Russia today signed a gas supply deal with China estimated to be worth US$ 400 billion, ending decade-long negotiations. The deal was signed between the two major state-owned entities Gazprom and China National Petroleum Corp. (CNPC). Russian president Vladimir Putin and his Chinese counterpart Xi Jinping were present at the summit in Shanghai where the signing took place.
The agreement will see Russia supply the world’s top energy consumer with 38 billion m3/year of natural gas for a period of 30 years, starting in 2018. The Russian President said that the price formula was tied to the price of gas and gas fuel and that Chinese drove a hard bargain. This is likely due to the fact that China already has gas supply deals, notably with Turkmenistan, currently China’s largest supplier of natural gas.
It is thought that the price of gas could amount to US$ 350 per thousand m3 as part of the deal, cheaper than the US$ 280 average in Western Europe. Mr. Putin said that the terms were satisfactory for both sides:
Natural gas will be transported via a new pipeline, which will receive a US$ 55 billion investment from the Russians up to the Chinese border. CNPC will build the Chinese section.
The deal for many symbolises an economic and geopolitical shift for Russia away from the West and towards the East at a time when European governments are seeking to reduce reliance on Russian gas and imposing economic sanctions on The Kremlin following the crisis in Ukraine and subsequent decline in East-West relations. Sino-Russian ties are at their closest in history according to representatives from both nations.
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