Cablegate: China/Russia: Putin's Visit Leads to Energy

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FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 6508
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
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E.O. 12958: N/A
TAGS: ECON ENRG ETRD EFIN PREL RS CH
SUBJECT: China/Russia: Putin's Visit Leads to Energy
and Trade Agreements, but No Breakthroughs

SENSITIVE BUT UNCLASSIFIED: NOT INTENDED FOR
INTERNET DISTRIBUTION

1. (SBU) Summary: During Russian Prime Minister
Vladimir Putin's October 13-15 visit to Beijing, the
two sides agreed to a framework for continued
negotiations on a natural gas purchase arrangement;
formed a joint venture to explore for natural gas in
Siberia; and reached agreement on a joint venture
oil refinery in Tianjin. The agreements fall short
of pre-visit comments by Gazprom officials of a
major breakthrough in Sino-Russian energy
cooperation. China also agreed to provide USD 1.7
billion of loans to Russian banks while promising to
improve bilateral financial and customs cooperation.
There was no announcement on establishing a currency
swap agreement to facilitate trade finance, similar
to what China has signed with five other countries
and Hong Kong since late-2008. End Summary.

Russian Gas to China
--------------------

2. (SBU) China National Petroleum Corporation (CNPC)
and Gazprom signed a framework agreement on natural
gas deliveries on October 13 during the visit of
Russian Prime Minister Putin, according to scholars
at the Institute of Russian, Eastern European and
Central Asian Studies, a research institute of the
Chinese Academy of Social Sciences (CASS). The
agreement could lead to Russian gas exports through
two pipelines with a total volume of 68 billion
cubic meters of gas a year. CASS researchers told
Econoff, however, the two sides were still far apart
on a pricing arrangement, with Gazprom insisting on
a formula based on European natural gas prices and
CNPC arguing for a lower price based on Chinese coal
prices.

3. (SBU) Negotiations over the natural gas deal have
dragged for years. The two sides originally signed in
2006 a memorandum of understanding, with the aim of
starting exports of Russian gas in 2011. Even if the
current framework leads to a final agreement on pricing
next year, deliveries would not begin until 2014 or 2015,
as the pipelines have not yet been developed. Prior to
Putin's visit, Gazprom CEO Alexei Miller had promised the
agreement would be concluded soon.

Gas Exploration Joint Venture
-----------------------------

4. (U) China and Russia agreed to establish the China-
Russia Energy Investment Co. Ltd., the first oil and gas
joint venture between the two countries, according to
local media. The new Hong Kong-registered company
acquired 51 percent of Russian oil and gas company
Suntarneftegaz, which holds exploration and development
rights to the Berezovsky and South Cheredeisky gasfields
in Eastern Siberia with total reserves of more than 60
billion cubic meters. The JV will spend approximately
USD 300 million to develop the project and plans to
export gas to China, Japan, Korea and Singapore.

Joint Venture Oil Refinery
--------------------------

5. (U) CNPC and Rosneft reportedly reached agreement
on a joint venture oil refinery project in Tianjin
with a 15 million ton capacity. The total
investment is between USD 3-4 billion. The
agreement also covers the construction of 300-500
gasoline stations in China.

Non-Energy Deals and Direction
------------------------------

6. (U) China and Russia reportedly agreed to USD 3.5
billion in trade deals. It is unclear if this sum
includes the USD 1.7 billion of loans from Chinese
to Russian banks announced during Putin's visit.
Vice Premier Zhang Dejiang, at the October 13
opening ceremony of the China-Russia economic forum,

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said both countries needed to improve financial
services and banking settlement cooperation, and
both should encourage domestic banks to establish
branches in the other country. He also urged the
two sides to strengthen investment, technology, and
standards cooperation and improve bilateral market
access. Chinese and Russian customs agencies signed
an MOU and established a customs cooperation sub-
committee to fight gray market cross-border trade.
In recent months, Chinese and foreign press also
have reported that China and Russia are considering
or negotiating a bilateral currency swap agreement
to facilitate trade finance, similar to what China
has signed with five other countries and Hong Kong
since late-2008.

HUNTSMAN

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