A $400 billion gas supply deal was signed by China and Russia on Wednesday, providing the world’s top energy user a major source of cleaner fuel.
The long-awaited agreement binds Moscow more closely to Beijing when President Vladimir Putin’s relations with the West have depreciated to the bottommost point ever.
China’s president also called for an Asian security arrangement including Russia and Iran and excluding the United States.
The 30-year gas deal, signed during a two-day visit by Putin to China, will give Moscow an economic lift at a time when Washington and the European Union have imposed sanctions against Russia and Europe has put in danger to reduce the gas imports to punish the Kremlin over the crunch in Ukraine.
The deal, called as “epochal event,” by Mr. Putin congealed a relationship between China and Russia that had been warming since Mr. Xi assumed power in 2012, as Mr. Xi and Mr. Putin have found common root.
“The Sino-Soviet rift that brought the two countries to the brink of nuclear war in the ’60s has been healed rather dramatically,” said Strobe Talbott, president of the Brookings Institution and the chairman of Secretary of State John Kerry’s Foreign Policy Advisory Board.
U.S. Secretary of State John Kerry noted that Russia and China have been trying to work out an energy agreement for 10 years and said the deal “isn’t a sudden response to what’s been going on” in Ukraine.
“I have no doubt that supplying energy to the Asia Pacific Region holds out a great promise in the future,” said Russian Prime Minister Dmitri Medvedev.
Russia will invest $55 billion in fulfilling the contract, while China will invest at least $20 billion, Putin told Russian reporters in Shanghai. He said the gas price would be based on a formula linked to that of oil and oil products.
Russia probes to begin delivery of gas by 2018, but going by experts suggestion there won’t be enough transportable gas available to pipe from Russia’s eastern gas fields until 2020. Then there’s the small matter of the pipelines that have yet to be built.
The Russians will have to invest some $55 billion in pipeline construction.
Beyond supplying China with gas via a pipeline, the 30-year deal opens up an opportunity for Gazprom to become a bigger player in the booming Asian LNG market, a sector it has so far not been involved in on a major scale.
Gazprom CEO Alexei Miller didn’t mention at what price the deal was hit, but sources at the companies involved said Gazprom declined to go below $350 per thousand cubic metres.
Shares in Gazprom rose about 2 percent after the deal was announced, and closed up nearly 1 percent.