$400 bn China-Russia gas deal unnerves US

Energy-hungry China on Wednesday signed a whopping USD 400 billion gas deal with Russia, ending decade-long negotiations, as the world’s second largest economy tries to reduce its reliance on coal due to heavy pollution.

The gas deal was inked in Shanghai during the current visit of Russian President Vladimir Putin, where he attended the Conference on Interaction and Confidence Building Measures in Asia in Shanghai.

‘This is another major milestone achievement in China-Russia energy strategic cooperation,’ Chinese state energy giant CNPC said.

It said the deal was ‘facilitated and greatly supported personally by the leaders of China and Russia’.
Russia has vast energy reserves and China is constantly seeking resources to power the growth of its economy. Talks, which started in 2004 were stalled over price.

The two countries already have a 1,000 km-long oil pipeline which supplies over 15 million tonnes of Russian oil to China in 2012. Two documents, China and Russia Purchase and Sales Contract on East Route Gas Project and a memorandum, were signed at a ceremony attended by Putin and Chinese President Xi Jinping.

Under the 30-year deal, the east route pipeline is scheduled to start providing China with 38 billion cubic meters of natural gas annually from 2018.

Chinese experts say that the gas deal will have a big impact on the pricing of other energy deals, though details were not revealed yet.

Liu Yijun, professor with China University of Petroleum, believes the deal will affect the pricing systems of other projects in the Asian-Pacific region. ‘The huge supplies from Russia and vast demands from China do not make for a quick and easy agreement,’ Liu said.

Natural gas has become an important option for China’s sustainable development as the country wants to move away from coal in view of heavy pollution in all parts of China.

Consumption of natural gas stood at 167.6 billion cubic meters in 2013, up 13.9 per cent year on year, while the natural gas imports rose 25 per cent from a year ago.

Russia yielded to China over the pricing as the new popularity of shale gas has reduced Russia’s exports to Europe, which forced Moscow turned its strategy to the Asian-Pacific market, Chinese experts say.
The deal was stuck over whether the natural gas price will be linked to the oil price or to liquefied natural gas (LNG), Feng said.

Chen Weidong, senior energy researcher with China National Offshore Oil Corporation, said that the global energy structure is changed as the United States became a natural gas exporter, Iraq saw larger oil production and China stressed development of shale gas and coal bed gas.

Liu suggests a new cooperation method rather than being entangled in the pricing mechanism, such as exploring breakthroughs from the entire industry chain. Besides signing the China and Russia, which signed 50 agreement during current Putin’s visit have vowed to strengthen cooperation in energy and infrastructure in Russia.

According to a joint statement signed by the two leaders after their talks yesterday, the two countries will ‘establish a comprehensive energy cooperation partnership’.

The agreement, described as mother of all deals in the recent past could be a win-win move for the two countries which are steadily moving closer to form a strategic alliance countering US Pivot to Asia as well as Washington’s dominance over the world.

As the US pivot towards Asia pushes China and Russia closer, the two countries warmed up perhaps for the fist time after the rift between former Soviet Union and China over Beijing’s move to open to US in late seventies.

While Russia asserted its dominance against in the Ukraine crisis, China is building up its military in a big way in the face of US Pivot to Asia.

Observers say that the gas deal was expected to solidify the strategic tie up as it would bring about long time mutual dependence.
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