Beijing: China and Russia agreed to a major 30-year natural gas deal on Wednesday that would send gas from Siberia by pipeline to China, according to the China National Petroleum Corporation.
The announcement caps a decade-long negotiation and helps bring Russia and China closer than they have been in many years. The contract was driven to a conclusion by the presence in Shanghai over the last two days of President Xi Jinping of China and President Vladimir Putin of Russia.
The notice posted on the CNPC website said that beginning in 2018, Russia would supply 38 billion cubic metres of natural gas each year to China. China would build the pipeline within its own borders, while Russia would be responsible for the development of the fields and pipeline construction inside Russia, the notice said.
Historic deal: Russian President Vladimir Putin and Chinese President Xi Jinping shake on their gas agreement. Photo: AP
The notice said the main Russian fields that would supply the gas are Irkutsk Kovyktinskoye and Chayandinskoye.
The notice did not mention price, but experts said that hard bargaining by China for a lower price than European countries were paying for Russian natural gas was at the core of the negotiations.
The deal was expected to be worth about $US400 billion, said James Henderson, senior analyst at the Oxford Institute for Energy Studies.
Putin has been eager to diversify Russia's gas sales to Asia and away from the stagnant European markets. At the same time, he was anxious to demonstrate that Russia, in the face of sanctions over the annexation of Crimea, was not dependent on the West.
And Xi, who has met Putin seven times since assuming power, was willing to help the Russian leader, said Shi Yinhong, a professor of international relations at Renmin University in Beijing.
High expectations that the deal would be sealed when Xi and Putin met on Tuesday were dashed when negotiators from China National Petroleum and Gazprom failed to reach an agreement.
The political impetus to get the deal done, including Putin's upcoming visit to Europe in early June - when he will meet with President Barack Obama and the German chancellor, Angela Merkel - was probably a vital trigger to getting the contract over the finish line, energy experts said.
Xi and Putin met on the sidelines of a conference of Asian nations. During his address to the gathering, Xi proposed a new Asian structure for security cooperation based on a regional group that would include Russia and Iran, but exclude the United States.
Xi's proposal was another indication that Russia and China, though wary of each other, were interested in working together outside the confines of existing global and regional institutions dominated by the United States.
The final price of the gas stipulated in the document remained a "commercial secret", Alexey Miller, the chief executive of Gazprom, told the Russian channel TV-Novosti.
But at the heart of the negotiations was how to bridge the difference between the premium prices Russia charges European countries, and the lower prices that China pays for natural gas from Central Asia, primarily Turkmenistan, said Kenneth S. Courtis, a founding partner of Thames Investment, who was in Shanghai on Tuesday.
The price of Russian gas to Europe is based on fluctuations in oil prices, making the price higher than gas that China buys from central Asia, Courtis said.
Gazprom had indicated that it was not going to bend on the principle of a gas price based on oil prices in the China deal, analysts said. But how to structure that price relationship had appeared to be a major stumbling block.
CNPC asked for equity stakes in the two Gazprom gas fields, much as China had negotiated successfully with other Russian energy companies, Henderson said. It was not clear whether China was successful in winning equity in the two fields.
The political situation definitely helped ease the negotiations, said Keun-Wook Paik, associate fellow in energy, environment and resources at Chatham House, a policy institute based in London. Putin needed to find "an umbrella to show that he's not completely isolated," Paik said.
The document was signed in the presence of Putin and Xi, said the Russian news agency ITAR-TASS.
The New York Times