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China, Russia sign new 30 Bcm/year framework gas deal using western route

Highlights

Russia and China have signed a framework agreement which envisages an additional 30 billion cubic meters of gas delivered annually to China using the western Altai route, nearly doubling current proposed shipments.

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The latest agreement between state-owned Gazprom and China National Petroleum Corp. was signed over the weekend following a meeting between China's President Xi Jinping and Russia's President Vladimir Putin on the sidelines of the Asia-Pacific Economic Cooperation Summit in Beijing.

It comes just months after both companies signed a landmark deal in May for Gazprom to send up to 38 Bcm/year of gas from East Siberia to China through the future Power of Siberia pipeline, beginning as early as 2018.

The 30-year supply deal is worth an estimated $400 billion.


In a report on the website of state-owned CNPC issued late Saturday, Putin was quoted as saying: "We have opened up cooperation with an in-principle agreement on the western route."

The Altai route will see gas from western Siberia transported to Wuqia county in China's Xinjiang province, CNPC said.

Following the latest deal, China will become Russia's largest natural gas buyer, with volumes totaling 68 Bcm/year.

Gazprom had last month indicated it was in negotiation with CNPC to nail down details over gas supplies using the western route, in line with a September 2010 legally binding deal with the Chinese company.

CNPC did not give any details of when gas deliveries through the western route would be launched, but Gazprom said previously that supplies could start even before the eastern route was commissioned.

OPENING NEW RUSSIAN FRONTIERS

Following the natural gas purchase agreement, CNPC said Russia has also allowed Chinese companies to invest in its domestic upstream sector.

"In September this year, Russia's Rosneft allowed Chinese ownership of a stake in the Vankor field in East Siberia, which has an estimated 52 million mt of oil and 95 Bcm of gas reserves," CNPC said, without confirming its exact investment or stake in the project.

Vankor is the biggest greenfield project in East Siberia. It is expected to produce 22 million mt, or 440,000 b/d, of crude oil in 2014. Rosneft said late last year that it envisages production at the cluster to peak at 25 million mt/year (500,000 b/d) by 2019.

Rosneft's potential deal with CNPC for a stake in Vankor first came to light in early September when Putin met with Zhang Gaoli, China's vice premier, although no details have been revealed since then.

Putin has been cozying up to China to mitigate any risk of isolation from the West over the Ukraine crisis.

During the first half of this year, Sino-Russian bilateral trade increased 3.5% from a year earlier to $59.1 billion and both sides have agreed to boost this to $200 billion/year by 2020.

China is Russia's second-largest trading partner currently, according to the CNPC report.

--Song Yen Ling, yenling.song@platts.com
--Edited by E Shailaja Nair, shailaja.nair@platts.com