Putin hails $117.5 billion of China deals as Russia squares off with West

(Reuters) -President Vladimir Putin unveiled new Russian oil and gas deals with China worth an estimated $117.5 billion on Friday, promising to ramp up Russia’s Far East exports at a time of heightened tension with European customers over Ukraine.

Russia, already Beijing’s No. 3 gas supplier, has been strengthening ties with China, the world’s biggest energy consumer, reducing its dependence on its traditional European energy customers.

“Our oilmen have prepared very good new solutions on hydrocarbon supplies to the People’s Republic of China,” Putin said at a meeting with Chinese President Xi Jinping to discuss closer cooperation.

“And a step forward was made in the gas industry,” he added, referring to a new contract to supply 10 billion cubic metres (bcm) per year to China from Russia’s Far East. Putin was in Beijing to attend the Winter Olympics.

The gas sales alone could generate around $37.5 billion over 25 years, according to Reuters calculations, assuming an average gas price of $150 per 1,000 cubic metres as reported by Russian gas giant Gazprom for its current deal with China.

Kremlin spokesman Dmitry Peskov said the deal was for 25 years, while a Chinese industry source said it was for 30.

Separately, Russian oil giant Rosneft, headed by long-standing Putin ally Igor Sechin, signed a deal with China’s CNPC to supply 100 million tonnes of oil through Kazakhstan over 10 years, effectively extending an existing deal.

Rosneft said the new deal was worth $80 billion.

The agreements bolstered the rouble and the Russian stock market, including shares in Rosneft and Gazprom.

Putin has accused the United States of stoking tensions over Russia’s neighbour Ukraine, which has angered Moscow by wanting to join NATO. More than 100,000 Russian troops have amassed near the border with Ukraine. Western countries accuse Moscow of planning an invasion, which it denies.

Russia is Europe’s biggest provider of natural gas, and Western countries are worried that already strained supplies could be interrupted in the event of a conflict. However, the new deal with Beijing would not let Moscow divert gas otherwise bound for Europe, as it involves gas from the Pacific island of Sakhalin, not connected to Russia’s European pipeline network.

Gazprom said in a statement it planned to increase gas exports to China to 48 bcm per year, including via a newly agreed pipeline that will deliver 10 bcm annually from Russia’s Far East.

Under previous plans, Russia aimed to supply China with 38 bcm by 2025. The announcement did not specify when it would reach the new 48 bcm target.

Gazprom, with foreign partners including Shell, already produces more than 10 million tonnes of liquefied natural gas (LNG) per year in Sakhalin.

“Delivering gas to China’s northeastern tip makes this project strategically attractive for China, as the only real alternative supply would be more expensive LNG,” Moscow-based BCS brokerage said in a note about the 10 bcm deal.

An industry source told Reuters earlier on Friday that Gazprom, which has a monopoly on Russian gas exports by pipeline, had agreed a 30-year contract with China’s CNPC, with the first gas to flow through the new pipeline in two or three years.

The source said the gas deal would be settled in euros, as Moscow tries to diversify from the U.S. dollar and hedge itself against any potential sanctions from Washington.

POWER OF SIBERIA

Russia now sends gas to China via its Power of Siberia pipeline, which began pumping supplies in 2019, and by shipping LNG. It exported 16.5 bcm of gas to China in 2021, including 10.5 bcm via the Power of Siberia, which is also separate from the pipelines that send gas to Europe.

Putin was accompanied by several Russian officials and business executives, including Sechin. Gazprom head Alexei Miller was not in the delegation.

China also lifted restrictions on Russian wheat and barley imports.