Gazprom says China contract offers no protection against low prices

• Gazprom's (OTCPK:OGZPY) 30-year contract for gas supplies to China, signed with much fanfare in May 2014 amid talk of $400B worth of gas deliveries, was based on an optimistic view of the oil market and offers no protection in the event of a prolonged period of low prices, the Russian company says.
• Oil prices have since fallen by more than half, potentially destroying the economics of the project, whose development cost Gazprom has estimated at $55B.
• Gazprom confirms the gas price under the contract with CNPC would be linked to a basket of oil product benchmarks; analysts estimate the gas price implied by the contract was ~$350/M cm when it was signed, and given the 50% drop in oil prices since then, it could be as low as $175/M cm - "clearly a loss-making level," says Ildar Davletshin, oil and gas analyst at Renaissance Capital in Moscow.