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Gazprom says expects to sign gas supply deal with China's CNPC in May

Highlights

Gazprom expects to sign a long-awaited gas supply contract with China National Petroleum Corp during the planned visit of Russian President Vladimir Putin to China in May, despite the ongoing failure of the two sides to agree on a price for the deliveries.

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"Talks are being conducted in accordance with the timetable and the contract will come into force, in line with key conditions previously approved, by the end of 2014," Gazprom said in a statement released following a meeting between Gazprom CEO Alexei Miller and CNPC Chairman Zhou Jiping Wednesday.

A spokeswoman said the two sides are aiming to complete signing the contract by the end of the year, with previous plans to start shipments under the deal in 2018 still the target, "depending on market factors."

The two sides have long failed to reach a final agreement, however, missing previous deadlines to sign a binding contract due to an ongoing struggle to agree on a price for the deliveries, which are to be made over 30 years, via the so-called eastern route from East Siberia.


The spokeswoman confirmed Wednesday that an agreement on the price has yet to be reached.

In September, Gazprom said it had agreed with CNPC a legally binding deal setting out key conditions for future supplies from East Siberia, covering volumes, timeframes, the take-or-pay level, the period for increasing supplies, the level of guaranteed payments as well as border points through which shipments will be made. Gazprom officials have said previously that the price will not be linked to US Henry Hub prices and that it may offer a discount in exchange for pre-payment for gas deliveries.

In March 2013, Gazprom and CNPC signed a memorandum of understanding to start pipeline gas supplies to China in 2018, at a rate of 38 billion cubic meters/year. The agreement includes a possible increase in volumes to as much as 60 Bcm/year.

Gazprom and CNPC have also discussed gas deliveries from West Siberia in the past, but the spokeswoman said the current emphasis is on completing the deal for supplies via the eastern route.

The western route is a less-preferred option for China, which has already secured gas supplies to its western regions from Central Asia.

--Dina Khrennikova, dina.khrennikova@platts.com
--Rosemary Griffin, rosemary.griffin@platts.com
--Edited by Jonathan Fox, jonathan.fox@platts.com