Russia's President Vladimir Putin (L) and China's President Xi Jinping attend a signing ceremony in Shanghai May 21, 2014. Credit: Reuters
Russian President Vladimir Putin, accompanied by his Chinese counterpart Xi Jinping (not pictured), attends a ceremony to open the Chinese-Russian joint naval drills in Shanghai May 20, 2014.
China and Russia signed a $400-billion gas supply deal on Wednesday, securing the world's top energy user a major source of cleaner fuel and opening up a new market for Moscow as it risks losing European customers over the Ukraine crisis.
The long-awaited agreement is a political
triumph for Russian President Vladimir Putin, who is courting partners in Asia
as those in Europe and the United States seek to isolate him over Moscow's
annexation of Ukraine's Crimea peninsula.
Commercially, much depends on
the price and other terms of the contract, which has been more than a decade in
China had the upper hand as talks entered the home stretch,
aware of Putin's face-off with the West.
But both sides could take
positives from a deal that will directly link Russia's huge gas fields to Asia's
booming market for the first time - via thousands of miles of new pipeline
across Siberia that form part of the package.
"This is the biggest
contract in the history of the gas sector of the former USSR," said Putin, after
the agreement was signed in Shanghai between state-controlled entities Gazprom
and China National Petroleum Corp (CNPC).
"Our Chinese friends are
difficult, hard negotiators," he said, noting that talks went on until 4
"Through mutual compromise we managed to reach not only acceptable,
but rather satisfactory, terms on this contract for both sides. Both sides were
in the end pleased by the compromise reached on price and other terms," the
Putin and Chinese counterpart Xi Jinping applauded as
they witnessed the deal being signed before the Russian leader was to leave
Shanghai at the end of a two-day visit.
The agreement came in time for a
major economic summit in St Petersburg starting Thursday. About a dozen chief
executives and chairmen of major US and European firms have withdrawn from the
forum over the Ukraine crisis.
Putin loyalist and senior parliamentarian
Alexei Pushkov, who was included on a US list of sanctions imposed in the wake
of the crisis in Ukraine, said the gas deal showed Russia could not be
"B. Obama should abandon the policy of isolating Russia: it
will not work," he tweeted, referring to US President Barack Obama, who has
pushed for greater Western punishment of Russia.
Gazprom CEO Alexei Miller declined to say at what price the
deal was struck, but sources at the companies involved said Gazprom refused to
go below $350 per thousand cubic metres.
That compares to a price range
of $350-$380 most European utilities pay under discounted long-term contracts
signed in the last two years. Putin said the formula was similar to the European
price tied to the market value of oil and oil products.
For China, the
implied price is crucially below the Asian cost of importing liquefied natural
gas (LNG), an alternative energy source it is developing.
imports will also help Beijing in its declared "war on pollution" aimed at
reducing its reliance on coal which contributes to the harmful smog shrouding
Another potential sticking point in talks was whether China
would pay a lump sum up front to fund considerable infrastructure
According to Putin, China will provide $20 billion for gas
development and infrastructure, but Miller said the two sides were still in
talks over any advance.
The gas will be transported along a new pipeline
linking Siberian gas fields to China's main consumption centres near its coast.
Russia will begin delivering from 2018, building up gradually to 38 billion
cubic metres (bcm) a year.
Russia plans to invest $55 billion in
exploration and pipeline construction up to China, and CNPC said it would build
the Chinese section of the pipeline.
The contract with CNPC does not mean Russia is giving up on
Europe. Last year, Gazprom supplied western Europe and Turkey with over 160 bcm
of gas, dwarfing intended deliveries to China.
And for their part,
European consumers cannot easily switch from Russian gas even if they want
Beyond supplying China with gas via a pipeline, the 30-year deal
opens up an opportunity for Gazprom to become a bigger player in the booming
Asian LNG market, a sector it has so far not been involved in on a major
Gazprom is planning to build a new LNG plant on Russia's Pacific
coast near Vladivostok, but so far lacks the infrastructure to supply the
facility with the amounts of gas necessary to meet demand in the
The pipeline to China would change this, ideally positioning
Gazprom's Vladivostok terminal close to the leading LNG buyers of Japan and
South Korea as well as the rising market on China's eastern coast.
in Gazprom rose nearly two percent after the deal was announced, and were up
around one percent by 1520 GMT.