May 16 (Bloomberg) -- When Russian President Vladimir Putin travels to China next week chasing a long-term natural-gas supply deal, he’ll be joined by at least two businessmen sanctioned by the U.S. amid tensions over Ukraine.
OAO Rosneft Chief Executive Officer Igor Sechin and billionaire Gennady Timchenko will take part in Putin’s talks with Chinese President Xi Jinping, according to Yuri Ushakov, Putin’s foreign-policy aide.
Russia is turning to China to bolster its economy as relations sour with the U.S. and European Union, pushing capital flight to $50.6 billion in the first quarter and setting it on the brink of recession. Combined, the U.S. and EU put almost 100 people and 20 companies in Russia and Ukraine on a blacklist to penalize Putin for fomenting unrest in Ukraine before a May 25 presidential election. Sechin and Timchenko face visa bans and asset freezes from the U.S., but not the EU.
Worsening relations with the U.S. and its allies “clearly to some degree influence” talks with China, Ushakov told reporters today. While a “record” package of agreements and contracts may be signed during Putin’s visit to Shanghai on May 20 and 21, “talks are rather laborious, demanding movements on both sides,” he said.
OAO Gazprom CEO Alexey Miller is also travelling to China for Putin’s talks with Xi, Ushakov said. The state-run gas producer and exporter aims to agree on a price and sign a contact with China National Petroleum Corp., after more than a decade of talks and false starts, paving the way to build its first gas pipeline to the Asian country.
Gazprom plans to deliver as much as 38 billion cubic meters of gas a year no sooner than the end of 2018. That is about 20 percent of the Russian state-run exporter’s gas sales in Europe last year, which produced about $48 billion in net export revenue, according to the company.
China, Russia’s largest trading partner, was the only country in the United Nations Security Council not to censure the annexation of the Crimean peninsula in the Black Sea in March. Trade with China may exceed $100 billion for the first time this year, according to Ushakov.
Putin has called to expand energy sales to Asia to diversify from EU markets after the bloc’s economic woes and rising oil and gas output in the U.S. damped demand and prices.
Rosneft is seeking to close a final contract to supply China Petrochemical Corp., or Sinopec, 100 million metric tons of crude over 10 years, after signing a framework agreement in October. Russian Prime Minister Dmitry Medvedev valued the potential supplies at $85 billion.
Novatek, part owned by Timchenko, is planning for a firm contract to supply liquefied natural gas from the Yamal LNG project in Russia’s Arctic to China, CEO and billionaire shareholder Leonid Mikhelson said in April. Last year, Novatek agreed to supply abut 3 million tones of LNG to CNPC, which has a 20% stake in the project.
With an estimated cost of $27 billion, the Yamal LNG project is also seeking project financing from Asia.
Chinese banks, which are ready to fund half the project, could replace European lenders if the political crisis over Crimea deepens, Total SA Chief Executive Officer Christophe de Margerie told reporters today in Paris. “The U.S. Eximbank has announced its withdrawal, others not yet, but we feel if things don’t improve, some western banks might put off their decision.”
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