Gazprom China deal ‘may need new capital’

Gazprom04 June 2014, News Wires – President Vladimir Putin said on Wednesday that Russia should consider recapitalising state gas company Gazprom after a $400 billion deal with China which will require multi-billion-dollar investments in pipelines and new fields, according to a report.

“The government and finance ministry should consider the possibility of recapitalising Gazprom in the amount needed to build up new infrastructure,” Reuters quoted Putin as saying at a meeting on energy strategy in the southern city of Astrakhan.

The $400 billion deal, signed during a visit by Putin last month, secured a major source of supply for China, the world’s top energy user, and opened up a new market for Moscow, which risks losing European customers over the Ukraine crisis, according to the news wire.

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. A Gazprom executive said China would provide a $25 billion prepayment.

Putin did not say how exactly Gazprom could be recapitalised but hinted it could be done from Russia’s gold and foreign exchange reserves, the world’s fourth largest, which stood at $468.4 billion as of last week.

“In the modern world, endless increases in gold and foreign exchange reserves hold some risks as well,” Putin said, adding that the Chinese contract was certain to recoup the investments in the long run.

For now, Europe is Gazprom’s export market. The continent gets a third of its gas needs from Moscow, much of that pumped via Ukraine. Moscow and Kiev are in the middle of their third gas row in a decade, which also threatens to disrupt supplies to Europe.

Following Russia’s annexation of Crimea from Ukraine in March, the United States and European Union imposed sanctions on Moscow, spurring talk of a need to diversify the Russian economy, including its financial and energy sectors, away from the West.

Putin told the meeting Russia should reduce reliance on foreign equipment in the energy sector and step up efforts to exploit oil and gas in Siberia and Russia’s Far East, which borders China.


– Upstream

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