China and Russia sign gas deal

China and Russia signed an eleventh hour agreement to import natural gas from Russia’s Gazprom during a state visit by President Vladimir Putin on Wednesday following strenuous Russian efforts to secure what has been portrayed as a key test of closer Sino-Russian ties.  As Moscow’s relations with the west have deteriorated over the crisis in Ukraine, Mr Putin has sought to show the world and the Russian people that he has alternative friends to the east.

State-owned China National Petroleum Corp, China’s largest oil company, said on Wednesday it had signed a 30-year deal to buy up to 38bn cubic metres of gas per year, beginning in 2018.

The company did not give details on the pricing of the gas, the sticking point in negotiations that have stretched over a decade. Russian media and officials had said the deal would be a highlight of Mr Putin’s visit.

The breakthrough came just hours after PetroChina, the listed subsidiary of CNPC, told the Financial Times that the deal would not be completed during Mr Putin’s visit because of the pricing dispute.

“At the moment the import price and the domestic price are inverted. We are already losing money on imported gas, and we can’t lose more,” said PetroChina spokesman Mao Zefeng earlier on Wednesday.

In the wake of Russia’s aggressive actions in Ukraine, European countries have been rethinking their dependence on Russian gas.

The deal is a powerful sign of Russia’s ability to reduce its reliance on Europe, the largest importer of Russian energy.

Mr Putin’s visit has been filled with symbolic appearances intended to show the growing strength of the relationship, which both sides have described as the best in their history.

The long-running discussions over the gas deal have involved the price, pipeline route and Chinese stakes in Russian projects.

The Chinese side would have driven a harder bargain in light of Gazprom’s weaker position, industry sources in Beijing said.

On Tuesday, China formally signed previously agreed LNG supply deals as well as a massive coal co-operation project.

For China, with a growing diversity of natural gas sources including from newly licensed Russian exporters, securing supply of piped gas from Gazprom no longer holds the importance it did when the two companies began negotiating a decade ago

FT