Russia Wednesday said it was close to signing a deal to sell natural gas to China, a long-sought agreement that 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 immediate 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.
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 meters of gas a year.
“Regarding Gazprom’s gas contract, the sides are close to agreement. ... The only issue remaining is ... the price,” he 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 2014.
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 $10-$11 per mm Btu (million British thermal units) from China. China is believed to pay $9 per mm Btu to Turkmenistan, the former Soviet state in Central Asia that beat Gazprom to the Chinese market.
The gas deal with China would help Gazprom reduce its dependency on exports to Europe, which gets around a third of its gas needs from Russia. Half of this amount comes via Ukraine, which is at odds with Moscow over gas payments as well as being locked in a political standoff over the Crimea region.
Gazprom has increased the gas price for Ukraine by 80 percent since its neighboring former Soviet republic ousted Moscow-backed President Viktor Yanukovich on Feb. 22 and installed a Westward-looking government.
Bypassing Ukraine by using different pipelines, or reorienting trade to the East, have become priorities for the Kremlin. But Russia’s desire to find new markets has also strengthened Beijing’s negotiating position on the price.
Gazprom has been in painstaking talks over the last 10 years about shipping gas to China and has been unable to agree on pricing.
Russia ships around 16 percent of its total crude exports to Asia, while gas volumes are small, limited only to supercooled seaborne gas.
By 2035, Moscow plans to double the share of oil flows and send a third of its gas exports eastwards, though its plans are constrained by the lack of necessary infrastructure.
Russia, which extracted an average 10.56 million barrels of oil per day last month, exports around 4.4 million bpd of oil. It is slowly reducing westward flows in favor of Asia.
Sanctions imposed on Russia over its annexation of Crimea are mainly limited to individuals, but the EU has stepped up discussion to reduce its dependence on Russian energy.
Source: Reuters
