Gazprom plans $4 bn extra spending in 2015

Russia’s natural gas exporter is planning $4 billion of additional investments this year to prepare for the start of supplies to China as the European Union snubs a proposed pipeline across the Black Sea.

Most of the spending increase will go into OAO Gazprom’s eastern gas program, including the development of fields and infrastructure, Alexey Miller, chief executive officer said.

Russia wants to cement ties with China after relations with the EU, its main gas customer, soured over the conflict in Ukraine. A second contract, targeted as early as next month, would add to a $400 billion deal Russian President Vladimir Putin reached in May last year to supply gas to China from fields in East Siberia.

Gazprom and China National Petroleum signed a framework agreement in November for the second 30-year contract for deliveries from gas deposits in West Siberia that are currently used to supply European customers. The link would transport as much as 30 billion cubic meters a year, on top of 38 billion cubic meters under the first contract, which would push China above Germany as Russia’s largest gas customer.

“We are making every effort” to sign the second supply agreement with China by the end of the year, Alexander Novak, Energy Minister said. The work on the deal “is intense.”

While the Kremlin has not ruled out the signing of the second contract during a visit by China’s President Xi Jinping next month, remaining issues include the most difficult, the price. It took almost a decade for Gazprom to sign its first gas contact with the world’s biggest energy consumer.

The Russian gas producer and exporter plans to spend $16.5 billion this year, according to the investment program approved in December.

Gazprom will develop a “Eurasian gas market” once it builds a link to China from West Siberia. Asia will influence the EU market and prices.

Europe should start preparing now to accept fuel through the planned Turkish Stream pipeline or lose volumes to Asia, Miller said in Berlin. He said the EU scuppered a similar route, known as South Stream, to help Ukraine maintain transit.