Long-term gas supply deal is close with Russia

Negotiations expected to be finalized during Putin's upcoming visit to Beijing

China National Petroleum Corp, the country's energy giant, said on Wednesday its long-term natural gas supply talks with Russia may come to a close and a contract signed soon, industry leaders and experts said. A deal has been backed by both countries' governments.

Russian President Vladimir Putin visits Beijing on May 20.

A company source told China Daily the two parties reached agreement on technical and commercial issues during an April visit to Russia by CNPC chairman Zhou Jiping. Differences remain over price, the source said.

China doesn't now import Russian gas through pipelines. Under a previous agreement Russia's top natural gas producer, Gazprom OAO, will supply China with 38 billion cubic meters of gas annually from 2018.

That's slated to rise at an unspecified time to 68 billion cubic meters, using both western and eastern pipelines. It will ease China's appetite for clean energy.

Shanghai-based energy consultancy ICIS-C1 Energy estimates China's natural gas consumption will reach 346 billion cu m in 2018, and the country will be dependent on foreign supplies to meet more than half of that. Russia can potentially vault Turkmenistan as China's biggest pipeline provider.

The gas price to be struck in the China-Russia deal may not be as low as previously expected, Wang Ruiqi, senior analyst with C1 Energy, said. That's even as Russia seeks out gas buyers, he said.

Gazprom may have extra gas to sell if it carries through threats made on Monday to cut supplies to Ukraine as early as June 3 if the Kiev government doesn't start paying for the gas in advance.

Relations between the countries have chilled this year after Ukrainian president Viktor Yanukovich was ousted and the Crimea region was incorporated into the Russian Federation.

The final price may be around $400 per 1,000 cubic meters, Sun Yongxiang, a researcher with the Development and Research Institute of the State Council, China's cabinet, said. He said China and Russia should cooperate more in energy, beyond natural gas trading.

CNPC said that in 2014, Russia will continue to increase the oil supplied through both China's eastern and western routes. How much the supply will grow is to be negotiated.

In June 2013, the two sides reached agreement to raise the oil supply this year from 2013's 15 million metric tons. Supply on China's eastern route will grow by 15 million tons annually, and on the western route through Kazakhstan, 7 million tons more crude will be added each year.

Liu Qian, an assistant researcher with China University of Petroleum in Beijing, said it's possible that Sino-Russian oil trade could be settled in Chinese yuan in the future.

On one hand, Russia has long sought to get rid of the US dollar's dominance over its oil trade. That intensified after Western sanctions were imposed on Russia amid the tensions over Ukraine.

On the other hand, the yuan's internationalization and China's growing influence in global energy pricing is a strategic goal of the Chinese leadership, Liu said.

The China (Shanghai) Pilot Free Trade Zone is building an oil futures trading center, which may facilitate the yuan's rise as a currency for oil settlements.

The yuan has been used as settlement currency in Sino-Russian trade and has changed hands in Russia's foreign exchange houses.

Bloomberg News reported on Wednesday that Gazprom will not bring partners from neighboring countries into drilling projects and it is focused on supplying gas to Chinese companies.