Putin: Russia, China, set gas price formula

By VLADIMIR ISACHENKOV

posted: 42 DAYS 7 HOURS AGO

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BEIJING -Russia and China have reached an understanding on a pricing for prospective Russian gas deliveries to China, Russian Prime Minister Vladimir Putin said Wednesday.

Russia's Gazprom and China National Petroleum Corp. agreed to peg the gas price to the price of oil on Asian markets, Putin told reporters as he wrapped up a visit to Beijing.

Gazprom and CNPC signed a framework agreement Tuesday that calls for the supply of about 2.4 trillion cubic feet (70 billion cubic meters) of gas a year, but no price was set at the time. Gazprom has been pushing for the same high, market-based prices it charges its customers in Europe. China bargained hard for a much lower price.

Putin said Wednesday that some details still need to be negotiated, but that "the price formula issue has been resolved in principle." He said an agreement was reached to peg the price to an "Asian oil basket."

Russia's cash-strapped energy companies need Chinese funding, while Beijing is eager for Russian energy to feed its 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.

Putin said that one supply route from the gas fields of western Siberia could be put in operation before 2015 and another route, which would require more work, could be launched later.

Putin said there is no immediate need for Gazprom to attract Chinese loans for construction of the required facilities. He said the western route would not require substantial investment, as pipelines are already in place in the region and would only need links extending to China.

"Gazprom has sufficient resources and can do it itself," Putin said.

He suggested Chinese money might be needed later to help build facilities in untapped eastern Siberia.

As Russia seeks to diversify gas exports, Putin said it has enough gas to send supplies to both Europe and China, citing what he called "colossal" reserves in Siberia.

In addition to the framework agreement on gas supplies, Russia and China signed agreements worth $3.5 billion Tuesday.

Russia has close ties with China, and Putin said his relationship with its leaders helped seal commercial deals, but that talks have been "very tough."

"The Chinese are very strong negotiators. We have to argue until we lose our voices — up to the last second," Putin said. "But we will reach agreement in the end, because mutual national interest lie at the foundation of our relations."

2009-10-14 15:42:55