Russia's Gazprom and CNPC agree terms on massive gas deal

PUBLISHED : Friday, 06 September, 2013, 12:00am
UPDATED : Friday, 06 September, 2013, 8:52am

Russian gas giant Gazprom and China National Petroleum Corporation yesterday agreed to basic terms on a long-awaited deal to deliver natural gas to China, paving the way for a final deal to help meet the country's soaring energy demands.

Pressure on Gazprom to venture into the Chinese market has risen. Its Russian rivals, such as Novatek, have secured deals to supply China with gas from still-unfinished liquefied gas plants and are lobbying to limit Gazprom's export monopoly.

Gazprom's key market has remained the European Union, whose core member states started receiving gas from the former Soviet Union in 1968. Some 55 per cent of the company's profit comes from the bloc.

But cash-strapped European firms have increasingly sought to move away from energy dependence on their home countries' former cold war foe, looking for cheaper fuel, such as liquefied natural gas.

Gazprom, meanwhile, has been involved in painstaking - and so far fruitless - talks about supplying China and diversifying its deliveries away from Europe.

The basic terms - signed by Gazprom and CNPC chiefs in the presence of President Xi Jinping and his Russian counterpart, Vladimir Putin - "define the volumes, start of deliveries, payments," and other issues, Gazprom said.

Gazprom first signed a memorandum of understanding with China in 2006 to ship up to 68 billion cubic metres (bcm) of gas per year via two routes, later prioritising a route which would take 38 bcm per year.

However, talks on finalising a deal have been delayed repeatedly over numerous differences, including pricing. The gas prices, which are usually linked to oil prices, may include a spot portion to reflect the fluidity of the liquefied gas market.

Gazprom has said it aims to supply China with 38 bcm per year from its fields in eastern Siberia. That compares with 152 bcm it expects to supply to Europe this year.

Gazprom chief executive Alexei Miller said the companies plan to sign the final supply deal by year-end.