Russia and China signed a grand contract for the supply of natural gas. The gas pipeline to China is expected to allow Gazprom to diversify its exports, and will contribute to further success in the two countries' cooperation.
Contract signed
At the end of May 2014, an agreement was signed between Russia and the People's Republic of China (represented by Gazprom and CNPC) on the supply of natural gas from our country. The document was signed when the President of the Russian Federation paid an official visit to the PRC. The volume of the contract is $ 400 billion, and its term is 30 years. Annually, the supply volume will be 38 billion cubic meters of gas.
This agreement is unique to Gazprom. The Russian company has not yet concluded more than any such agreements. Some experts believe that China received gas at a lower price (about $ 350 per thousand cubic meters), which suited Russia (we initially requested 400). Together with the agreement between the two countries, a memorandum was signed on the priority of understanding in the course of gas supplies. A new gas pipeline from Russia to China will be built to fulfill the contract.
Hard way to sign
Just a few days before the signing of a gas contract between Russia and China, various media reported that negotiations had reached an impasse and no agreement could be concluded.
These theses, some experts believe, had some justice - if only because a few years earlier, attempts to conclude a similar agreement between the Russian Federation and China were unsuccessful. Take, for example, the St. Petersburg Economic Forum in 2011: representatives of Chinese gas companies were at it, but did not reach an agreement with their Russian counterparts. The reason was the disagreement over the price. Some experts believed that the Russian Federation offered gas twice as much as the PRC could receive from other countries, in particular from Central Asian states. Therefore, the question of whether or not a gas pipeline from Russia to China will appear has long remained relevant.
Gas contract: how will it affect relations between Russia and China?
The foundations of a strategic partnership between the Russian Federation and the PRC were laid back in the 90s. In 2001, the states signed an agreement according to which the building of good neighborly and friendly relations was to take place. In 2011, attempts were made to transfer cooperation to a strategic plane, and this, some experts believe, preceded the current successes under the gas contract.
There is a version that the signing of the recent agreement is promising not only in terms of financial benefits for Gazprom, but also in terms of finding resources for the development of other sectors of the economies of both countries. It is planned to carry out several rounds of investment in infrastructure (for example, the construction of a bridge over the Amur), to finance projects related to tourism and social support for older people. Russian-Chinese cooperation may deepen in the regions, especially those where key elements of the gas pipeline will be laid.
Optimistic point of view
Some experts believe that the fact of signing a contract between China and the Russian Federation for gas supplies and the agreement that the construction of a gas pipeline to China will soon begin is an event of the greatest significance for the whole planet. It, analysts believe, will connect the economies of both countries and bring everyone many benefits. There is a version that both parties deliberately made concessions only in order to reach an agreement.
If this were not the case, then the contract most likely would not have been signed. Therefore, analysts believe, it is very important that Russia and China were initially tuned to the result. On the site of a major Chinese newspaper there was a survey among users. The question was: "What is more important for you - the very fact of signing an agreement between the Russian Federation and China or economic benefits?" Most users have chosen the first option. Therefore, we can say that the PRC government to some extent reflected the interests of citizens. Also, analysts say that the gas contract will help both countries feel more confident in resolving issues related to the development of the Asia-Pacific region. By building a gas pipeline to China, Russia will thus be able to increase its own political weight as well.
Pessimistic point of view
There is a version among experts that it was unprofitable for Russia to sign a gas contract with China. Our country, according to supporters of this opinion, maybe something has won in terms of price, but lost in terms of gas supply conditions . This is a take or pay clause (which means “take or pay”), which Gazprom, as a rule, includes in its contracts. Experts believe that this item might not be present in the agreement signed between the Russian Federation and the PRC.
This may lead to the fact that Russia, having built an expensive gas supply infrastructure, will face reluctance to operate it quite actively. The construction of a gas pipeline to China may thus be unprofitable. As a result, the government will be forced to seek funds to offset possible costs.
