Russia eyes record German trade with gas, minerals

Russia agreed to let German companies exploit its vast rare earth deposits and secured greater access to the biggest market for Russian gas as it looked to record trade with Germany this year.

"This year we will most likely reach a record post-crisis turnover between our economies, our countries," said President Dmitry Medvedev after talks with German Chancellor Angela Merkel at an annual bilateral meeting.

Germany's decision to shut down all of its nuclear reactors by 2022 provides a huge opportunity for Russian gas sales in what is already its third-largest trading partner, while Germany's high-tech industry needs more access to rare earth metals, whose supply has been hit by Chinese export curbs.

Deputy Prime Minister Viktor Subkow said Gazprom is hoping for an increase in demand from Germany of 30-35 per cent, while Merkel said she expected the increases to be more modest.

"Let's wait and see what happens," Merkel said. She added Germany would need more gas but that the increase would be manageable, because part of Germany's energy demands will be met with renewable energy and better energy utilisation.

Last week Gazprom, Russia's gas export monopoly and the world's largest gas company, announced exclusive talks with Germany's RWE for a joint venture in power generation, with an implied promise of fatter margins on its German sales.

Russian Deputy Prime Minister Zubkov, who is also Gazprom's chairman, told the meeting in Hanover that his country's capacity to supply gas to Europe was unlimited.

"We have agreements with Germany and European countries until 2030 and 2031, and we could just introduce some amendments in these agreements on volumes," he said.

"We will cover all the volumes demanded by the German economy with Russian gas supplies through North Stream and Yamal-Europe, so there are no problems at all.

Financial daily Kommersant reported that Russia may put its 63 bcm South Stream pipeline project on hold if it adds a third string to Nord Stream to meet a possible increase in German demand.

It quoted Russian government sources as saying that talks with Turkey on laying the South Stream pipeline through Turkish waters had stalled. South Stream competes with the European Union-backed Nabucco project, which seeks to access gas from the Caspian region and diversify European gas supply away from Russia.

The talks in Hanover were expected to serve as a signal to China, which is driving a hard bargain in long-running price talks on Russian gas deliveries to China, some of which would come from the same fields that supply European clients.

Gazprom says it should receive the same netback on deliveries to China as it does to Europe, and sources have said that means a price gap of at least $100 per thousand cubic metres in negotiating positions.

The first line of Nord Stream, which will carry 27.3 bcm - 70 per cent of the volume Germany imported from Russia in 2010 - will be launched in October and the second one next year.

Germany's electronics industry has said the market for the 17 rare earth minerals with magnetic, luminescent and other properties has become critical due to reported export curbs from China, which produces 97 per cent of the world's supply.

Zubkov said Russia could help Germany meet this demand.

"We are ready to grant an opportunity for German companies to actively participate in the extraction of rare earth metals, which are used in automotive and agricultural machinery production, so that they could build these enterprises in Russia," Zubkov told reporters in Hanover.

He said just the Russian deposits of rare earths, which did not requiring "industrial extraction" were of a volume "equal to global annual production" and that Russia was willing to create the right conditions for German companies to extract them.