Gazprom has signed a deal with China to start paying for gas in yuan and rubles instead of USD - a sign of a warming relationship between Beijing and Moscow, which are already under Western sanctions, Bloomberg reported.
The new payment mechanism is a mutually beneficial, timely, reliable and practical solution for both sides, said Alexei Miller, CEO of Gazprom, after an online meeting with Dai Houliang, head of the National Oil and Gas Group of China. Miller added that the new payment mechanism will simplify calculations and become an excellent example for other companies.
Accordingly, Gazprom has signed a supplementary agreement to its existing contract with the National Oil and Gas Group of China. The payment will be made in 50% rubles and 50% in yuan, effective immediately.
President Vladimir Putin has asked Gazprom's major customers in Europe to pay for gas in rubles earlier this year after the US and its allies froze more than $300 billion in Russian central bank reserves in response to Moscow's launch of a military campaign in Ukraine. Some buyers refused and Gazprom stopped supplying, while the largest consumers agreed to the new payment terms of Russia.
Russia is also switching to rubles for gas payments with Turkey, which is not party to sanctions and has a close relationship with the Kremlin. But initially, only 1/4 of the total amount would be paid in rubles, the rest in USD and euro. However, the proportion in rubles will increase over time.
Gazprom's contract to supply gas to China via the Power of Siberia pipeline, signed in 2019, is estimated to be worth $400 billion over 30 years. President Putin praised the move as a real historical event, not only for the global energy market, but above all for Russia and China.
The capacity through this pipeline is increasing steadily and is expected to reach at least 15 billion cubic meters in 2022, compared to 10.4 billion cubic meters assigned last year. Gazprom said that gas from the underdeveloped Kovykta mine will begin flowing through the Power of Siberia pipeline before the end of this year, allowing for an additional volume of gas transit to China in 2023.
Earlier this February, when Russian President Vladimir Putin visited Beijing (before the military campaign in Ukraine), Gazprom signed a second agreement to provide an additional 10 billion cubic meters per year for 25 years via a new pipeline, although supply has not yet begun. A few weeks later, the gas giant also signed a contract to design the Soyuz Vostok pipeline across Mongolia to China, which could provide up to 50 billion cubic meters per year.
Recently, Russia has been making efforts to build closer economic relations with China and other non-Western countries.
Russian President Vladimir Putin has forced European customers to open ruble-based bank accounts with Gazprombank and pay in Russian currency if they want to continue receiving Russian gas. Supply was cut for some companies and countries to reject the terms of the deal, causing energy prices to increase.
The Kremlin said that Russian gas supplies to Europe will not continue until Western sanctions on Moscow are lifted.
