Russia close to reaching gas supply deal with China

Gazprom hopes to sign supply contract next month that will include building a pipeline

PUBLISHED : Thursday, 10 April, 2014, 1:01am
UPDATED : Thursday, 10 April, 2014, 1:01am

Russia yesterday said it was close to signing a deal to sell natural gas to China, a long-sought agreement which President Vladimir Putin could hold up to show Western sanctions over Crimea cannot isolate his country.

The deal is the holy grail for Russia after at least 10 years of talks and Moscow hopes it can be signed when Putin visits China next month, enabling it to go into force by the end of this year.

There was no comment by China, whose negotiating position has been strengthened by Western threats to impose more sanctions on Russia if Moscow sends its armed forces into eastern Ukraine following its annexation of Crimea.

The sides are close to agreement. The only issue … is the price


As talks between state-controlled Gazprom and Chinese officials continued in China, Arkady Dvorkovich, a deputy prime minister, said the sides were close to sealing a deal that would also involve construction of a pipeline to carry 38 billion cubic metres of gas a year.

"Regarding Gazprom's gas contract, the sides are close to agreement. The only issue remaining is the price," Dvorkovich was quoted as saying by Itar-Tass news agency. "We really hope that the contract will be signed in May."

Gazprom said separately it made progress at the talks on the price China would pay for the Russian gas and that it expected the contract to come into force by the end of the year.

Industry sources said before the latest round of talks that Gazprom could try to secure a deal by proposing a lower price for the gas in exchange for China handing over billions of dollars in upfront payments.

The sources said Gazprom was hoping for a price of US$10 to US$11 per mmBtu (million British thermal units). China is believed to pay US$9 per mmBtu to Turkmenistan, which beat Gazprom to the Chinese market.

The gas deal with China would help Gazprom reduce its dependency on exports to Europe, which gets about a third of its gas needs from Russia. Half of this amount comes through Ukraine, which is at odds with Moscow over gas payments as well as being locked in a political stand-off over the Crimea.

Gazprom has increased the gas price for Ukraine by 80 per cent since president Viktor Yanukovich was ousted on February 22 and replaced by a Westward-looking government.

Kiev said the price rise was a politically motivated move to punish it for pursuing closer ties with the European Union.