russian gas and warning them that supplies to Europe might be affected, his spokesman said.

Additional reporting by Agence France-Presse