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China seals 'enormous' gas deal with Russia

Publication Date : 22-05-2014


China and Russia sealed a long- awaited gas deal, capping Russian President Vladimir Putin's visit that has seen him and President Xi Jinping forging closer political and economic cooperation.

At a ceremony in Shanghai witnessed by both leaders yesterday, officials from Russia's Gazprom and the China National Petroleum Corporation (CNPC) inked the agreement that has taken more than a decade of negotiations, often stalled over pricing.

"This is another major milestone achievement in China-Russia energy strategic cooperation," CNPC said in a statement.

Gazprom chief executive Alexey Miller was quoted in a Bloomberg report as saying that the deal was a historic event, given the "truly enormous supply volume".

Unofficially priced at about US$400 billion, according to media reports, the 30-year contract will see Russia sending 38 billion cubic m of natural gas from new Siberian fields to China annually from about 2019, with the potential to expand annual capacity to 61 billion cubic m.

China reportedly used about 170 billion cubic m of natural gas last year, and has set a target of up to 420 billion cubic m a year by 2020. Hopes had been high that the deal would be inked during Putin's two-day visit.

In a joint declaration, the two leaders denounced Western practices of unilateral sanctions and interference in a country's domestic affairs.

They signed some 50 pacts to boost bilateral economic and trade links, and also attended a summit of the Conference on Interaction and Confidence Building Measures in Asia hosted by China.

In a move underscoring the close relationship, Putin had a rare meeting with former Chinese president Jiang Zemin.

The gas pact will further deepen warming ties between the two former communist allies, which split and even engaged in a brief border conflict in the late 1960s.

Negotiations reportedly had also stalled over financing for the US$22 billion pipeline from Siberia to China, with Russia wanting the same rates it charges Europe, but China unwilling to pay.

Miller said yesterday that construction of the pipeline may be partly financed through advance payments for the gas, which is now under discussion.

Sino-Russia expert Zhao Huasheng told The Straits Times that the deal marks the latest attempt by Russia to diversify its energy markets. The yearly shipments to China will amount to some 20 per cent of supplies to Europe now.

Observers say Russia may have been more flexible on pricing as it seeks out new markets amid souring relations with the United States and the European Union, and the threat of more economic sanctions over the Ukraine crisis.

Nomura's Asia oil research head, Gordon Kwan, was quoted by Reuters as saying "it has to be  a good deal (for China), even though we don't know the price".

Observers say the gas deal will strengthen Putin's bargaining power when he meets US President Barack Obama and German Chancellor Angela Merkel for talks on the Ukraine crisis next month.

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