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October 18, 2021

Russia’s Putin signs 30 year gas deal with China

Russia’s President Vladimir Putin has signed multi-billion dollar, 30-year gas deal with China, the BBC reports.
The deal between Russia’s Gazprom and China National Petroleum Corp (CNPC) has been 10 years in the making. No official price has been given but it estimated to be worth over $400bn.
Russia has been keen to find an alternative energy market for its gas as it faces the possibility of European sanctions over the crisis in Ukraine.
Gazprom shares rose 2% on the news.
The agreement, signed at a summit in Shanghai, is expected to deliver some 38 billion cubic meters of natural gas a year eastward to China’s burgeoning economy, starting around 2018.
The main argument has been over price and China is thought to have been driving a hard bargain.
Over the last ten years it has found other gas suppliers. Turkmenistan is now China’s largest foreign gas supplier, and last year it started importing piped natural gas from Myanmar.
Rain Newton-Smith, head of emerging markets at Oxford Economics, said: “The whole tenet of the deal has a symbolic value – it says that the two countries are prepared to work with one another. For instance there were other elements such as Chinese participation in Russian transport infrastructure and power generation.
“It is similar in many ways to China’s investments in Africa where they drive a hard bargain over the price of raw materials but then provide infrastructure for the economies they are doing business with.”
Another sticking point has been the construction of pipelines into China.
Currently there is one complete pipeline that runs across Russia’s Far East to the Chinese border, called “The Power of Siberia”. It was started in 2007, three years after Gazprom and CNPC signed their initial agreement in 2004.
But financing the $22-30bn cost of sending it into China has been central to the latest discussions.
China is Russia’s largest single trading partner, with bilateral trade flows of $90bn in 2013. The two neighbours aim to double the volume to $200bn in ten years.
According to rt.com the total value of the contract is $400 billion, Gazprom CEO Aleksey Miller said. However, the price of gas stipulated in the document remains a “commercial secret.”
Assuming the overall price of the contract includes only the cost of supplies of Russian gas, than the $400 billion price tag means China will pay about $350 per 1,000 cubic meters. The contract gas price with China is tied to the price of oil and oil products, President Putin explained in Shanghai.
To date, this is the largest contract for Russia’s largest gas producer which has no such contract with any other company.

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