September 28, 2012 / 7:45 AM / 5 years ago

Russia wants China to prepay for gas to fund pipe

MOSCOW (Reuters) - Russian gas export monopoly Gazprom (GAZP.MM) wants China to pay up front for gas to meet 40 percent of the costs of building the pipeline, Russia’s energy minister said on Thursday, after the company reported progress in talks with Beijing.

Top energy producer Russia has been in negotiations to supply fuel-hungry China with natural gas for years but the talks have stalled due to failure to agree a price.

“It’s 40 percent from the pipeline construction costs. That’s the figures Gazprom is using during the talks,” Alexander Novak told Reuters when asked if Russia wants China to pay in advance for the pipeline construction.

Earlier on Thursday, Gazprom said it met a Chinese delegation to discuss possible Russian gas supplies to China.

“We made a step forward today,” Gazprom’s Chief Executive Officer Alexei Miller said in a statement after the meeting.

Gazprom has been seeking ways to reduce its reliance on exports to the European Union, where demand for its gas is sagging and the euro zone crisis is causing uncertainty.

Russia had planned to supply China with 68 billion cubic meters (bcm) of gas a year - almost a half of its gas exports to Europe - with 30 bcm per year coming from Gazprom’s existing western Siberian fields and a further 38 bcm per year possibly sourced later on from as-yet untapped eastern fields.

Novak said Russia’s base case scenario for supplying China remained the Altai pipeline, planned by Gazprom with an estimated cost of around $14 billion to connect its Arctic fields to China through the gap, between Kazakhstan and Mongolia, where Russia and China share a common border.

    “There has been no gas in the East so far, that’s why we have to develop new fields. We have to develop eastern routes,” he said.

    Russia may also supply China with liquefied natural gas, to be shipped by sea, the minister added.

    China financed construction of the Eastern Siberia to Pacific Ocean oil pipeline, lending a total of $25 billion to Russia’s top crude producer Rosneft (ROSN.MM) and oil pipeline monopoly Transneft (TRNF_p.MM) in 2009.

    The two countries had agreed in the gas talks on almost everything but price and appeared on the brink of a final agreement in the middle of 2011 when Chinese President Hu Jintao was preparing to come to Russia for an annual conference.

    Gazprom refused to accommodate China’s price demands, however, saying it could sell the same gas to Europe for a higher profit than the Chinese offer had implied. Frustrated by the standoff, China opted to import more from central Asia instead.

    China is thought to be skeptical about the Altai link, which would allow Russia to play the “swing” producer and redirect volumes eastwards or westwards at will, potentially setting Beijing up for political tensions with Europe over Russian gas.

    Reporting by Darya Korsunskaya, Vladimir Soldatkin, Melissa Akin; Editing by Anthony Barker

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