Gazprom Says China Natural Gas Deal Delayed to Putin’s May Visit

OAO Gazprom, Russia’s natural gas exporter, failed to seal a 30-year natural gas supply accord with China today, shifting the window for a deal to President Vladimir Putin’s planned trip to the Asian country in May.

The companies are considering preparing a contract in time for the visit, the Moscow-based company said in an e-mailed statement today after Chief Executive Officer Alexey Miller met with China National Petroleum Corp. Chairman Zhou Jiping in Beijing. Miller had earlier said a deal would be clinched by the Chinese New Year.

The Russian exporter has sought a breakthrough in talks on building a pipeline to China, the world’s biggest energy consumer, for more than 15 years. The state-controlled companies signed the first framework accord in 1997, with talks stalling since over prices.

Gazprom shares reversed gains of as much as 2.3 percent after the statement, trading little changed at 145.66 rubles by 5:49 p.m. in Moscow.

“We expect the contract to be signed in the course of 2014,” Ronald Smith, an oil and gas analyst at Citigroup Inc. in Moscow said by e-mail. “We continue to list the China contract as one of the three key catalysts for Gazprom in 2014.”

A contract with CNPC is on schedule to come into effect by the end of this year, Gazprom said.

Eastern Link

The Russian gas producer and exporter plans to supply as much as 38 billion cubic meters of gas to CNPC, starting no earlier than 2018, through a planned eastern pipeline to the Chinese border. The companies signed a “legally binding” agreement in September 2013, Gazprom said at the time.

Gazprom has resisted China’s call for lower prices to avoid undercutting the market in Europe, its source of revenue, and to cover the cost of the pipeline, estimated at 770 billion rubles ($23 billion).

The “guideline” base price for Gazprom is about $400 per 1,000 cubic meters at the Russia-China border, given current oil prices, according to a Gazprom manager, who asked not to be identified citing company policy. That amounts to about $450 billion for a 30-year agreement for full volumes through the eastern route. Gazprom ties the price of most gas exports to a basket of oil products with a time lag of six or nine months.

The average sales price for Russian deliveries to Europe was $387 per 1,000 cubic meters last year, or about $10.54 per million Btu, Deputy CEO Andrey Kruglov said in January.

LNG prices for delivery to northeast Asia in the next four to eight weeks averaged $16.50 per million Btu in 2013, climbing to a record $19.40 in February 2013, according to data from World Gas Intelligence in New York.

To contact the reporter on this story: Elena Mazneva in Moscow at emazneva@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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