How will the gas pipeline go
It is assumed that the gas pipeline to China will be laid through the Altai region. If you look at the history of Russian-Chinese relations on the gas issue, it turns out that this model was considered back in the 90s. The pipeline project to China has existed for a long time. The issue was only about the price, but now that it has been resolved, experts believe, it is likely that the parties to the contract will begin to implement pipe laying through Altai. The main characteristics of the pipeline are as follows. The length of the highway will be 2.6 thousand km, throughput - about 30 billion cubic meters. This will allow delivering gas from existing production sites in the Yamal region. In addition to the Altai gas pipeline, the plans of China and Russia are to organize the delivery of fuel through another branch. It will consist of the Yakutia-Vladivostok section and branches towards China near Blagoveshchensk. The development of the main field for this branch - Chayandinsky - will begin, according to the plans of the two countries, in 2019. This scheme of the gas pipeline to China is considered by many experts to be very thought out and effective.
How the contract will affect other markets
According to some economists, the agreement signed between Russia and China will not significantly affect the gas relationship between Gazprom and Europe. Largely because the EU countries in the near future can introduce energy conservation practices and start consuming less gas. The contract between Russia and China, experts say, did not become a special sensation, since such a turn of events, in principle, is quite logical against the background of plans announced in previous years. And the Altai gas pipeline to China is not a new project at all.
Also, analysts say, there is no need to see a direct connection between sanctions against Russia due to the situation in Ukraine. The relations between the Russian Federation and the PRC, therefore, do not carry a pronounced political context. Some European experts are sure: Russia planned to sign a contract with China long before the current events in the foreign policy arena.
US opinion
Some American analysts are inclined to question the benefits of Russia from signing a gas contract with China, which could take advantage of the aspirations of the Russian Federation to become more protected from sanctions by Western countries. US experts believe that not everything is as clear on the price of the contract as it seems: in their opinion, China will pay Gazprom less than European countries do, for example. Based on this, Russia, analysts say, nevertheless made concessions. And China, therefore, benefited from the signing of the contract - both in terms of price and in terms of the convenience of the location of the gas pipeline. The Americans, in turn, believe that all that Russia has received is a chance to show Europe the possibility of diversifying gas supplies. In addition, analysts from the United States note that Russia is not inclined to consider an option when its economic dependence on the PRC will be greater than on Europe. And this should be taken into account when building a gas pipeline to China, Gazprom.
Scope of the contract
So, the gas pipeline to China will supply the Russian neighbor with gas in the amount of 38 billion cubic meters annually. Is it a lot or a little? Let us turn to statistics regarding the structure of natural gas supplies by Russia to different countries of the world. In 2013, Gazprom exported 196 billion cubic meters of fuel through pipelines. This is the highest rate in seven years. The main buyers of Russian gas are non-CIS countries. In 2012, they purchased 138.8 billion cubic meters of fuel. The main importers of Russian gas were Germany, Turkey and Italy. In turn, in 2012, 64.4 billion cubic meters of fuel were exported to the CIS countries and the Baltic states. It turns out that the future volume of gas supplies to the PRC is about 20% of Gazprom’s current performance. Thus, the Chinese market can replace half of what neighboring countries consume and more than a quarter from European buyers (if we take 2012 indicators as a basis). The question is how soon the very gas pipeline to China through Altai will be built.
Why does China need Russian gas?
Some experts are sure: China needs Russian gas no less than the Russian Federation - export. The main factors of this state of affairs are related to the economy of the PRC and the state of the ecology of this country. In 2013, about a third of the gas in China was of foreign origin. The share of imported fuel, according to analysts, is constantly growing in the PRC, as domestic demand is increasing. If in 2012 the share of gas in energy consumption in China was 5.4%, then in 2014 the figure is 6.3%.
According to forecasts of the PRC government, in 2015, the country's economy will need 230 billion cubic meters of fuel. China’s own gas production is not so large. They grow (by 12% per year), but not as fast as its consumption (by 18% per year). The environmental factor is also important. China needs to convert to the least harmful fuels. Gas, according to some experts, is the best option. Moreover, very soon an excellent gas pipeline to China will appear.
Does Russia have competitors?
Now the two main suppliers of natural gas to China are Turkmenistan (in 2012, this country supplied about 20 billion cubic meters of fuel to China) and Qatar. In the coming years, experts believe, the export figure from the former Soviet republic could reach 65 billion. Other gas suppliers to the PRC are Australia, Malaysia, Indonesia, and Yemen. It turns out that Russia is currently an outsider of the rating, and it, having received the gas pipeline to China, will have to become a strong competitor to other countries.