Gazprom rejects integrated gas contract with CNPC

07 July 2016, Week 26 Issue 600

Russian gas giant Gazprom has rejected China National Petroleum Corp.’s (CNPC) calls to integrate the production and sale of natural gas under a supply contract that will underpin the planned Power of Siberia-2 pipeline.

Gazprom chief Alexei Miller told shareholders at the company’s annual meeting on July 1 that the Chinese proposal was unacceptable to the company but did not go into details. Russia’s Interfax quoted a CNPC spokesman in June as saying that China was interested in jointly producing gas at fields in Western Siberia, as well as participating in the sale of volumes and construction of the pipeline’s infrastructure.

Beijing’s call for greater co-operation has been viewed by the market as a means of reducing the price of gas that could eventually be sent to China via Power of Siberia-2, known as the western route. The Russian and Chinese firms signed a heads of agreement (HoA) in 2015 for pipeline deliveries via the route, which will run through the Altai region to China’s northwest province of Xinjiang. They have yet to agree on the price of gas supplies, however.

Miller told shareholders that a price for an initial 30 billion cubic metres per year of Russian gas via Altai had been proposed during his meeting with CNPC counterpart Wang Yilin in Beijing in June.“If it is accepted, the contract will be signed very soon,” Miller said on June 30.

The contract would follow the sales and purchase agreement (SPA) struck with CNPC in 2014 for 38 bcm per year of gas through the Power of Siberia’s eastern route. At the time, the 30-year supply contract was valued at US$400 billion.

The Power of Siberia’s eastern route is due to bring gas from Gazprom’s Yakutia and Irkutsk production centres to domestic consumers in the Russian Far East and across the border to China from as early as 2019. In April 2014, Gazprom estimated the total cost of constructing the trunk at around US$20.6 billion, making it one of Russian giant’s most expensive pipeline projects to date.

At the same meeting in Beijing in June, Gazprom and CNPC signed a memorandum of understanding (MoU) to construct underground storage and gas-fired power generation facilities in China. By August, the two parties aim to select possible storage sites in the Heilongjiang, Jiangsu and Zhejiang regions of northern China as well as clarify the investment terms.

Edited by

Andrew Kemp

Editor

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