Gas deal serves China interest

The mega gas deal between China and Russia signed on Wednesday serves interest of both countries, but China urgently needs to accelerate its unconventional energy development to meet its surging domestic demand.

The gargantuan deal, roughly worth $400 billion, will supply China with 38 billion cubic meters of gas annually for 30 years, starting in 2018. That would be equivalent of about a quarter of China's current annual gas consumption of nearly 150 billion cubic meters.

It will help reduce Russia's pressure from finding customers for its natural gas amid tensions with the West in the wake of the Ukrainian crisis. For China, it will help increase its share of natural gas — a clean and efficient energy source — in its energy consumption mix to 8 percent from less than 6 percent, according to experts.

Some commentators have cast doubt on the worthiness of the deal for China since the price, they said, is not low enough. Moreover, the 30-year lock-up deal would reduce the room for China to import gas from other destinations, such as the Middle East and Australia.

Indeed, the two sides have remained divided on pricing in the past decade, the core factor behind their failure to reach a consensus. Information on price of imported gas is unavailable, but it could be $9-11 per million British thermal units (btu) of gas, according to media reports citing insiders.

Such comments seem plausible, but business is not always about money. Although it may not be a good price for China if we compare it with gas China imports from Turkmenistan, considering the close partnership between the two countries and their common interests in the turbulent world environment, it could still be a worthy deal from the perspective of geopolitics.

Moreover, China needs a stable source of clean energy, such as natural gas, to bolster its mid- and long-term development.

Despite its slowing economy, China is still facing severe pressure from surging demand for energy as its economy expands at about 7.5 percent. Now it relies on foreign markets for slightly less than 60 percent of its domestic oil consumption, a proportion that could continue to rise in the coming decades.

Meanwhile, in its energy consumption mix, coal accounts for about 70 percent. The heavy reliance on coal has brought serious problems, such as industrial pollution, that can be solved through increasing the use of clean energy sources, such as natural gas.

Despite its urgent need for natural gas, China, the third-largest consumer in the world, is depending on foreign markets for about 35 percent of its natural gas supply.

Its annual demand for gas is expected to reach 200-300 billion cubic meters by the end of the decade and sustain a rate of about 14-percent growth through to 2030, according to experts. China's own gas production capacity, however, would be able to satisfy about half of the demand, leaving a huge gap that is to be bridged by imports.

A solution could lie in development of shale gas. The US is leading the world in developing related technologies, but China lags far behind, making it difficult to tap its plentiful reserves of shale gas.

With its capacity in exploring traditional energy sources unable to improve substantially, China must accelerate its economic restructuring to reduce its demand for energy while speeding up development of its core technologies to tap unconventional energy sources, such as shale gas.