OREANDA-NEWS. October 16, 2009. Prime Minister Putin told that Gazprom and CNPC agreed in principle that Gazprom’s gas price for China would be linked to the Asian oil price basket. In addition, he stated that China might need to pay for consumed gas in Russian rubles, reported the press-centre of OTKRITIE FC.

View: In our view, this represents a strategic victory Gazprom for in its price negotiations with CNPC. The Chinese side has insisted that the gas price should be either fixed or effectively linked to the local coal price (coal dominates the Chinese energy balance). We believe the effective link with the Asian oil price basket should help Gazprom obtain a more economically justified (and transparent) gas price formula. That said, the economic impact on Gazprom's valuation from the pending gas contract with China remains unclear, given the number of still 'to-be-defined' variables and the fact that actual gas supplies are unlikely to begin in the next five years.

Valuation and action: We maintain our positive view and our BUY rating on Gazprom.