"Beijing and Moscow said they signed a much-anticipated contract to supply China with hundreds of billions of dollars worth of Russian natural gas following a decade of difficult talks.
Neither side released details about the price, long the major sticking point of a deal. The two sides in the past have announced supply deals but said a final price would be negotiated later.
GazpromCEO Alexei Miller told Russian media that the two sides had signed a contract worth a total of $400 billion over its 30-year life. "This is Gazprom's biggest contract. We don't have a contract like this with any other company," Mr. Miller told reporters in Shanghai, the Interfax news agency reported.
Russian news agencies said the contract called for supplies of 38 billion cubic meters of gas a year, which would imply a price of about $350 per thousand cubic meters, at the low end of what Gazprom currently charges export clients.
Mr. Miller said the price in the China deal "is a commercial secret," Russian news agencies reported.
China's official Xinhua news agency said documents related to the deal were signed in Shanghai by Chinese President Xi Jinping and Russian PresidentVladimir Putin, who had made the multibillion-dollar deal the top item of his two-day visit there.
China National Petroleum Corp. said Gazprom would be responsible for developing natural gas supplies in eastern Siberia, while CNPC would develop transport and storage facilities within China's borders.
A deal would allow Gazprom to make a strategic shift toward Asia, just as theEuropean Union is seeking to extricate itself from Moscow's energy grip.
The EU is accelerating plans to find alternative sources of gas and trying to stymie Gazprom's efforts to boost its presence on the Continent amid fears the Ukraine crisis could lead to disruptions of gas supplies to Europe.
"Russia needs this China deal very badly because it needs to signal to [Brussels] and to some EU nations that it's taking a step that's economically profitable and that it's found a new market for its gas," said Shamil Yenikeyeff, a research fellow at the Oxford Institute for Energy Studies.
Even if Russian and Chinese officials agree on a price to secure future gas supplies, the fortunes of Gazprom are likely to remain deeply interwoven in the European market.
Gazprom provides 30% of Europe's gas, around half of which flows through Ukraine. Gazprom needs the higher price it receives for exports to Europe to compensate for the much cheaper price it charges in its domestic market, where gas is subsidized. Last year Gazprom made 2.1 trillion rubles ($60 billion) from the 174 billion cubic meters it sold to Europe, a far higher price than it charges for domestic sales. It made just 794 million rubles from domestic sales of 243 billion cubic meters of gas.
The initial volume of gas exported, around 38 billion cubic meters a year, would be small compared to the amount currently exported to Europe. Even if capacity were increased to more than 60 billion cubic meters later, as the Russians hope, the volume of gas will still be around a third of what is currently exported to Europe. Gazprom's sales to Europe rose by 15% last year to 174.3 billion cubic meters—the highest since 2008.
In turn, Russia's gas exports account for around 10% of the country's total exports and 6% of government revenues, according to Capital Economics".
Source: WSJ
