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. Last Updated: 07/27/2016

Gas Tops Putin’s Deals in Beijing

Russia and China signed deals worth $3.5 billion and reached a tentative agreement on gas trade during a trip by Prime Minister Vladimir Putin to Beijing on Tuesday, an indication that the countries have taken their relations to a new high.

In the accord with the most potential for future revenues, Gazprom and Chinese National Petroleum Corporation, or CNPC, reached agreement on the amount and timeline for gas deliveries to China, said Gazprom chief Alexei Miller.

Key talks on gas trade still lie ahead, however, because Russia and China have been in a deadlock over the price since 2004.

Tuesday’s agreement merely linked the price of gas to the price of oil products, Miller said in a speech at a Russian-Chinese business forum in Beijing.Gazprom uses the link in all its exports, including for deliveries to Europe.

A gas supply contract would marry Russia’s capacity as the world’s largest energy exporter to China’s demand as the world’s second-largest energy consumer after the United States.

Other deals signed Tuesday centered largely on Chinese investment in Russian mining and construction projects and for cooperation in building high-speed railways.

“The key potential deal is the gas deal,” said Clifford Kupchan, director for Europe and Eurasia at Eurasia Group, a consultancy in Washington.

Miller told reporters that supplies to China could reach 68 billion cubic meters of gas per year and travel in two pipelines that have yet to be built.

Deputy Prime Minister Igor Sechin said Gazprom and CNPC might set a price in the course of further talks and sign a contract in early 2010. In that event, supplies would likely start in 2014 or 2015, he said.

Gazprom is under pressure to find a consensus on price because China is also looking at other suppliers, including Turkmenistan, Qatar and Australia.

Even so, an analyst warned that the clause linking the gas price to oil could ruin Gazprom’s hopes of selling any new gas to China and elsewhere because of the emergence in the United States of a new technology to produce cheap shale gas.

“Gazprom does not take into account the modern-day reality,” said Mikhail Korchemkin, director of U.S.-based consultancy East European Gas Analysis. “The situation on the market is totally different.”

The host of other deals that Russia struck with China was unprecedented, reaching $3.5 billion in value, said Deputy Prime Minister Alexander Zhukov.

“It’s the first time that such major commercial deals have been signed in such a great number between Russian and Chinese businesspeople,” he said, Interfax reported.

Zhukov praised the outcome despite the fact that the figure fell short of the $5.5 billion that he predicted last week.

“These deals show continuing improvement in Russian-Chinese relations,” Kupchan said. “In my view, that relationship is as close as it has ever been.”

Putin, addressing the business forum, said China, the holder of the world’s largest financial reserves, was welcome to invest further in Russia. “Our Chinese partners have accrued significant financial resources,” he said. “We are interested in actively attracting them to the Russian economy, including the Siberian and Far Eastern regions.”

IHS Global Insight analyst Lilit Gevorgyan said the global economic crisis has helped boost bilateral trade since Russia’s own investment potential has dwindled. “After the crisis, Russia is becoming more cooperative,” she said from London.

In other deals, Russia will take part in building two nuclear power reactors for the Tianwan Station, Sechin said. Rosneft and CNPC will build a refinery 100 kilometers from Beijing and plan to open 300 to 500 gasoline filling stations in China, he said.

Putin, known for his tongue-lashings of the United States, used markedly saccharine language in what may be compliance with Asian diplomatic etiquette at the start of a meeting with Premier Wen Jiabao.

“China has turned into a potent industrial power and taken a place in the world that is worthy of the Chinese people,” Putin said. “And we take delight with our neighbor, our friend — China — we take incredible delight in your success.”