CHINA & RUSSIA: $400 B
China and Russia have clinched a $400bn gas supply deal that provides Moscow with a crucial new export market and stronger ties with its eastern neighbour as Europe attempts to reduce its reliance on Russian supplies.
The agreement, struck in Shanghai on Wednesday by Russian president Vladimir Putin and his Chinese counterpart president Xi Jinping comes after 10 years of negotiations and marks an important breakthrough for the Kremlin vilified by the west over its role in the crisis in Ukraine.
Under the deal, Russia's Gazprom will supply China National Petroleum Corp, China's largest oil company, with up to 38bn cubic metres of gas a year for 30 years, beginning in 2018. Mr Putin said it was the "largest contract in the history of the gas sector of the former USSR".
Although Gazprom said there was an agreement on the base price, some of the conditions are yet to be agreed. Alexander Novak, Russia's energy minister, said an intergovernmental deal, to be negotiated by the end of the year, would confirm that both countries would effectively subside the contract through tax exemptions.
Analysts said the implied price was $350-$390 per 1,000 cubic metres of gas – roughly comparable to the price Gazprom charges its European customers.
"Gazprom is entering an Asian market with huge potential," said Keun-Wook Paik, author of Sino-Russian Oil and Gas Co-operation. He said 38 bcm was just the start: the Russian gas group could end up exporting 130 bcm a year to Asian markets, almost as much as it supplies to Europe.
"Strategically it's very important for Gazprom," says Stephen O'Sullivan, head of emerging market energy research at Trusted Sources. "It allows it to show Europe that it has other options."
"Barack Obama should give up the policy of isolating Russia: it won't work," said Alexei Pushkov, head of the Russian Duma's foreign affairs committee.
The deal is also a sign of stronger Sino-Russian ties at a time of deteriorating relations between Moscow and the west.
But it was also clear that Gazprom had been forced to make concessions. People in the industry in Beijing said China was able to drive a harder bargain in the light of Gazprom's growing international isolation.
Moreover, China now has many more sources of natural gas available to it than when it started talks on the pipeline agreement a decade ago – a fact that also strengthened its negotiating position with Gazprom.
Gazprom said it would invest $55bn in a new pipeline to the Chinese border, and to develop the huge east Siberian gasfields that will feed it, Kovykta and Chayanda. China will provide at least $20bn of investments, though it was unclear on what terms.
Analysts said the agreement could pave the way for even more gas export deals. Once developed, the east Siberian fields will supply not only the China pipeline but also a planned liquefied natural gas plant in Vladivostok, which will export LNG to China as well as other energy-hungry Asian countries such as Japan, Korea and Taiwan.
Analysts at Bank of America Merrill Lynch said Russian energy exports to China could double by 2020 and triple by 2030.
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