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Miller: for Gazprom supplies to China comparable in price with other projects

"We are speaking about a unique project for the global gas sector", Milller said
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PETROPAVLOVSK-KAMCHATSKY, May 31 /ITAR-TASS/. For Gazprom, the gas supplies to China in the norm of revenues will not be less profitable than other production or transportation project, Gazprom’s head Alexei Miller told the Vesti on Saturday television programme.

The result is achieved

“It is absolutely right: for Russia and for Gazprom we have achieved the result, where we keep the level of revenues, we have in production and transportation projects,” he said.

“Of course, the price is a commercial secret,” he continued. “And yes, during all that period we contacted Russia’s President Vladimir Putin. We reported to him results of our negotiations. I would like to stress once again: the contract on the terms it is signed could have been inked only in the framework of the visit. The contract’s scale is - within 30 years we are earning $400 billion, while our expenses are only 55.”

Thus, Miller said, we are speaking about a unique project for the global gas sector.

“The gas history does not know a large-scale contract of the kind, where the supplies are 38 billion bcm a year for 30 years,” he said. “We now are supplying to West Germany over 400 billion, but it is necessary to stress that those supplies are not under one contract, they are under many contracts.”

“Germany has been approaching that level of 40 billion cubic metres for over 40 years. And China caught up with Germany right within one day,” Miller said.

“We shall see and feel in future the importance of that contract. No doubt, in some time it will affect also gas prices in Europe. This contract is realistically a newly opened page in the new competition for our gas resources among major markets. And first of all, surely, those are the Asian and European markets,” he added. “This contract is bound to influence very expensive projects of LNG facilities’ construction in Australia, West Canada and in East Africa.

Difficult talks

The talks on gas with China were complicated, as Russia considered implementation of infrastructure projects in East Siberia, Miller said.

“Those were talks on the price, which were complicated. It was necessary to realise the project was to be based on new infrastructures to be built,” he said. “What does it mean? First of all, it is an impetus for development of the towns and cities in East Siberia, in Yakutia and in the Irkutsk region. It means new jobs, new investments, and, surely, the social infrastructures.”

The specific feature of the east-Siberian gas is another complicating matter, Miller said.

“The gas in East Siberia is rich, and it would be necessary to have processing and petrochemical facilities.”

Besides, now Gazprom has new opportunities to expand cooperation with Beijing in offering energy supplies from West Siberia.

“Perhaps, much easier may be our future talks with the Chinese counterparts on the western route, as, first of all, Gazprom has excessive deposit assets in West Siberia. We can begin very quickly gas supplies to China along the western route. We may use certain passages of the gas transporting system in West Siberia, which may be focused on gas supplies to China. And, no doubt, this would require much less investments,” he added. “Everything is very-very good with that project’s economy". 

The sum of the deal was not disclosed

The contract was signed in the presence of Russia’s President Vladimir Putin and China’s President Xi Jinping. The work on the contract preparation was very complex. “Our Chinese partners are tough negotiators,” Putin said. The sum of the deal was not disclosed. Gazprom expected to get $400 as a starting price for 1 thousand cubic metres. of gas for China. The Chinese side wanted to buy gas for $350-360.

The price of natural gas for China is based on the market price of oil and oil products and is similar to the gas price formula for Europe, Putin said. “The price meets both sides - Gazprom and our Chinese partners,” Putin said. The work under the gas contract starts from Thursday, Putin said.

Natural gas will be supplied to China via an East Siberian pipeline. Russia and China are also beginning to work on the western route of gas supplies from the resource base of West Siberia, Putin said. “This will be the largest construction site in the world without any exaggeration,” Putin said, adding that Russia would also develop the new Kovykta and Chayanda gas fields as the resource base for gas deliveries. “Their total proven recoverable reserves equal 3 trillion cubic meters. In actual fact, these reserves are larger. They can guarantee gas deliveries for 50 years both to the external and domestic markets,” Putin said.

Investments in developing Russia’s gas fields and building a pipeline to China will equal $55 billion from the Russian side and at least $20 billion from China, Putin said.

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