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Russia and China strengthen energy ties

Two agreements signed in Beijing 3 September serve to strengthen energy ties

One will give Silk Road Fund a 9.9% stake in the Novatek-operated 16.5m metric tonnes a year (t/y) Yamal LNG project. The other sets out plans to set up a working group to establish the key technical and commercial parameters of the Power of Siberia gas pipeline project, including the terms of delivery as well as a gas delivery point.

Novatek’s statement put no value on the Novatek stake, which would leave the seller with 50.1%, the other partners being French Total – which also owns a minority stake in Novatek – and China National Petroleum Corp (CNPC), both of which have 20%.

A range of sanctions imposed on Russian entities and individuals by western governments following Moscow’s involvement with the unrest in Ukraine has limited the project’s ability to raise finance from international banks.

The transaction is scheduled to close after the satisfaction of the stipulated conditions, including receipt of all necessary approvals.

SRF president Wang Yangzhi said Yamal LNG was one of the most “prospective and competitive LNG projects in the world.” He said he hoped with the fund on board, the project could proceed with the external financing. External buyers of the plant’s LNG include the Anglo-Dutch major Shell (0.9m mt/y) and French Engie (1m mt/y).

Novatek boss Leonid Mikhelson said the entry of the fund marked another step forward in the “mutually beneficial cooperation with our Chinese partners in the development of gas projects in the Russian arctic region.” Last year Novatek produced 62.1bn m³ of gas, or 9.7% of Russia’s total. It has set up a trading division, Novatek Gas & Power, in Switzerland.

The same day, Gazprom’s chief executive Alexei Miller and his CNPC counterpart Wang Yilin signed a memorandum of understanding on the project for pipeline gas supply to China from Russia’s Far East, again in the presence of the two nation’s presidents.

“The project for Russian gas supply from the Far East to China strengthens the strategic and mutually beneficial partnership between our companies,” said Miller. On 21 May 2014 Gazprom and CNPC signed the gas purchase and sale agreement for gas using the eastern route, which has been planned to cross the border near Blagoveshchensk. The 30-year contract covers 38bn m³/year and is due to start in 2018.


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