Russia-China gas deal benefits both countries

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June 17, 2014 - PRLog -- A gas deal between “Gazprom” and China National Petroleum Corporation (CNPC) signed on May 21, 2014, during a two-day Shanghai visit of a Russian delegation led by President Vladimir Putin became the biggest contract in the history of post-Soviet Russia.

The overall cost of the 30-year agreement is $400 billion The gas delivery volume will amount to 38 billion cubic meters each year.

“This is a milestone event for the gas industry of Russia, and of the Soviet Union too. This is the biggest contract in the history of the whole gas industry of the former USSR and the Russian Federation, country- and volume-wise,” said Vladimir Putin after the contract was signed.

The exact price of gas shipments from Russia to the PRC is kept secret; however, it is known to be connected with the market prices of oil and oil products and calculated in the same fashion as the price for the European consumers. The cost is estimated to be $350–$390 per thousand cubic meters (TCM) of gas, while the average price of gas for the countries of the far Russian abroad in 2013 amounted to $387 after excise and customs duties and VAT.

China will pay $25 billion as a pre-agreed advance payments: this capital will be used to build the “Power of Siberia” pipeline which will ship gas to China from the Eastern Siberia gas fields starting from 2017. Overall, infrastructure investment from both sides will potentially amount to $75 billion

At the same time, Moscow and Beijing signed a series of cooperation agreements in many fields, including banking, telecommunications, space, transportation, engineering and other industries.

The Russia-China gas deal triggered immediate reaction from politicians, experts and foreign mass media. For instance, Forbes suggests that the steps taken by the US and the EU have forced Moscow to accelerate its turn to the Asian gas market ahead of Canada and the United States.

“The West may have overplayed its hand in thinking it could impose sanctions and deeply harm the Russian energy sector. If anything, Russia has demonstrated that it has a willing customer in China and, moreover, that it is willing to substantially deepen its economic ties with China,” writes the periodical.

The Washington Post notes that Russia has made significant adjustments in the economic relations with its neighbors and created a new export market by signing this contract.

“The [gas] deal marked a new partnership between two countries that have at times mistrusted each other but have also sought to counter U.S. influence in global affairs,” says The Washington Post.

At the same time, American CNBC news channel reports that the deal between Moscow and Beijing will not bring significant short-term consequences, but still calls it a major step.

The US journalists admit that the deal not only gives Vladimir Putin an opportunity to counter the Western sanctions, but also signals changes in global policy and economy fields.

“As Russia sees a new economic partner in China, Beijing has found an investment in the future of its neighbor.” CNBC notes.

Julian Evans, a British reporter, suggests that both sides will benefit from the contract: the Russians will receive great investments and modern technologies, and the Chinese will resolve the energy security issue and expand their presence in the Russian market.

“Further EU support of the US sanctions against Russia will lead to losses of 30 to 50 percent of Russian market by European companies with a benefit to the Chinese rivals as soon as by the end of this year, with losses in strategically important sectors (power, oil and gas industries and IT technologies) being even bigger,” he speculates.

Julian Evans also recalls the Chinese deal with the Ukrainian government at the end of 2013. According to them, China planned to build an oil and gas terminal in the now-Russian Crimea to reduce the risks that may arise from the development of the situation in Iran, from which the PRC buys more than half of its imported oil, and increase its own supplies.

In addition to that, the reporter finds it possible that Moscow will have to involve Chinese companies in its Arctic Shelf projects duet to increasing economical and political isolation of Russia by the EU.

Ashley Smith, a journalist from Britain, points out that the two countries have already been collaborating by establishing the Shanghai Cooperation Organization and adopting a common position on Kosovo, Syria and Iran issues. In her opinion, the signed gas deal signifies the foundation of a new alliance.

“Of course, neither [side] wants to directly challenge the U.S., which still dominates the world system, but they have made it abundantly clear that they want a multipolar world order to replace the American-ruled unipolar world order,” she writes.

At the same time, Guardian highlights the fact that the Moscow-Beijing deal is a direct threat for the European countries, which largely depend on Russian gas shipments and cannot find an adequate replacement for it in terms of price and volume.

“Developing alternative sources will take time. Liquefied natural gas is an option available from a number of sources, namely Qatar, Nigeria and the US, but the cost of importing it will be higher than the cost of importing gas, and new infrastructure will be required to receive shipments. […] Given its position as a gas exporter, Russia was able to act quickly in diversifying its customer base by turning to China. As a gas customer, Europe does not have this flexibility,” says Guardian.

Considering the sanctions, the Ukraine issue and the signed gas deal with China, experts from various parts of the world begin to agree that Russia and Europe must seek the ways to resolve the tension.

In particular, Nadine Godehardt, consulting fellow of Asia Research Division at German Institute for International and Security Affairs, expressed her belief that both Moscow and Brussels still need to cooperate.

“Surely, Europeans start to think about ‘other options’ than Russian gas. However, Russia will remain an important energy partner and Europe also one of the most important partner for Russia which again underscores why dialogue between the two sides is crucial,” she explained.

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