As the importance of gaining access to oil and gas remains a top priority for countries around the world, a new deal between China and Russia has come to light. The new contract will see Russia providing a gas supply to China with an estimated value of $400bn. This will be a vital export market lifeline for Moscow, as it strengthens ties with the east as Russia loses its supply grip on Europe.
The new deal was agreed on Wednesday as Vladimir Putin, the Russian president, visited Shanghai to meet with the Chinese president Xi Jinping. The agreement has taken a decade of careful negotiations and will be seen as an important milestone in moving forward after Russia has been vilified around the world as a result of its role in the Ukraine crisis.
As part of the new deal, the Russian company OAO Gazprom will supply up to 38bn cubic metres (bcm) of gas for China National Petroleum Corp, which is the largest oil company in China. The deal will last three decades, starting in 2018, and will set Russia up well in the long term, particularly if Europe continues to pull away from its reliance on Russian resources. Not every detail has been agreed yet, however, and though Gazprom did reveal a base price had been set, other details are not yet set in stone; for example, Russia’s energy minister, Alexander Novak, said that another intergovernmental deal was needed before the end of the year to ensure that both countries use tax exemptions for the contact.
The implied price for the gas is estimated to be between $350 and $390 per 1,000 cubic metres. This is readily comparable to the prices Gazprom already charges customers in Europe. Keun-Wook Paik, an author who has written about Russia’s oil and gas cooperation, said that the agreed 38bcm was just a start, with possible estimates rising to 130bcm every year. Meanwhile, Trusted Sources head of emerging market energy research, Stephen O’Sullivan, said: “Strategically it’s very important for Gazprom. It allows it to show Europe that it has other options.”
Despite the importance of the agreement, Gazprom has been shown to make concessions; for example, because of the company’s current global isolation, representatives in China were able to get a better deal. China also has many more pipelines of natural gas available than it did a decade ago when talks first started, allowing it to drive a harder bargain with Gazprom.
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