May 22, 2014 / 10:17 AM / 3 years ago

FACTBOX-Details of Russia-China gas deal

* Deal could be this year’s top oil and gas investment

* Agreed gas price is cheaper than Asian spot LNG

* Price is in line with recent Gazprom discounts to Europe

LONDON, May 22 (Reuters) - China and Russia signed a $400 billion gas supply deal on Wednesday, securing the world’s top energy user a major source of fuel and opening up a new market for Moscow as it risks losing European customers over the Ukraine crisis.

But the long-awaited project will be costly, with some analysts saying it will be this year’s biggest oil and gas investment decision.

Below is a summary of development and its costs:

ROUTE - The 4,000 kilometre “Power of Siberia” pipeline, spanning marshlands, mountains and seismic zones, will mainly take gas from the 1.2 trillion cubic metre East Siberian Chayanda gas field and pump it to China’s main consumption centres near its eastern coast.

Russia will begin delivering from 2018, building up gradually to 38 billion cubic metres (bcm) a year.

It is also planned to have an offshoot to supply Gazprom’s liquefied natural gas (LNG) export projects at Sakhalin and Vladivostok to serve major buyers such as Japan and South Korea.


GAS PRICE: No price has been officially announced, but sources say it is around $350-380 per thousand cubic metres.

This would benefit China as it is cheaper than Asian spot market LNG prices. Russia also benefits as industry sources say it is in line with recent European discounts and still slightly above its break even costs.

CHART-Global gas prices:

PRICING FORMULA: The pricing formula is based on a basket of crude oil products, including a take-or-pay contractual obligation for China to take the gas even when it does not need it or it must pay a fine.

China’s National Development and Reform Commission is raising domestic gas prices in key consumption centres to reflect growing gas import costs, paving the way for Russian imports, which are more expensive than Turkmen supplies it already imports.

PRE-PAYMENTS: It has so far not been disclosed whether China will pay a lump sum up front to fund considerable infrastructure costs.

According to Russian President Vladimir Putin, China will provide $20 billion for gas development and infrastructure, but Gazprom said the two sides were still in talks over any advance.

DEVELOPMENT COSTS: The overall cost for the Chayanda and Kovykta upstream development, which geologists say is more complex than Russian west Siberian gas fields, and the pipeline and processing costs will likely exceed $50 billion, and Wood Mackenzie says it will be “one of the largest oil and gas investment decisions of the year.”

Russia plans to invest $55 billion in exploration and pipeline construction to China’s border, and China’s CNPC said it would build the Chinese section of the pipeline. (Compiled by Henning Gloystein, Oleg Vukmanovic, Vladimir Soldatkin, and Amran Abocar; editing by Anna Willard)

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