Putin yesterday failed to complete the contract at a meeting with Chinese President Xi Jinping in Shanghai, prolonging negotiations that started more than 10 years ago.
Talks are continuing as the two countries seek a compromise, Alexey Miller, the chief executive of Russian gas-exporter OAO Gazprom (OGZD), said yesterday in a statement.
Russian officials said before Putin’s trip that the two sides were very close to resolving a debate on the price, opening the way to building a pipeline linking the world’s largest energy producer with the biggest consumer. That has been the stumbling block throughout the past decade, though with Putin facing sanctions from the U.S. and Europe after he annexed Crimea, sealing an agreement gained urgency.
“It shows that Russia is not willing to cut a low-price deal just to make a political point with the west,” said Chris Weafer, founder at Macro Advisory in Moscow. “The danger is if a deal is not concluded this year China may switch its efforts to secure pipeline gas elsewhere.”
The two countries are working out pricing, and an agreement may be reached at any time, Dmitry Peskov, Putin’s spokesman, said after yesterday’s meeting. There’s “reason for optimism,” he said by phone today.
Gazprom shares fell 1.8 percent to 145.35 rubles in Moscow yesterday and regained 0.5 percent to 146.05 rubles by 12:07 p.m. Sergei Kupriyanov, Gazprom’s spokesman, declined to comment on chances of clinching the deal today.
Putin is looking to cement ties with China as the conflict in Ukraine alienates him from the U.S. and its European allies. The relationship with China, Russia’s biggest trading partner after the two-way volume surged sevenfold in the past decade to about $94 billion last year, is becoming even more important as escalating sanctions threaten to tip the economy into recession.
“The Chinese are the ones in a position of increasing strength with every passing day,” Masha Lipman, an analyst at the Moscow Carnegie Center, said by phone. “To have no deal would be bad. For Putin this is a very important moment.”
The Russian delegation, which includes the heads of Gazprom and OAO Rosneft (ROSN), the state gas and oil companies, wants to sign a 30-year contract to supply 38 billion cubic meters of gas a year, which is about 20 percent of its sales to Europe.
The gas talks that started in 2004 are still being held up by the lack of an agreement on the price, Chinese Deputy Foreign Minister Cheng Guoping said at a briefing in Beijing May 15. As it plans a $22 billion pipeline from Siberia to China, Russia has sought to match the rates it got for its gas in Europe, a level China hasn’t been willing to pay. The Asian powerhouse is turning to other sources of energy, including liquified natural gas.
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