Russia's Gazprom, China's CNPC to switch gas sales to ruble, yuan

Russia's Gazprom has agreed with China's CNPC to switch the currency used to pay for Russian gas supplies via the Power of Siberia to China into the currencies of the two countries, the ruble and the yuan, Gazprom said Sept. 6.

Gazprom said a corresponding agreement was signed under the parties' long-term gas supply agreement, which provides for 38 Bcm/year of Russian gas supplies to China.

First deliveries were made in December 2019, and flows have been ramping up since.

Gazprom said the currency switch agreement was reached during talks between its CEO Alexei Miller and CNPC chairman Dai Houliang.

"During the meeting, additional agreements were signed to the long-term agreement along the eastern route -- the Power of Siberia pipeline," Gazprom said.

"In particular a transition was made to making payments for gas supplies to China in the national currencies of the countries -- the ruble and the yuan," it said.

Little is known about the pricing structure of the contract, but Chinese customs data have quoted Russian gas imports in dollars.

"The new payment mechanism is a mutually beneficial, timely, reliable and practical solution," Miller said. "It will simplify the calculations and will become an excellent example for other companies."

Supply growth

Gazprom exported 4.1 Bcm via the Power of Siberia in its first full year of operation in 2020 -- or an average of 11 million cu m/d -- and delivered an estimated 10.5 Bcm in 2021, though official sales data has not been published for last year.

Miller said Aug. 31 that Gazprom's supplies to China via the Power of Siberia pipeline were up 60% year on year in the first eight months of 2022.

Supplies from Russia to China are set to ramp up in the coming years to the contracted 38 Bcm/year, with China seen as a key growth market for future pipeline gas exports.

Gazprom is also planning another route to China via Mongolia with a planned capacity of 50 Bcm/year -- Power of Siberia 2 -- as well as a new Far Eastern route to carry up to 10 Bcm/year.

Gazprom said Sept. 6 it had begun design work on the new Far Eastern route.

Gazprom has said Russian pipeline gas export capacity to China has the potential to reach more than 130 Bcm/year in the future with the addition of other routes.

The currency move came as Russian supply to its former main markets in Europe continue to dwindle, with flows via the Nord Stream pipeline halted indefinitely.

The reduction in supply has seen European gas prices surge to new record highs.

Platts assessed the Dutch TTF month-ahead gas price at an all-time high of Eur319.98/MWh ($318/MWh) Aug. 26, according to data from S&P Global Commodity Insights. It was last assessed at Eur248.60/MWh on Sept. 5.