Russia, China agree 30-year gas deal via new pipeline, to settle in

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© Reuters. Russian President Vladimir Putin holds talks with Chinese President Xi Jinping via a video link at his residence outside Moscow, Russia December 15, 2021. Sputnik/Mikhail Metzel/Pool via REUTERS/File Photo

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By Chen Aizhu

SINGAPORE (Reuters) – Russia has agreed a 30-year contract to supply gas to China via a new pipeline and will settle the new gas sales in euros, bolstering an energy alliance with Beijing amid Moscow’s strained ties with the West over Ukraine and other issues.

Gazprom (MCX:), which has a monopoly on Russian gas exports by pipeline, agreed to supply Chinese state energy major CNPC with 10 billion cubic metres of gas a year, the Russian firm and a Beijing-based industry official said.

First flows through the pipeline, which will connect Russia’s Far East region with northeast China, were due to start in two to three years, the source said in comments that were later followed by an announcement of the deal by Gazprom.

Russia already sends gas to China via its Power of Siberia pipeline, which began pumping supplies in 2019, and by shipping liquefied (LNG). It exported 16.5 billion cubic metres (bcm) of gas to China in 2021.

The Power of Siberia network is not connected to pipelines that send gas to Europe, which has faced surging gas prices due to tight supplies, one of several points of tension with Moscow.

Under plans previously drawn up, Russia aimed to supply China with 38 bcm of gas by pipeline by 2025.

The new deal, which coincided with a visit by Russian President Vladimir Putin to the Beijing Winter Olympics, would add a further 10 bcm, increasing Russian pipeline sales under long-term contracts to China.

Gazprom gave few details about the deal in its announcement.

Russian gas from its Far East island of Sakhalin will be transported via pipeline across the Japan Sea to northeast China’s Heilongjiang province, reaching up to 10 bcm a year around 2026, said the Beijing source, who asked not to be identified.

The deal would be settled in euros, the source added, in line with efforts by the two states to diversify away from U.S. dollars.

A CNPC representative did not immediately comment.

Discussions between the two firms began several years ago after the start-up of Power of Siberia, a 4,000-km (2,500-mile)pipeline sending gas to China. Talks accelerated more recently after Beijing set its 2060 carbon neutral goal, the source said.

“China’s coal shortage last year served as another wake-up call that natural gas has its special value, that’s why CNPC decided to top up with the new pipeline deal,” the source said.

A CNPC representative did not immediately respond to a request for comment.

The pricing of the new gas deal will be similar to that of Power of Siberia, the source said, adding that both were “fairly satisfied” with that arrangement.