November 9, 2014 / 12:20 PM / 5 years ago

Russia, China ink framework deal on second major gas supply deal

BEIJING (Reuters) - Russia and China signed a framework agreement on Sunday for a major gas supply deal, just months after the two states sealed a $400 billion gas deal, part of President Vladimir Putin’s strategy to bolster ties with Beijing.

Putin has ordered an eastward shift for the country’s economy to avoid isolation following the imposition of Western sanctions over the Ukraine crisis.

Last month Russia and China signed energy, trade and finance agreements - including a currency swap worth 150 billion yuan ($25 billion) intended partly to reduce the influence of the U.S. dollar.

The new gas deal under discussion will see Russia sell an additional 30 billion cubic meters (bcm) of gas to China for 30 years via deposits from West Siberia and delivered through the Altai pipeline.

This is on top of the agreement in May for Russian state-controlled firm Gazprom to supply 38 bcm a year to China using east Siberian gas deposits.

When the Altai route is complete, China will become Russia’s biggest gas customer, securing the world’s top energy user a major source of cleaner fuel and opening up a new market for Moscow as it risks losing European customers over the Ukraine crisis.

The memorandum of understanding was signed between Russia’s top gas producer Gazprom and state-owned China National Petroleum Corporation (CNPC), the Russian government said in a statement, following talks between Putin and Chinese President Xi Jinping in Beijing.

“Cooperation between China and Russia is utterly important in order to keep the world within the limits of international law, to make it more stable, more predictable,” Putin told Xi at the Great Hall of the People.

Discussions on the second gas deal have accelerated in recent months. Putin is eager to secure more Asian partners as Europe and the United States seek to isolate him over Moscow’s annexation of Ukraine’s Crimea peninsula.

“Currently, Gazprom and CNPC are in talks over the fulfillment of the contract, and our leaders have just agreed to sign (a firm) contract in the first half of next year,” Russian Energy Minister Alexander Novak told reporters.

“The western route is becoming the priority for our gas cooperation,” said Gazprom Chief Executive Alexei Miller, adding that the main conditions, including the timeframe for building the pipeline and rate of increasing supplies, have already been determined.

“The two sides agreed that we will strive to sign the document soon, and a timeframe is also given – up to the end of 2015,” he added.

“The volume of gas supplies in the medium term could be 60 (billion) or 100 billion cubic meters of gas (a year).”

Under the terms of the framework agreement, CNPC will also buy a 10 percent stake in Russia’s Vankorneft, which is a subsidiary of Russia’s biggest oil producer Rosneft.

For China, the increased gas imports will also help Beijing wean itself off its dependence on coal as it embarks on its war on pollution, which has seen toxic smog shrouding major cities.

Writing by Fayen Wong and Ben Blanchard; Editing by Andrew Heavens and Keiron Henderson

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