While the document signals a major advance in the long-lasting talks, the most tough negotiations on the gas price and sourcing are still to be had prior to the signing of a final export contract, analysts said.
The gas delivery price has been a key stumbling block since talks started in 2004.
The document, dubbed the Extended Basic Terms for Supplies of Gas from Russia to China, was signed by Gazprom CEO Alexei Miller and CNPC President Jiang Jiemin during a visit to Beijing by Russian President Dmitry Medvedev.
"The document specifies the key commercial parameters of the planned supplies of Russian natural gas to China's market via the [so-called] western route, including the volumes and the timeframes for the start of exports, the take-or-pay level, and the period for increasing the supplies," Gazprom said in a statement.
The export contract is expected to be signed in the middle of 2011, with the start of supply planned for the end of 2015, it said.
In 2006, the two agreed to build two gas pipelines, dubbed the Altai system. At the time, the plan targeted shipping 30 Bcm/year of gas from western Siberia and some 38 Bcm/year from eastern Siberia.
Earlier in the day, Russia's Deputy Prime Minister Igor Sechin said that Russia was ready to meet China's entire demand for natural gas, which amounts to 90 billion cubic meters/year, while Gazprom's deputy CEO Alexander Medvedev said that the export contract, which will include the volumes, routes and price was to be signed "no later than July 1, 2011." (see story 08:13 GMT)
TOUGH TALKS AHEAD
Gazprom would like to see a gas price for export to Beijing at least equal to that for its deliveries to Europe but could agree on concessions in order to diversify its exports routes and secure its share in the China gas market that is set to grow, analysts said.
"There is a possibility that Gazprom would be ready to enter the new market at any price and turn to the [Russian] government for export duty breaks to make the project profitable," a Moscow-based analyst who preferred not to be named said.
China may agree to pay the European equivalent for Russian gas provided that it will receive gas from an exclusive source rather than from the Russian united pipeline system, which would allow Moscow to divert gas supplies to other markets in case of any problems, said Chris Weafer from Uralsib bank.
At the same time, Russian officials previously spoke against building a pipeline to China from a single gas field.
But the divergence is unlikely to lead to a major delay in signing the final agreement, Weafer said.
"We are close to the deal although the tough negotiations are still ahead," he said, adding that he expects the deal is more likely to be concluded "before the end of 2011" rather than in the middle of the year.
Analysts said Russia is unlikely to secure supplies of its gas above 30-40 Bcm/year, despite the statement by Sechin.
"As any country in Europe, China is not interested in becoming too dependent on a single supplier and imports from Russia will be limited," said Valery Nesterov from Troika-Dialog investment company.
"China has made it clear they're looking more at diversifying [its imports]," agreed Weafer.
China has developed multiple networks for its gas imports recently, having inked agreements on supplies of pipeline gas from Central Asia's Turkmenistan, Uzbekistan and Kazakhstan as well as from Myanmar.
It also expects to launch additional facilities to import more LNG, including from Qatar and Australia, apart from an expected increase in its own gas production.
China's consumption is expected to triple by 2020, according to independent estimates. The country's plans to double the natural gas share of its total energy consumption basket from the current 4% to 8% by 2015 is seen to be among the key drivers for the increase.
China Chemical Weekly: http://news.chemnet.com/en/detail-1411716.html
