Gazprom Hopes to Sign Natural Gas Supply Contract with China in January

Alexei Miller, the Chief Executive at Gazprom, the Russian natural gas giant and world’s top gas producer, has suggested that they might finally be ready to sign a contract to supply China with natural gas, by the end of January.

Gazprom has been in talks with CNPC, the state owned Chinese energy company, for years, trying to hammer out a deal that would open a huge new market to Russian gas exports. The former soviet country has been keen to expand into new markets in order to reduce its dependence on European customers, who in recent times have been trying to minimise their overreliance on Russian gas by developing their own reserves and sourcing imports from other countries.

Unfortunately for Gazprom, China is well aware of the importance that their huge market could have in the future, and have used this advantage to negotiate tough conditions into the deal, making demands for large discounts compared to the price paid by European utilities.

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In September the two companies managed to sign an agreement that laid out the basic terms and conditions of the new supply contract. A Gazprom press release stated that:

“All the major terms and conditions of future Russian natural gas supplies to the Chinese market via the eastern route were agreed on, namely, the export volume and starting date, the take-or-pay level, the period of supply buildup, the level of guaranteed payments, the gas delivery point on the border as well as other basic conditions of gas offtake.”

When asked if the deal might be signed and completed by the Chinese New Year, the 31st of January 2014, Alexei Miller responded, “definitely. The contract is in a high stage of preparedness, we have to agree on a basic price only.”

According to Reuters, Gazprom plans to ship 38 billion cubic metres of natural gas a year to China from 2018 onwards, via a new pipeline that they are hoping to construct. Although Russian media have claimed that in their first copy of the 2014 investment programme, Gazprom has not included a budget for the constructing pipeline.

By. James Burgess of Oilprice.com