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. Last Updated: 07/27/2016

Gazprom, China Strike Working Gas Deal

ReutersPrime Minister Vladimir Putin pausing during a news conference with China's Premier Wen Jiabao after a signing ceremony at the Great Hall of the People in Beijing Tuesday, Oct. 13, 2009.

BEIJING — China and Russia signed a framework agreement Tuesday that could see a steady flow of natural gas to energy-hungry China from its resource-rich neighbor.

It was one of numerous trade and military agreements signed during a state visit by Prime Minister Vladimir Putin as the countries overcome traditional mistrust to push ahead mutual economic interests. Even so, there has been a growing imbalance in their ties with Russia's economy lagging behind its booming neighbor.

The deal between Russia's state-run natural gas monopoly Gazprom and China National Petroleum Corp. calls for the supply of about 70 billion cubic meters of gas a year, but a price had not been set and no contract signed, said Gazprom's chief executive Alexei Miller.

Chinese media reports have said the agreement was expected to be a gas-for-loans deal similar to a $25 billion oil-for-loans deal completed earlier this year.

Russia's cash-strapped energy companies need Chinese funding, and Beijing has welcomed the chance to further diversify sources for energy needed to fuel its fast-growing economy. The global economic crisis and changing market conditions have further spurred cooperation as lower demand from Europe has pushed Russia to diversify markets for its oil and gas.

The gas framework agreement was formally signed in the presence of Putin and Chinese Premier Wen Jiabao.

Putin said Russian-Chinese cooperation was one of the most important elements to ensure global stability.

"Our consolidated view on certain issues, our ability to coordinate our stance on key international developments often help calm the situation and play a stabilizing role," he earlier told a group of Chinese reporters.

Miller said the gas contract will include a price formula based on Gazprom's experience in gas exports and principles of international trade.

"Gazprom will independently build gas transportation facilities on the Russian territory," he said when asked if China could invest in building gas pipelines. He added that Gazprom may welcome Chinese investments in building gas-processing facilities.

He also said an agreement was possible on supplying liquefied natural gas to China from Sakhalin Island in Russia's Far East but did not elaborate. "We also have agreed to conduct talks on possible deliveries of LNG to China. We are looking into the possibility of starting LNG supplies to China already next year."

Miller said the gas agreement envisages two possible routes for supplying China: one from fields in Western Siberia and another from fields in Eastern Siberia and Sakhalin.

The western route can be put in place "very quickly," as Gazprom has ready-to-tap gas fields and all the necessary infrastructure there, Miller said.

The eastern route would require the creation of gas-processing facilities since the gas in the region contains precious chemicals that need to be extracted first, he said. That would require further negotiations on jointly creating the facilities and selling those products in other markets.

Russia and China earlier Tuesday signed agreements worth $3.5 billion. Deputy Prime Minister Alexander Zhukov told reporters that Russian and Chinese businessmen and officials signed the agreements, including $500 million loans each from the China Development Bank to its Russian equivalent VEB and from the Agricultural Bank of China to the state-controlled VTB bank.