Gas deal seals China-Russia bond

$400 billion agreement secures supply for 30 years

China and Russia inked a mega natural gas supply deal Wednesday in Shanghai after a decade-long negotiation, with reports estimating that it is worth $400 billion.

The deal was sealed at the end of Russian President Vladimir Putin's China visit, marking a solid steppingstone for a comprehensive bilateral energy strategic partnership, which Putin and Chinese President Xi Jinping had announced on Tuesday.

The deal, signed between Gazprom and China National Petroleum Corp (CNPC), will see 38 billion cubic meters of gas transported to China annually for 30 years.

The gas will be piped from Siberian gas fields to China's northeastern provinces, the Beijing-Tianjin-Hebei region and the Yangtze River Delta starting from 2018, according to a CNPC statement released Wednesday.

Putin and Xi witnessed the signing of the deal, which is considered as a symbolic political triumph for Putin's trip and success for Russia's energy export shift to Asia when Europe wants to cut reliance.

"Both sides were in the end pleased by the compromise reached on price and other terms," Putin was quoted as saying by Reuters.

Gazprom CEO Alexey Miller declined to disclose the agreed price citing it as a "corporate secret," but said the overall cost is $400 billion. He revealed that all the principal issues were only resolved at 4 am Wednesday, Ria Novosti reported.

Rosneft CEO Igor Sechin on Tuesday said that Russia had suggested extraction tax exemption for the gas-delivering fields, while Chinese officials expressed willingness to cancel import taxes on Russian gas.

"The price is estimated at $350 per 1,000 cubic meters, better than expected," Han Xiaoping, chief information officer of energy website china5e.com, told the Global Times.

This would compare favorably to the $350 to $380 or even $400-level price range Russia offered to Europe.

The price negotiation is linked with the oil price on the international market and crucially linked with the Asian gas price, which is mainly set up by import costs for liquefied natural gas (LNG) for major users, including Japan and South Korea, Zhou Dadi, vice-chairman of the China Energy Research Society, told the Global Times.

National Energy Administration data showed that China imported 52.7 billion cubic meters of gas in 2013. Zhou said the gas deal will become a good supplement for China's gas imports as demand will expand two to three-fold in the coming years, and most importantly, the pipeline gas will be cheaper than LNG.

CNPC said it will build the Chinese section of pipelines and infrastructure, while Russia conducts exploitation and pipeline construction in its territory.

The deal, standing for important economic interest, further consolidated the strategic partnership between the two powers and pushed for the multi-polar structure that China has always wanted to construct, said Han.

Although Russian Prime Minister Dmitry Medvedev said confidently in a Tuesday interview with Bloomberg Television that "there is no viable alternative in sight to Russian supplies" in Europe, increased oil production in Iraq, loosened sanctions on Iran and shale-gas development in the US have created sources for Europe.

"For China, the deal will expedite energy restructuring; for Russia, Putin left with a substantial weight for the negotiation with Europe as it seized the promising Chinese market," said Han.

Both Zhou and Han foresee a smooth future for the deal as long as the two nations strictly follow the terms.

Observers said the energy deal will benefit mutual trust between the two powers, as some Russian policymakers have worried that Russia might become China's "energy reserve" in economic and military development, according to a 2011 reported by Center for European Reform, a London-based think tank.

"China's check will help Russia stabilize its foreign currency earnings," said Han.

Beside the deal, China has eyed Central Asia as a major energy source, especially when Xi signed a series of deals with the region during his visit in September last year, including a purchase agreement for 25 billion cubic meters of gas from Turkmenistan.

Zhou noted that China will not ditch Central Asian countries because of the deal and has to establish a mutual-benefit situation through cooperation with Russia in the region, which sustains less influence from the West.

The region falls under the Silk Road economic belt proposed by Xi, and is viewed as a crucial part for China's development in terms of energy and security.