Russia and China sealed a very large energy deal, in Russian President Vlaidimir Putin’s second day official visit to China. Gazprom would be supplying natural gas to CNPC for an amount believed to be USD400 billion over the next 30 years.
21 May 2014 Last updated at 12:58
Russia signs 30-year gas deal with China
Russia’s President Vladimir Putin has signed a multi-billion dollar, 30-year gas deal with China.
The deal between Russia’s Gazprom and China National Petroleum Corp (CNPC) has been 10 years in the making.
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.
No official price has been given but it is estimated to be worth over $400bn.
President Putin said in a statement to the Russian news channel Rossiya: “The price is satisfactory for both sides.
“It is tied, like it is envisaged in all our international contracts with Western partners, specifically our partners in Western Europe, to the market price on oil and oil products. It is an absolutely calibrated, general formula for pricing.”
Gazprom shares rose 2% on the news.
How significant is the deal?
The agreement, signed at a summit in Shanghai, is expected to deliver some 38 billion cubic metres 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 10 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.
Alexei Miller, Chief Executive of Gazprom said the new deal was “the biggest contract in the entire history of the USSR and Gazprom – over 1 trillion cubic metres of gas will be supplied during a whole contractual period.”
Analysis: Jamie Robertson, BBC News
The gas deal between Russia and China was signed at 04:00 China time, which gives some indication of the level of urgency over these talks. Mr Putin appears to have been determined not to leave Shanghai without a deal – and he got one.
But the financial details are a “commercial secret”, so we don’t know how much he had to give away to get it. Certainly China needs the gas to help it cut its coal-fired smog levels, and it wants to diversify supply. But it had the luxury of time in which to negotiate, something Mr Putin was short of.
The perceived motive for the deal is that Russia needs a second market for its gas, so it can face up to European sanctions. Given that the “Power of Siberia” pipeline won’t start pumping gas into Chinese factories until 2018 at the earliest, its economic effect on the European crisis will be limited.
More important may be the investment that China will make into Russia’s power and transport infrastructure. Putin may not have managed to sign the most advantageous of gas deals on Wednesday but the opening of economic doors with China could well be the greater achievement.
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.
Jonathan Marcus, the BBC’s defence and diplomatic correspondent said tensions between Russia and the west were not just over Ukraine: “There are fundamental differences over Syria and about the whole direction in which President Vladimir Putin is taking his country.
“Thus this deal could symbolise an important moment of transition – when both in economic and geo-political terms, Russia’s gaze begins to look more towards the East than towards the West.”
Another sticking point on the deal 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 (£53bn) in 2013.
The two neighbours aim to double the volume to $200bn in 10 years.
The deal inked after a ten year initiative is the largest energy deal in the world.
Meanwhile, this first visit since China President Ji Xinping came into power also renewed the ‘Eastern Bloc military co-operation’.
The Guardian story:
Putin looks to improve China relations amid rising tensions with the west
China trip interpreted as part of a pivot toward Asia, coming after multiple rounds of sanctions from the US, EU and Japan
Alec Luhn in Moscow
theguardian.com, Tuesday 20 May 2014 21.18 BST
Chinese president Xi Jinping holds a welcoming ceremony for Russian president Vladimir Putin after his arrival in Beijing. Photograph: Xinhua /Landov / Barcroft Media
Vladimir Putin arrived in China on Tuesday set on increasing cooperation after Russia’s relations with the west soured over the Ukraine crisis. But Beijing holds far more cards at the negotiating table, and the most significant deal, a gas export agreement, had yet to be signed as the visit wound down.
Meanwhile, the two countries began joint military exercises in the East China Sea in a clear show of strength against Japan, a western ally that has long-running territorial disputes with both Russia and China.
Coming after multiple rounds of sanctions from the United States, the European Union and Japan, Putin’s China trip has been interpreted as part of a pivot toward Asia.
“This is where it’s important for Putin to demonstrate that he has other centres of geopolitical power to turn to … to demonstrate to domestic society and to the international community that relations with the west are not as important as people think,” said Vladimir Milov, a former deputy energy minister who is now director of the Moscow-based Institute of Energy Policy. “He wants to show he has partner in the east. If the west doesn’t want our energy, then we’ll sell it to China.”
“The US sanctions upgrade China’s importance to Russia as the one major economy in the world that is not susceptible to the US-led sanctions drive,” wrote Carnegie Moscow Centre director Dmitri Trenin in a post published on Monday.
Closer ties between Moscow and Beijing have been expected since long before the Ukraine crisis, however. Russia has been looking eastward to diversify its energy customers since Europe, which gets 24% of its gas from Russia, is expected to reduce its dependence. A new foreign policy concept published by the Russian government in 2013 noted the importance of friendly relations with China and India, and Russia and China have often joined together to oppose the western members of the United Nations security council.
Nonetheless, trade has remained relatively small at $89bn in 2013, and Russia has not been able to ink a gas export deal that has been in the works since 2006. Moscow has long been resistant to allowing Chinese investment in strategic oil and gas infrastructure in Russia.
But that informal ban has reportedly been lifted, and in an interview with Chinese media before his trip, Putin said Russia and China were “moving toward the formation of a strategic energy alliance.” He also pledged to increase trade volumes to $200bn by 2020 and said $20bn was being invested in joint projects between the countries.
A number of deals were signed during the visit: Russia’s state-owned United Aircraft Corporation and China’s Comac also signed a memorandum to cooperate on creating a long-distance airliner to compete with Boeing and Airbus, and the Russian Direct Investment Fund announced the construction of a railway bridge across the Amur River between China and Russia. Putin and Xi were also expected to discuss possible arms deals offering China favourable conditions to purchase Russian weapons.
But the centrepiece of the visit was clearly meant to be the long-awaited gas deal, and some of the most powerful men in Russia’s fossil fuels industry reportedly accompanied Putin, including Gazprom head Alexei Miller and recently sanctioned Rosneft head Igor Sechin. The final list of documents signed during the trip, however, didn’t contain the gas agreement.
The sticking point, by all indications, was the price: Although the details are secret, China was reportedly demanding $10-11 per cubic foot of gas, below Gazprom’s typical minimum of $12. Chinese financing is also needed to develop the virgin east Siberian gas fields and build a new pipeline, which will cost tens of billions of dollars.
Milov said he expects Russia to eventually cave to Chinese demands “because it needs the contract more.”
Putin is making this deal “keeping in mind that most of his trade ties are with the west, which is quickly becoming an adversary,” Milov said. “He thinks russia needs to develop new partners and he’s willing to pay for it.”
Meanwhile, military exercises involving a total of 14 ships, two submarines and 15 aircraft began in the East China Sea, near the disputed Senkake Islands controlled by Japan. Ruslan Pukhov, head of the Centre for the Analysis of Strategies and Technologies, said the conditions of the war games were more advantageous for China, but Russia had to accept them due to the “strategic solitude” following the Ukraine crisis.
“Chinese support in Ukraine is tacit, not proactive, but here they are trying to use us to show that we are doing joint exercises against Japan,” Pukhov said. “It’s like two bargaining chips but the Chinese chip is cheaper and smaller than ours.”
“We have powerful enemies but we don’t have powerful friends, that’s why we need the support of such a giant as China,” he added.
The current military exercise off the disputed islands with Japan, Senkaku, is China’s projection of force reciprocity to United States renewed commitment for military backing to Japan during President Barack S. Obama’s visit to East and South East Asia four weeks ago.