May 14, 2014 / 3:30 PM / 6 years ago

UPDATE 1-China and Russia still haggling over gas price ahead of Putin visit

* CNPC official says Ukraine not a factor in talks - Interfax

* Chinese sources say Beijing under no pressure to sign deal

* Citi believes deal is imminent, to be priced well for Gazprom (Adds details, quotes, analysts)

By Katya Golubkova and Chen Aizhu

MOSCOW, May 14 (Reuters) - China and Russia’s Gazprom are making a final push to clinch a long-delayed natural gas deal but have yet to iron out price differences, a Beijing official said on Wednesday, ahead of next week’s state visit by Russian president Vladimir Putin.

Amid rising tensions with the West and a threat of deeper sanctions in protest at Moscow’s annexation of Crimea, Putin could yet clinch the gas deal next week and reinforce his repeated assertions that Russia wants to divert some oil and gas flows from European markets towards growing Asian nations.

Gazprom generates about 80 percent of its revenue from gas sales to Europe and has so far been only a marginal player in Asia because of a lack of eastbound pipelines and its relatively small liquefied natural gas (LNG) business.

Some analysts said they believe that a deal with China is imminent and that the two countries have probably agreed a price acceptable to both sides. However, failure to clinch a deal would expose Russia’s huge reliance on energy revenues from its key Western buyers and probably strengthen Beijing’s bargaining positions in the months to come.

“Rumours that the Chinese side is trying to use the current events in Ukraine to reduce the price for Russian gas are not true,” Russia’s Interfax news agency quoted an official for foreign relations from China’s state-owned CNPC as saying.

“The heads of CNPC and Gazprom reached an agreement to sign a contract during the visit of Russian President Vladimir Putin to China in May. However for the contract to be signed, a price for gas must be agreed.”

CNPC could not be reached for a comment on Wednesday.

Gazprom began talks with CNPC to supply it with 38 billion cubic metres (bcm) of gas a year - estimated to be worth about $15 billion - more than a decade ago.

But the deal has been postponed repeatedly over price disagreements, Beijing’s desire to develop fields in Russia and lately because of Moscow asking for dozens of billions of dollars in advance.


Sources in Beijing have told Reuters that China remains under no pressure to sign the deal as the prospects of cheaper imposts have risen on the back of growing North American gas exports and rising supplies from Turkmenistan.

China already imports about 20 bcm of gas from Turkmenistan, accounting for about half of its total gas imports, and the two countries signed an agreement last year to ramp up gas exports to 65 bcm by 2020.

Furthermore, Putin’s trip to China comes after a visit by Turkmen President Gurbanguly Berdymukhamedov, with Chinese President Xi Jinping pledging closer cooperation with the desert nation.

China, the world’s top energy consumer, has been asserting its influence in resource-rich Central Asia, once Russia’s imperial backyard.

However, analysts from U.S. bank Citi said on Wednesday that they believe the Russian gas deal will go ahead because China needs a significant increase in gas use as a primary source of energy to be able to tackle pollution from burning coal.

“While Central Asian gas can meet its share of China’s increased gas imports, it is an imperfect substitute for Russian gas, which would come from a different direction, serve a different region of China, cross the border much closer to large population centres and give China needed diversification of its imported gas sources,” Citi said.

Citi also said it believed that pricing for a deal is likely be close to $11/mbtu - comparable to Russian gas prices for Germany - and could even lead to an increase in Gazprom’s dividends. (Writing by Dmitry Zhdannikov; Editing by Elizabeth Piper and David Goodman)

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