Russia Finally Inks Massive Gas Deal with China; 30-Year Agreement is Reportedly Worth $400 Billion
Russia brokered a natural gas deal with China Wednesday, giving the economically embattled country a significant revenue boost.
The deal also gives China a new source of energy, and brings Russia closer to its Chinese ally amidst criticism and sanctions by the United States and European Union for Russia's actions in Ukraine. The deal also strengthens the two countries' alliance against the United States.
According to The Washington Post, the 30-year deal was made after meetings between Chinese President Xi Jinping and Russian President Vladimir Putin at an Asia security summit. The deal is worth an estimated $400 billion, according to comments made by Gazprom CEO Alexei Miller.
U.S. Treasury Secretary Jacob Lew urged China to avoid taking actions that may go against Western sanctions against Russia. But China signed the deal regardless, fulfilling their growing need for energy sources and clean energy alternatives to combat the country's well-documented pollution epidemic.
The deal will allow Russia to diversify its gas exports, which comes at an advantageous time for the country, as Europe is cutting down on using Russian gas due to the Ukraine crisis.
"This is Gazprom's biggest contract. We don't have a contract like this with any other company," Miller said at the meeting in Shanghai.
The deal will take effect on Thursday, according to Putin.
The price of the deal is not yet clear, as some aspects of the deal are still not finalized.
Analysts at IHS Energy said the price of the deal, which was made after almost 10 years of negotiations, was "closer to what Russia wanted."
Russians hailed the deal, with one caller to the Echo of Moscow radio station calling it "another victory for Putin because he managed to sell gas for European prices."
Yet, the still unknown price of the deal is raising suspicion in Moscow, with some wondering if Russia dropped the price for China to ensure that Russian energy company Gazprom has a significant source of revenue.
Putin told journalists Wednesday that the price of the deal is "pegged to the price of oil and petroleum products." Yet, some experts believe there is a reason why they are not releasing the price of the contract.
Unnamed sources in the Russian media estimate the price at $350 per 1,000 cubic meters of gas, based on projections of a long-term price of $400 billion. If the sale was worth less than $400 billion, it means Russia is so economically desperate that it will subsidize China's energy costs.
On Wednesday, Russian officials said there could be a "prepayment" of $25 billion, which raises questions about whether the prepayment is emergency economic assistance for Russia.
The pipelines and other infrastructure are expected to cost more than $70 billion, which Gazprom cannot afford alone. China is expected to pay for a portion of the infrastructure costs.
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