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Russia, China edge closer to strategic gas deal

By Ben Blanchard and Alexei Anishchuk

MOSCOW (Reuters) - Russia edged closer on Thursday to an elusive 30-year gas supply deal with China that could be worth up to $1 trillion to help power Beijing's booming economy and allow Moscow to diversify its exports away from Europe.

An agreement on the gas project would be a big trophy for Chinese President Hu Jintao, who has courted Russia as a way of boosting energy security as robust economic growth increasingly forces China to look abroad for oil and gas.

For Russia, the deal offers state-controlled gas export monopoly Gazprom an alternative market, assuaging Prime Minister Vladimir Putin's concern of over-reliance on European customers.

While Hu has made securing energy for the world's second-biggest economy a diplomatic priority, relations with Russia, the world's largest energy producer, have not been smooth.

The two sides have been bogged down in disagreements on pricing for the gas that Gazprom would pump to China.

"At the moment, documents on gas supplies to China are being finalized," Russian President Dmitry Medvedev told reporters in the Kremlin after meeting Hu. "This is a strategic document, meant for the decades ahead."

Hu made no direct mention of the price dispute, but said Russia and China viewed energy as a "key area" for cooperation.

"Both sides are willing to keep pushing forward this cooperation on a mutually beneficial, win-win basis," Hu said.

Hu later met Putin at Gazprom's headquarters. Before they went into talks, Putin used a laser pointer in the central dispatch room to show off to his Chinese guest two pipeline projects that are to deliver Russian gas to Europe.

"If we manage to reach an agreement, then that will certainly enable us to create more opportunities to develop our economic relations," Putin told Hu.

Russian Deputy Prime Minister and energy tsar Igor Sechin, speaking just after Hu and Medvedev's briefing, said that the talks had "advanced considerably."

Russia and China already have close energy ties.

Russia's top crude producer, Rosneft, may increase oil shipments to China above today's 300,000 barrels per day to feed a planned refinery, Sechin added.

PRICE DISPUTE

Negotiators for China National Petroleum Corp (CNPC) have signaled they will pay no more than $250 per thousand cubic meters, sources at Gazprom said on Wednesday.

Russia's gas export monopoly is still targeting a price that will make deliveries to China as profitable as those to their European clients, who Gazprom says will pay $500 per thousand cubic meters in the fourth quarter of this year.

Under early terms hammered out over five years by negotiators, Russia will deliver 30 bcm per year from fields on the Arctic Yamal peninsula, the same fields which supply Europe, -- via pipeline through the Altai region to northern China.

China would also like to contract an additional 38 bcm from yet untapped fields in East Siberia.

The combined income over three decades, assuming a price of $500 per thousand cubic meters, would generate some $1 trillion.

For China, imports of Russian gas will provide a further pillar to prop up its rapidly growing gas market, which is already attracting growing volumes of liquefied natural gas by ship and receiving Turkmen gas via a pipeline.

As talks have dragged on between Russia and China, Beijing has increased its purchases of gas from Russia's rivals -- the former Soviet Union states of Uzbekistan and Turkmenistan.

COMMON DIPLOMATIC GOALS

Despite the gas dispute, China and Russia have been cooperating closely diplomatically on the unrest in the Middle East, criticizing NATO-led air strikes in Libya and snubbing a European-drafted U.N. resolution to condemn Syria's bloody crackdown on pro-democracy protesters.

Hu and Medvedev expressed concern about the situation in war-torn Libya on Thursday and urged strict adherence to U.N. Security Council resolutions, signaling dissatisfaction with Western air strikes.

In a joint declaration signed in the Kremlin, the two leaders also emphasized the need for diplomatic solutions to the disputes over the nuclear programs of Iran and North Korea.

They emphasized Iran's right to peaceful nuclear power but hinted Tehran should end its defiance. In the declaration, Russia and China also said they were ready to cooperate with other partners to seek resumption of long-stalled six-party talks on North Korea's nuclear activities.

(Additional reporting by Vladimir Soldatkin, Jessica Bachman and Steve Gutterman; editing by Dmitry Zhdannikov and Keiron Henderson))

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