Gazprom, China's CNPC strike deal on gas supplies to China

Russia’s Gazprom and China’s CNPC have stricken a deal on natural gas supplies to China. The document has been signed in the presence of Russian President Vladimir Putin and Chinese leader Xi Jinping.

Gazprom CEO Alexei Miller reported that the contract has been concluded for $400 billion for 30 years.

In the gas contract for China the sides envisaged granting preferential mineral extraction tax regimes, said Gazprom CEO.

The shares of Russia’s natural gas monopoly Gazprom in Moscow have grown by 2% to 148.55 rubles ($4.30) after the signing of the long-term contract on gas supply to China.

Preparations for the deal

The parties were preparing to sign the contract for several years. October 2009, Gazprom OJSC and CNPC concluded a framework agreement on the main terms of natural gas supplies from Russian to China, which envisaged gas export to China in the amount of up to 60 billion cu. m. annually.

May 17, Alexei Miller stated that the gas contract with China would be signed on conditions reasonable for Russia. “Anyhow, we are at the final stage of negotiations,” he confirmed. “The contract as a document is completely ready. It is a very serious and extensive document. There is only one question — the so-called p-zero, the starting, base price in the formula, which is already completely negotiated with our Chinese partners. Therefore, a little is left: to put down just one figure. And a 30-year contract for supplies of 38 billion cu. m. Of gas from Eastern Siberia to China will be signed,” Miller said.In September 2010, the expanded terms of gas supplies from Russia to china were signed. In March 2013, Gazprom and CNPC signed a memorandum of understanding on the project of pipeline supplies of natural gas to China through the ‘eastern; route. Gazprom CEO Alexei Miller stated then that Russian fuel could be supplied to China in advance.

Gazprom CEO noted: “38 billion is just to start. We have agreed with our Chinese partners that as soon as we strike the deal upon the eastern route, we start talks on the western route. As regards the western route, there is one fundamental difference concerning the resource base: this is the same base, from which we are making gas supplies to Europe.”

Gazprom expected to get $400 as a starting price for 1 thousand cu. m. of gas for China. The Chinese side wanted to buy gas for $350-360.