RoydadNaft –  Russia’s state-controlled gas giant Gazprom has taken a break in talks with China to secure a binding commitment from Beijing to buy gas to be delivered through the planned Sila Sibiri 2 pipeline, according to a report.

The Russian company has been facing firm demands from China National Petroleum Corporation (CNPC) to agree to future gas supplies at a price close to Gazprom’s domestic prices, according to a Financial Times report.

Domestic prices for Gazprom-supplied gas of $100 to $150 per thousand cubic metres are regulated by authorities and vary among regions depending on the market’s distance from the company’s core gas producing fields in West Siberia.

Unnamed sources quoted in the story said CNPC also wants to commit to a lower minimum purchase threshold, described as “a fraction of the pipeline’s planned annual capacity of 50 billion cubic metres of gas”.

Commonly known as a take-or-pay clause in the industry, the term calls for a buyer to pay for the committed minimal volume of contracted gas in the event actual supplies fall below that level.

The provision is usually sought by gas producers as security for the payback of their long-term investments into capital-intensive projects like Sila Sibiri 2.

The report said the pause in talks between CNPC and Gazprom became obvious in May when Gazprom’s executive chairman Alexei Miller opted not to arrive in Beijing together with Russian President Vladimir Putin, who spent two days on an official visit to China.

Instead, Miller was seen in Tehran, where he was due to meet Iran’s First Vice President Mohammad Mokhber and Oil Minister Javad Owji, according to the company’s statement.

Russia has no physical pipeline connection to Iran, which itself is a major gas producer.

Russian oil and gas analyst, Mikhail Krutikhin, told Upstream that Gazprom may eventually agree to China’s terms as it needs to build the Russian segment of Sila Sibiri 2 to secure long-term performance on its two existing pipeline gas supply commitments to the country.

These are the Sila Sibiri 1 pipeline that is set to deliver 38 Bcm per year of gas from the Chayanda and Kovykta fields in East Siberia to the northeast of China, and Sila Sibiri 3 pipeline under construction.

Sila Sibiri 3 will carry 10 Bcm per year of gas from fields offshore Sakhalin Island to the east of China.

Krutikhin suggested that because of ongoing development issues at Kovykta, Chayanda and Sakhalin, Gazprom may be unable to maintain the total contracted supply of 48 Bcm per year to China for at least 30 years of the contracts’ duration.

However, a connector is planned to supply gas from West Siberia via the planned Sila Sibiri 2 into the existing Sila Sibiri 1 pipeline, he said.