Gazprom strikes preliminary gas deal with China

[October 13, 2009]  BEIJING (AP) -- The head of Russia's Gazprom said Tuesday a preliminary deal had been reached to supply energy-hungry China with natural gas.

Gazprom's chief executive Alexei Miller said the agreement between Russia's state-run natural gas monopoly and China National Petroleum Corp. calls for the supply of 70 billion cubic meters of gas a year. A price had not been set and no contract signed yet.

Chinese media reports have said the agreement is expected to be a gas-for-loans deal similar to a $25 billion oil-for-loans deal that was completed earlier this year.

Russia and China are increasingly overcoming traditional mistrust to push ahead on mutual economic interests.

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.

Miller said the gas agreement will be formally signed in the presence of Russian Prime Minister Vladimir Putin and Chinese Premier Wen Jiabao later Tuesday.

"The document we drafted will say that a contract will include a price formula and principles of setting the price which will be based on Gazprom's experience in gas exports and principles of international trade," Miller told reporters.

"Gazprom will independently build gas transportation facilities on the Russian territory," he said when asked if China could invest in building gas pipelines. He added Gazprom may welcome Chinese investments in building gas-processing facilities.

He also said an agreement was possible on supplying liquefied natural gas to China from Sakhalin Island in Russia's far east but did not elaborate. "We also have agreed to conduct talks on possible deliveries of LNG to China. We are looking into the possibility of starting LNG supplies to China already next year."

Miller said the gas agreement envisages two possible routes for supplying China -- one from fields in western Siberia and another from fields in eastern Siberia and Sakhalin.

The western route can be put in place "very quickly" as Gazprom has ready-to-tap gas fields and all the necessary infrastructure there, Miller said.

The eastern route would require the creation of gas-processing facilities since the gas in the region contains precious chemicals that need to be extracted first, he said. That would require further negotiations on jointly creating the facilities and selling those products in other markets.

Russia and China earlier signed agreements worth $3.5 billion. Russian Deputy Prime Minister Alexander Zhukov told reporters that Russian and Chinese businessmen and officials signed the agreements, including $500 million loans each from the China Development Bank to its Russian equivalent VEB, and from the Agricultural Bank of China to the state-controlled VTB bank.

Other deals included Chinese companies making investments in construction industry facilities in Russia, Zhukov said. "Naturally, the Chinese are interested in getting (ownership) stakes," he said without giving any details.

Zhukov said the two sides signed an agreement on advance notification for planned ballistic missile launches by either country. He did not give details.

[Associated Press; By VLADIMIR ISACHENKOV]

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