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Instant View - Russia, China ink long-delayed gas supply deal

SINGAPORE (Reuters) - Russia's state-controlled Gazprom signed a long-awaited gas supply agreement with China on Wednesday.

There were no pricing details on the deal, which would see Russia supply 38 billion cubic metres (bcm) of gas to China each year for 30 years under a contract valued in excess of $400 billion (236.7 billion pounds) overall.


ANALYST COMMENTS

KANG WU, VICE CHAIRMAN, ASIA, FG ENERGY:

"It seems it's still premature to talk about the economics of the deal, but there's no doubt China needs the gas to cope with heavy air pollution and to meet future gas supply targets.

"This will really cement their relationship in a big way, and the political implications are huge. It's a big win for Russia, as it secures them a new outlet for their gas. Of course we will hear a lot of rhetoric, but I don't think anyone is naive enough to believe this deal will suddenly change the current situation. This is a long-term solution for Russia, and it will still be dependent on exports to Europe.

"Assuming the deal is for 38 billion cubic meters per year as previously discussed, this is about a quarter of current supply. By 2020, the share will be lower, but China needs all the sources and supply routes it can get."


GORDON KWAN, HEAD OF ASIA OIL RESEARCH, NOMURA

"It has to be a good deal (for China) even though we don't know the price. It's probably a formula because I think a formula will help to ensure all the future variables are paid off.

"China is in a strong position to bargain for a good deal especially given the motivation of the anti-corruption campaign. PetroChina or CNPC cannot afford to make any more bad deals.

"Also, given the EU sanctions that could potentially hit Russia, I don't think Gazprom is in a position to strike a very high price for its gas. Because China has the domestic gas breakthrough in Sichuan and the LNG export potential from North America as bargaining chips especially when Russian gas is not going to come until 2019-2020."


TREVOR SIKORSKI, HEAD OF GAS RESEARCH AT UK-BASED CONSULTANCY ENERGY ASPECTS:

"The main thing is that this is a long-term development as it requires a massive amount of investment by Gazprom to invest in pipelines and the Siberian gas fields. It is really only likely that we will see gas flow at the end of the decade. It was really needed by Gazprom as it finally provides some needed diversification of their export markets."


MICHAL MEIDAN, DIRECTOR OF UK-BASED CONSULTANCY CHINA MATTERS:

"There are two options. One is that the Chinese gave an upfront payment and didn't want to disclose exactly how much because they are a little cautious about making a precedent. I find that a little hard to buy because that has not been their model.

"The Chinese Development bank has been giving loans and the terms haven't been unfavourable to Chinese so why would they be reluctant to disclose. But that is an option because they are moving to a model that is financially more stringent or conservative.

"The other option is that they signed the deal but they haven't agreed on the starting price. They have a formula with some form of indexation either to Singapore crude benchmark or to JCC but they haven't agree on the initial starting price.

"I actually think that's a worse outcome because they get the headlines and Putin gets his good story. But the disagreement is just pushed further down the line."


OTKRITIE BROKERAGE IN MOSCOW

"The price for the contract between Gazprom and CNPC raises questions. According to the head of Gazprom, A. Miller, the contract was signed for $400 billion over 30 years. If we take into account the plans to export 38 billion cubic meters of gas annually, China received a price lower than the average in Europe. And this despite the complete lack of infrastructure and availability of small deposits. However, behind the scenes there were side agreements, which could provide for Chinese investment in the project."


(Reporting by Florence Tan and Jacob Gronholt-Pederson, Olesya Astakhova in Moscow, Editing by Amran Abocar, Himani Sarkar and Elizabeth Piper)


(Reporting by Florence Tan; Editing by Amran Abocar)