Russia-China Sign $400 Billion Natural Gas Deal

May 21, 2014Russiaby EW News Desk Team

0

After decades of negotiation, Russia and China on Wednesday finally signed a $400 billion natural gas deal, which will Russian state gas giant Gazprom provide a trillion cubic metres in gas to the world’s second largest economy over 30 years.

The deal was announced after meetings in Shanghai between presidents Vladimir Putin and Xi Jinping, marking a significant shift in economic relations for Russia from the west to the east.

Putin called the deal a “watershed event” and said implementation would start “tomorrow.”

"This is the biggest contract in the history of the gas sector of the former USSR," said Putin, after the agreement was signed.

"Our Chinese friends are difficult, hard negotiators," he said. But “both sides were in the end pleased by the compromise reached on price and other terms.”

According to Deutsche Welle, the project will involve the construction of a new pipeline to connect China's northeast with Gazprom's line in the Pacific coast city of Vladivostok.

Gas supply will begin flowing in 2018, according to reports, and Russia will be investing $55 billion into the deal, while China would put forward at least $20 billion.

The final price of the Russian gas was not disclosed, but the New York Times estimates that it is around $350 per thousand cubic metres. In 2013, the average price of Gazprom’s gas in Europe was about $380 per thousand cubic metres.

RBC Capital Markets analysts said implied terms will give China a steady supply of piped-in Russian gas at a price between 25-40 percent lower than the current cost of importing liquefied natural gas from overseas.

Related: Russia Looks East As Relations With West Deteriorate

Related: Russia To Build $38 Billion Gas Pipeline To Asia

Morena Skalamera, a fellow at the Geopolitics of Energy Project at Harvard, believed that Putin was more willing to concede on price than he was before the Ukraine crisis.

 “If the European market was a question mark before the Ukrainian crisis, now with sanctions, Putin needed China even more,” she said. “Politically it is important for Putin to show that the ‘Greater Russia’ is back on the international scene and that it has other, non-Western options to restore its rightful place.”

Nevertheless, even under the new agreement, Europe will remain Russia’s biggest market. Gazprom supplies about 30 percent of Europe’s gas.