Energy high on agenda for Putin visit to China

[October 12, 2009]  SHANGHAI (AP) -- China and Russia may be set to sign another major energy deal as the two countries overcome traditional mistrust to push ahead on mutual economic interests.

Among the agreements expected during Russian Prime Minister Vladimir Putin's visit to China this week is a possible gas-for-loans deal similar to a $25 billion oil-for-loans deal that was finalized earlier this year, Chinese media reports and analysts said.

Russia's cash-strapped energy companies need Chinese funding, while Beijing has welcomed the chance to further diversify sources for energy needed to fuel its fast-growing economy. The global economic crisis and changing market conditions have further spurred cooperation as lower demand from Europe has spurred Russia to diversify markets for its oil and gas.

"Over the course of 2009 there's been quite a breakthrough. The oil-for-loans deal put in place earlier is serving as a basis for other deals that are starting to move forward," said Thomas Grieder, Asia Pacific energy analyst for IHS Global Insight in London.

The deal signed earlier this year calls for $25 billion in Chinese funding to support construction of a pipeline to supply oil from Russia's vast, untapped Siberian reserves to China -- the world's second biggest oil and gas consumer.

In exchange, China was guaranteed a 20-year supply of crude oil -- only part of the $100 billion in China-Russia energy-related deals agreed to this year.

A similar credit may be in the works for Russia's state-run natural gas monopoly, Gazprom, to get started on gas pipelines for its Kovykta project, reports said.

China is viewed as the main market for that project, one of the largest undeveloped gas fields in east Siberia with estimated reserves of 2 trillion cubic meters of gas and more than 83 million tons of gas condensate.

Earlier this year, Gazprom warned that slower demand due to the economic crisis might cause delays in the project.

"The fall in European demand for gas drove home to the Russian energy companies the demand security threat. Russia wants to diversify to get as much leverage as possible," Grieder said.

Past energy negotiations between China and Russia often have snagged on disagreements over prices, loan terms and other issues, including Beijing's desire for equity stakes in Russian resources. Like China's own state-run companies, Russia balks at ceding any control over what it views as strategically vital assets.

But Russian's need for financing and markets, and China's huge appetite for resources appear to be propelling such projects ahead, despite such differences.

During Putin's visit, nearly three dozen contracts in energy, mining, transportation and infrastructure development, worth more than $5.5 billion in total, are due to be signed, Russian Deputy Prime Minister Alexander Zhukov told reporters in Moscow.

Over the weekend, Russian and Chinese negotiators met in Beijing to put the final touches on those agreements, Chinese reports said.

Chinese media reports said another agreement that might be signed is a contract to build a joint venture refinery in the northeastern city of Tianjin, near Beijing.

Preliminary research has ended for the project, which would be 51 percent-owned by state-run China National Petroleum Corp., and 49 percent by Russia's Rosneft. The plan is to finish building the 15 million ton annual capacity refinery by 2012, with total investment between $300 million and $400 million, the state-run newspaper 21st Century Business Herald reported.

"Why not? It meets the needs of both sides," said Qiu Xiaofeng, an energy analyst at Merchant Securities, in Shanghai.

"Russia is keen to get Chinese refiners to invest and help it develop its resources," Qiu said.

[Associated Press; By ELAINE KURTENBACH]

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