Russia Signs $400-Billion Gas Deal With China

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By Sounak Mukhopadhyay | May 22, 2014 11:30 AM EST

Russia is going to provide gas to China for 30 years starting from 2018. Russia and China signed the deal on Wednesday, May 21. Even though it had been a decade that both the countries had worked on the deal, the deal became more significant after Russia's relation with Europe became sour over the Ukraine crisis. Europe has apparently decided to be less dependent on Russia.

REUTERS/Alexei Druzhinin/RIA N
Russia's President Vladimir Putin (L) and China's President Xi Jinping attend a signing ceremony in Shanghai May 21, 2014.

Gazprom, the company that signed the deal with the China National Petroleum Corporation, is owned by the Russian government. Russian President Vladimir Putin went over to Shanghai for the deal, CNN reported. Mr Putin was apparently eager to finalise the deal before the annual Russian economic showcase to be held in the week itself. According to the deal, the Russian gas company will provide 38 billion cubic metres of gas to China every year. There will be a probable increase of 60 billion cubic metres every year.

Meanwhile, the Russian Ministry of Energy refused to disclose how much China would pay for the gas. On the other hand, it was reported earlier that Russia would probably charge $456 billion for the entire 30-years term. IHS Energy analysts earlier indicated in a research paper that Russia and China had an agreement over the price. "This higher price level reflects China's willingness to pay more for cleaner fuel," the research paper said.

Reuters reported that it was a $400-billion deal. China apparently had the upper hand in the negotiation as it was aware of Russia's vulnerability in the Western market. This will be the first time for Russia to link its gas fields to China's flourishing market. Both the countries will be linked through thousands of miles of new pipeline across Siberia. "This is the biggest contract in the history of the gas sector of the former USSR," Putin said after signing the deal in Shanghai. He said that the negotiation went on until 4 o'clock in the morning. "Our Chinese friends are difficult, hard negotiators," he said.

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(Photo: REUTERS/Alexei Druzhinin/RIA N / )
Russia's President Vladimir Putin (L) and China's President Xi Jinping attend a signing ceremony in Shanghai May 21, 2014.
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