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China and Russia Are Said to Reach Major Gas Deal China and Russia Reach Major Gas Deal
(about 1 hour later)
BEIJING — China and Russia agreed to a major natural gas deal Wednesday that would send gas from Siberia by pipeline to China, according to the state-run news agency, Xinhua. 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.
But it was not immediately clear if the accord was an actual contract with details of prices and terms, or if it was a memorandum of understanding that would signal the need for further negotiations. 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 V. Putin of Russia.
There were high expectations that the deal would be sealed when President Xi Jinping and the Russian leader, Vladimir V. Putin, met in Shanghai Tuesday. But those hopes were dashed when negotiators from the China National Petroleum Corporation and Gazprom, the Russian energy company, failed to reached an agreement on pricing. The notice posted on the C.N.P.C. website said that beginning in 2018, Russia would supply 38 billion cubic meters 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.
The $400 billion deal for a 20-year supply of natural gas has been under discussion in various forms for nearly a decade. China has been bargaining hard to lower the price, and Russia, which provides Europe with much of its natural gas, has been wary of conceding to a price much lower than what European countries pay, industry experts said. The notice said the main Russian fields that would supply the gas are Irkutsk Kovyktinskoye and Chayandinskoye.
“If it is not a gas contract and just a memorandum of understanding that would be a disappoint,” said James Henderson, senior analyst with the e Oxford Institute for Energy Studies in Britain. “We’ve had MOUs before.” 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.
While commercial considerations were the most important, the growing political alignment between Russia and China appeared to be a catalyst that would push the deal toward the finish line, experts said. The deal was expected to be worth about $400 billion, said James Henderson, senior analyst at the Oxford Institute for Energy Studies.
Mr. Putin has been eager to diversify Russia’s gas sales to Asia and away from stagnant European markets. At the same, he was anxious to demonstrate that Russia, in the face of sanctions over the annexation of Crimea, was not dependent on the West. Mr. 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 Mr. Xi, who has met Mr. 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. And Mr. Xi, who has met Mr. Putin seven times since assuming power, was willing to help the Russian leader, said Shi Yinhong, a professor of interational relations at Renmin University in Beijing.
Another sticking point has been how China would finance the pipeline that needs to be built to carry the gas from eastern Russia to China, experts said. The Chinese were also asking Gazprom for equity in the gas fields, something that Gazprom had not granted to other customers, Mr. Henderson said. High expectations that the deal would be sealed when Mr Xi and Mr. Putin met on Tuesday were dashed when negotiators from China National Petroleum and Gazprom failed to reach an agreement.
Mr. Putin is in China only until Thursday, adding to the pressure for the leaders to announce some sort of deal as his three-day visit was winding down. The political impetus to get the deal done, including Mr. Putin’s upcoming visit to Europe in early June — when he will meet with President Obama and the German chancellor, Angela Merkel — was probably a vital trigger to getting the contract over the finish line, energy experts said.
Mr. Xi and Mr. Putin met on the sidelines of a conference of Asian nations. During his address to the gathering, Mr. 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.
Mr. 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, Mr. 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.
C.N.P.C. asked for equity stakes in the two Gazprom gas fields, much as China had negotiated successfully with other Russian energy companies, Mr. 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. Mr. Putin needed to find “an umbrella to show that he’s not completely isolated,” Mr. Paik said.
The document was signed in the presence of Mr. Putin and Mr. Xi, said the Russian news agency ITAR-TASS.