MOSCOW—After more than a decade of talks, Russia has agreed to supply China with natural gas, a deal that could see China surpass Germany as the largest importer of Russian gas.
Russian President Vladimir Putin and Chinese leader Xi Jinping at the Kremlin Friday, where they signed several energy and investment accords. Agence France-Presse / Getty Images
 
Officials Friday signed a raft of other energy agreements, including one to double Russian oil supplies and hand China's state oil company a stake in Russian oil fields, tightening the nexus between Russia, the world's largest energy producer, and China, the hungriest consumer.


Chinese President Xi Jinping, in Moscow on his first foreign trip as leader, called the accords a "breakthrough" at a signing ceremony in the Kremlin Friday. Russian President Vladimir Putin said the visit would have "long-term, historic results."
 
The winter season is coming to an end and the energy market readies for a slowdown in the need for heating fuels, but natural gas prices are up by 9%. MarketWatch's Jim Jelter discusses why demand for natural gas will increase in the future. (Photo: Getty Images) 

Russian state gas giant OAO Gazprom OGZPY -0.69% said it would conclude a 30-year supply deal with the Chinese by the end of the year, just as the company is struggling with declining demand and regulatory pressure in its core market of Europe.

Under the terms of the memorandum, annual deliveries of 38 billion cubic meters of gas will start in 2018. Supplies could eventually reach 60 billion cubic meters a year, Gazprom Chief Executive Alexei Miller told reporters after the signing ceremony. Germany, long the largest consumer of Russian gas, imported 33 billion cubic meters last year.
Mr. Xi on Friday urged Russia to enhance foreign policy coordination in order to better protect joint security and interests, a call reflecting Beijing's new assertiveness in the global arena. Associated Press

For years, the two sides have failed to agree on price, but appear to be moving closer, as the price that Gazprom receives in Europe, its most lucrative market, has decreased. Gazprom hopes to agree a final price in the next few months. Mr. Miller said China could pay in advance for the gas, allowing Gazprom to offer a discounted price. 

Gazprom has long threatened to increase supplies to Asia as it has come under more European regulatory pressure. The company accelerated its plans to send more deliveries eastward after the European Union announced an antitrust investigation into the company last fall.
Gazprom is developing a field in Russia's far east and building a pipeline, called "Strength of Siberia," to take gas to a planned liquefaction plant in Vladivostok on Russia's Pacific coast. Russia would send the initial 38 billion cubic meters a year of gas to China via a spur from that pipeline. The company forecasts the total cost of its so-called "eastern gas program" at around $50 billion.

Also Friday, Russia's state oil firm OAO Rosneft signed a deal to double oil supplies to China to 31 million metric tons a year. Rosneft, which Thursday became the world's largest listed oil producer after taking over competitor TNK-BP, already supplies 15 million tons a year to China under a 2009 deal.

Rosneft will receive a $2 billion loan from China's state development bank under the new 25-year deal.
The company also agreed to a partnership with China National Petroleum Corp. to develop oil fields both onshore and on Russia's Arctic shelf, the first time Moscow has agreed to give a substantial stake to China in its strategic oil sector. Rosneft has concluded a series of deals with foreign partners, including Exxon Mobil Corp. XOM +0.95% , to develop potentially vast resources on the Arctic shelf, which are complex and expensive to tap

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