NEW DELHI: As India debates raising natural gas rates, China has signed a US $ 400 billion deal to buy gas from Russia at US $ 11-13 per million British thermal unit.
Russia’s Gazprom last week signed a deal to sell 38 billion cubic meters of gas annually over 30 years to China National Petroleum Corp.
While the exact sale price has not been declared, industry analysts said going by the contract value of US $ 400 billion over 30 year period, the price at the Russia-China border is expected to be between US $ 11 to 13 per mmBtu. This rate is almost triple the current domestic price of US $ 4.2 per mmBut and 50 per cent more than the likely rate of US $ 8.3 per mmBtu when the Rangarajan formula is implemented.
The Rangarajan formula, which prices gas at an average of international hub rates and actual rate of importing LNG into India, was to be implemented from April 1 but it had to be put off because of announcement of general elections.
The new BJP-led NDA government has so far not stated if it will implement the new rate which will make several gas discoveries in deepsea commercially viable to produce.
Analysts said the 3.8 billion cubic feet per day or 28 million tons per annum of Russian gas will flow from East Siberia to China’s north-eastern provinces (expected deliveries to Heilongjiang, Jilin and Liaoning – it is further expected that Beijing, Tianjin, Hebei and some southern coastal provinces may also receive gas). First gas is expected by 2018 though some say it may be delayed to 2021.
China may make as much as US $ 25 billion in advance payments under the contract to invest in the necessary infrastructure. China will spend at least US $ 20 billion on its construction and will also waive 13 per cent VAT on Russian imported gas.
Gazprom supplies about 30 per cent of Europe’s gas, at an average price of US $ 380.5 per thousand cubic meters last year. The price in the contract with China is more than US $ 350.
China, which would become Russia’s No 2 gas market behind Germany, paid about US $ 10 per mmBtu last year for natural gas piped from its biggest foreign supplier, Turkmenistan.
Russian gas will now comprise 8 per cent of total gas consumption, 19 per cent of total gas imports and 31 per cent of total pipeline gas imports for China.