China-Russia-ink-gas-deal-after-decade-long-negotiation

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China, Russia ink gas deal after decade-long negotiation

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Gas deal seals China-Russia bond
China and Russia inked a mega natural gas supply deal on May 21 in Shanghai after a decade-long negotiation, with reports estimating that it is worth $400 billion.

China-Russia natural gas deal on the way
Russia has agreed to "finalize" a prolonged negotiation on natural gas with China in a meeting between the leaders of the two countries on May 20.

Decade-long Negotiation

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The price negotiation is linked with the oil price on the international market and crucially linked with the Asian gas price, which is mainly set up by import costs for liquefied natural gas (LNG) for major users, including Japan and South Korea, Zhou Dadi, vice-chairman of the China Energy Research Society, told the Global Times.

Zhou noted that China will not ditch Central Asian countries because of the deal and has to establish a mutual-benefit situation through cooperation with Russia in the region, which sustains less influence from the West.

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.

Li Zhonghai, a researcher with Chinese Academy of Social Sciences, said that the final natural gas deal enhanced energy cooperation and improved the bilateral relationship.

"The deal is a milestone," said Liu Yijun, professor with China University of Petroleum: "The east route pipeline explored natural gas import channels and guarantees energy security."

Lin Boqiang, the director of China Center for Energy Economics Research at XMU, said to finance.qq.com on May 22 that China National Petroleum Corporation (CNPC) will not lose money on the deal. The gas was bought at market price and will be sold at market price in the future. Any additional costs will be kicked to consumers.

The fact that Russian gas exports still highly rely on the European market is difficult to change in the short term, finance.qq.com opined on May 22. China is not Russia’s only Asian energy consumer. Russia needs to consider how to balance its relations with China and Japan by using energy sources as a weapon. However, Russia’s natural gas pipeline was hit hard by the European market and its position in the global energy structure is weakening. This sends the signal that Russia will shift its focus eastward for allies after it chooses to cooperate with China.

Liu Qian, an assistant researcher with China University of Petroleum, told Southern Metropolis Daily on May 22 that this deal will change the global structure and flow of natural gas. Gas fields in eastern Siberia were never fully developed, which means there will soon be a surge in new natural gas resources and supply sites. In the past, Russia mainly exported its gas to Europe. Now gas will also flow to the Asia-Pacific region.