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China not ready to buy more Russian gas above 38 bcm being discussed

April 24, 2014, 2:55 UTC+3 MOSCOW
1 pages in this article

MOSCOW, April 23. /ITAR-TASS/. Russia’s Gazprom is ready to supply more gas to China than the two sides are discussing but the buyer is not prepared to purchase extra volumes, Viktor Timoshilov, who is in charge of the company’s eastern projects, said on Wednesday, April 23.

“We are negotiating with China for the supply of 38 billion cubic metres of gas eastward even though we could supply more, but the buyer is not prepared to confirm the purchase of larger volumes,” he said.

The sides are negotiating supplies in the amount of 38 billion cubic metres even though previously a figure of 60 billion cubic metres was discussed.

Gazprom CEO Alexei Miller said after a meeting with Zhou Jiping, Chairman of China National Petroleum Corporation (CNPC), in early April that the next round of talks would be held at the end of the month.

At the meeting, the parties addressed the issues of arranging Russian pipeline gas supply to China. Miller and Zhou achieved considerable progress on a contract being hammered out to supply gas via the eastern route in accordance with the previously agreed Major Terms.

“At this round of talks we approved all the project-related technical matters. We advanced in our talks on the gas price. The parties agreed that the contract would come into force before the end of 2014 and that the next round of talks would take place in Moscow in late April,” Miller said summarising the meeting results.

Gazprom may sign a contract for the supply of natural gas to China during President Vladimir Putin’s visit to Beijing in May of this year, the company said in January after a meeting between Miller and Zhou.

“Both sides are interested in the successful completion of the talks and are determined to sign the contract as soon as possible… it was proposed at the meeting that the contract should be ready for signing during the Russian president’s visit to China scheduled for May of this year,” the statement said.

The parties noted that the negotiations were progressing as per schedule and the contract would enter into force in accordance with the previously agreed Major Terms until late 2014.

In March 2013, the two companies signed a memorandum on pipeline gas supplies from Russia to China using the “eastern route.” Miller said back then that gas supplies to China could be prepaid. Given the cost of the gas transportation system to the Chinese border preliminarily appraised at 770 billion roubles, an advance payment could be as big as 25 billion U.S. dollars.

In June 2013, CNPC came up with new pricing proposals, suggesting that the price of gas be pegged to the value of Henry Hub liquefied natural gas. But Gazprom said it was not ready to do that.

The “eastern route” is an extension from the Sila Sibiri (The Force of Siberia) gas pipeline.

The main parameters of supplies are: crossing point in Blagoveshchensk; volume of supply 38 billion cubic metres with a possible increase to 60 billion cubic metres; start of supply 2018.

Over the past 10 years, natural gas consumption in China has increased from 24 billion to 100 billion cubic metres a year. There are several possible routes for bringing gas to China. Gazprom insisted that Russian gas be initially supplied to China via the “western route.”

China insisted that gas be initially supplied by the eastern route, which it believes will reduce the cost of Russian gas supplies. At this point, the cost of Russian gas deliveries, including transportation, is close to China’s offer of 250 U.S. dollars per 1,000 cubic metres.

The “western route” is the Altai gas transportation system that will supply gas from Gazprom’s gas fields. The “eastern route” can deliver gas from fields in Eastern Siberia and Sakhalin.

The agreement on strategic cooperation between Gazprom and CNPC was signed on October 14, 2004. In June 2009, the governments of Russia and China signed a memorandum of understanding for cooperation in the field of natural gas.

CNPC is China's largest petroleum company wholly-owned by the state and is one of the world's leading integrated oil and gas production companies.

In 2009, Gazprom and CNPC inked the Framework Agreement on the major terms and conditions of natural gas supply from Russia to China. The Agreement stipulates annual exports of up to 68 billion cubic meters of gas to the Chinese market. In 2010 the Extended Major Terms of natural gas supply from Russia to China were signed.

In September 2013, Gazprom and CNPC inked the Agreement on the major terms and conditions of pipeline gas supply from Russia to China via the eastern route.

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