Russia signs a historic gas deal with China

China - Russia deal
Source: DollarPhotoClub

Yesterday, Russia’s Vladimir Putin signed a historic deal with China to supply the energy-hungry country with gas for the next 30 years.

The deal between Gazprom and Chinese state-owned China National Petroleum Corp (CNPC) has been 10 years in the making, the main argument being the price, with China said to have driven a hard bargain.
“At the moment the import price and the domestic price are inverted. We are already losing money on imported gas, and we can’t lose more,” said PetroChina spokesman Mao Zefeng earlier on Wednesday.

Russia has been eager to find a committed buyer for it’s gas while it’s main client – Europe – is looking for alternative suppliers, in the face of the crisis in Ukraine. China, with its burgeoning economy seems like a perfect partner.”Russia needs this China deal very badly because it needs to signal to [Brussels] and to some EU nations that it’s taking a step that’s economically profitable and that it’s found a new market for its gas,” said Shamil Yenikeyeff, a research fellow at the Oxford Institute for Energy Studies.

However, in the last couple of years, China has moved towards diversifying it’s energy sources; importing it’s dry gas from Turkmenistan (China’s largest gas supplier) and Myanmar,  and increasing its LNG imports from Total to meet the target of 30% increase by 2017. Then there are China’s shale gas reserves, estimated at 1,115 trillion cf – the largest deposits of this kind in the world.

The agreement with Gazprom, signed at a summit in Shanghai, is expected to deliver some 38 billion cubic meters of natural gas a year to China’s economy, starting around 2018. The gas will be transported along a new pipeline linking Siberian gas fields to China’s main consumption centres near its coastline, although it is not yet clear whether China will pay a lump sum up front in order to fund some of the infrastructure costs.The  much-discussed price of the deal has not been given but it is estimated to be worth over $400bn.

China is Russia’s largest single trading partner, with bilateral trade flows of $90bn (£53bn) in 2013. The two neighbours aim to double the volume to $200bn in ten years.

Yesterday’s deal is the largest contract Gazprom – Russia’s largest gas producer – has signed so far.  Despite that,  Europe is still Russia’s largest energy market – buying more than 160 billion cubic meters of Russian natural gas in 2013.

Gazprom shares rose 2% in response to the news.

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