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Russia cuts preliminary gas deal with China

China and Russia signed a framework agreement Tuesday that could see a steady flow of natural gas to energy-hungry China from its resource-rich neighbor.
China Russia
Russian Prime Minister Vladimir Putin and Chinaese Premier Wen Jiabao toast, after signing a joint statement on bilateral cooperation in Beijing on Tuesday.Takuro Yabe / AP
/ Source: The Associated Press

China and Russia signed a framework agreement Tuesday that could see a steady flow of natural gas to energy-hungry China from its resource-rich neighbor.

It was one of numerous trade and military agreements signed during a state visit by Prime Minister Vladimir Putin as the countries overcome traditional mistrust to push ahead mutual economic interests. Even so, there has been a growing imbalance in their ties, with Russia's economy lagging behind its booming neighbor.

The deal between Russia's state-run natural gas monopoly Gazprom and China National Petroleum Corp. calls for the supply of about 2.4 trillion cubic feet of gas a year, but a price had not been set and no contract signed, said Gazprom's chief executive Alexei Miller.

Chinese media reports have said the agreement was expected to be a gas-for-loans deal similar to a $25 billion oil-for-loans deal completed earlier this year.

Russia's cash-strapped energy companies need Chinese funding, while Beijing has welcomed the chance to further diversify sources of energy needed to fuel its fast-growing economy. The global economic crisis and changing market conditions have further spurred cooperation as lower demand from Europe has pushed Russia to diversify markets for its oil and gas.

The gas framework agreement was formally signed in the presence of Putin and Chinese Premier Wen Jiabao.

Partners as stabilizers
Putin said Russian-Chinese cooperation was one of the most important elements to ensure global stability.

"Our consolidated view on certain issues, our ability to coordinate our stance on key international developments often help calm the situation and play a stabilizing role," he earlier told a group of Chinese reporters. "A shared stance of Russia and China on certain issues helps restrain some of our more hotheaded colleagues."

Putin didn't name any country, but Russia and China in the past have spoken against the perceived U.S. global domination.

Miller said the gas contract will include a price formula based on Gazprom's experience in gas exports and principles of international trade — a statement reflecting Gazprom's push for the same high price it charges its customers in Europe. China has bargained hard for a much lower price.

The Gazprom chief also said his company doesn't need the Chinese investment to build prospective oil pipelines.

"Gazprom will independently build gas transportation facilities on the Russian territory," Miller said. He added Gazprom may welcome Chinese investments in building gas-processing facilities.

Miller said the gas agreement envisages two possible routes for supplying China — one from fields in western Siberia and another from fields in eastern Siberia and Sakhalin.

Quick route for gas
The western route can be put in place "very quickly," as Gazprom has ready-to-tap gas fields and all the necessary infrastructure there, Miller said.

The eastern route would require the creation of gas-processing facilities since the gas in the region contains some chemicals that need to be extracted first, he said. That would require further negotiations on jointly creating the facilities and selling those products in other markets.

Putin's deputy, Igor Sechin, who helped negotiate the gas deal, said Moscow and Beijing are planning to reach an agreement on gas price by the year's end and sign a contract next June. Gas deliveries to China may start in 2014 or 2015, he said.

Sechin said another deal signed Tuesday envisaged a joint venture refinery in northeastern Tianjin, near Beijing. Under the deal, Russian and Chinese companies would jointly operate the plant and a network of 300-500 gas stations.

He also said China announced Tuesday it would award Russia a contract for building another two 1,600-megawatt reactors at a plant in eastern Jiangsu province, where there are already two Russian-built reactors.

Russia and China earlier Tuesday signed agreements worth $3.5 billion. Russian Deputy Prime Minister Alexander Zhukov told reporters that Russian and Chinese businessmen and officials signed the agreements, including $500 million loans each from the China Development Bank to its Russian equivalent VEB, and from the Agricultural Bank of China to the state-controlled VTB bank.

Other deals included Chinese companies making investments in construction industry facilities and infrastructure projects in Russia, Zhukov said.

The two sides also signed an agreement on advance notification for planned ballistic missile launches by either country. Putin said it was an important confidence-building step.