By Maria Gallucci - Russia’s natural gas giant Gazprom (MCX:GAZP) on Wednesday defended the profitability of a $400 billion contract with China, the terms of which remain shrouded in secrecy.
Alexander Medvedev, the company’s deputy chief executive, insisted the deal will make money for stated-owned Gazprom, though he declined to disclose the price that China National Petroleum Corp. agreed to pay for the Russian natural gas, the Wall Street Journal reported.
It would be “complete nonsense” to suggest that Gazprom could lose on the deal, Medvedev said, according to WSJ.
He also announced that China will pay Russia $25 billion in pre-agreed advance payments. The capital will help to build the “Power of Siberia” pipeline, which will ship gas from untapped gas fields in Eastern Siberia to China’s main consumption centers starting in 2017, Penza News reported.
Russia and China inked the $400 billion deal in May after a decade of negotiation. Medvedev at the time heralded the agreement as “an epoch-making event” because it could allow Russia to reduce its reliance on the European gas market and discover “the Asian gas market for ourselves,” Reuters noted.
The deal comes as Gazprom’s European exports, which comprise the bulk of its sales, are increasingly in jeopardy, given the Western sanctions against the Kremlin for its annexation of Crimea. The timing has raised questions in Russia about whether the gas company prioritized political interests over economic criteria, WSJ reported.
Energy experts have said Russia likely lost significant potential profit on the deal, since China was able to secure gas supplies from other nations while the Gazprom proposal hung in limbo, Penza News wrote.
Under the May deal, Russia will supply China with an annual average of 38 billion cubic meters of gas for 30 years. Earlier this month, Russian officials touted the prospect of a second major energy deal in China, suggesting that Gazprom might resume talks with China over a long-stalled western pipeline.