China signs 30-year gas deal with Russia, calls for security pact with Iran

[Syt]

Not sure whether to put this into the China or Russia thread, so I started a new one.


http://www.bbc.com/news/business-27503017

Russia signs 30-year gas deal with China

Russia's President Vladimir Putin has signed a multi-billion dollar, 30-year gas deal with China.

The deal between Russia's Gazprom and China National Petroleum Corp (CNPC) has been 10 years in the making.

Russia has been keen to find an alternative energy market for its gas as it faces the possibility of European sanctions over the crisis in Ukraine.

No official price has been given but it is estimated to be worth over $400bn.

President Putin said in a statement to the Russian news channel Rossiya: "The price is satisfactory for both sides.

"It is tied, like it is envisaged in all our international contracts with Western partners, specifically our partners in Western Europe, to the market price on oil and oil products. It is an absolutely calibrated, general formula for pricing."

Gazprom shares rose 2% on the news.

The agreement, signed at a summit in Shanghai, is expected to deliver some 38 billion cubic metres of natural gas a year eastward to China's burgeoning economy, starting around 2018.

The main argument has been over price and China is thought to have been driving a hard bargain.

Over the last 10 years it has found other gas suppliers. Turkmenistan is now China's largest foreign gas supplier, and last year it started importing piped natural gas from Myanmar.

Rain Newton-Smith, head of emerging markets at Oxford Economics, said: "The whole tenet of the deal has a symbolic value - it says that the two countries are prepared to work with one another. For instance there were other elements such as Chinese participation in Russian transport infrastructure and power generation.

"It is similar in many ways to China's investments in Africa where they drive a hard bargain over the price of raw materials but then provide infrastructure for the economies they are doing business with.

Jonathan Marcus, the BBC's defence and diplomatic correspondent said tensions between Russia and the west were not just over Ukraine: "There are fundamental differences over Syria and about the whole direction in which President Vladimir Putin is taking his country.

"Thus this deal could symbolise an important moment of transition - when both in economic and geo-political terms, Russia's gaze begins to look more towards the East than towards the West."
Siberian power

Another sticking point on the deal has been the construction of pipelines into China.

Currently there is one complete pipeline that runs across Russia's Far East to the Chinese border, called The Power of Siberia. It was started in 2007, three years after Gazprom and CNPC signed their initial agreement in 2004.

But financing the $22-30bn cost of sending it into China has been central to the latest discussions.

China is Russia's largest single trading partner, with bilateral trade flows of $90bn (£53bn) in 2013.

The two neighbours aim to double the volume to $200bn in 10 years.


Analysis: Jamie Robertson, BBC News

The gas deal between Russia and China was signed at 04:00 China time, which gives some indication of the level of urgency over these talks. Mr Putin appears to have been determined not to leave Shanghai without a deal - and he got one.

But the financial details are a "commercial secret", so we don't know how much he had to give away to get it. Certainly China needs the gas to help it cut its coal-fired smog levels, and it wants to diversify supply. It had the luxury of time in which to negotiate, something Mr Putin was short of.

The perceived motive for the deal is that Russia needs a second market for its gas, so it can face up to European sanctions. Given that the "Power of Siberia" pipeline won't start pumping gas into Chinese factories until 2018 at the earliest, its economic effect on the European crisis will be limited.

More important may be the investment that China will make into Russia's power and transport infrastructure. Putin may not have managed to sign the most advantageous of gas deals on Wednesday but the opening of economic doors with China could well be the greater achievement.

http://www.cbsnews.com/news/china-calls-for-new-security-pact-with-russia-iran/

China calls for new security pact with Russia, Iran

SHANGHAI -- China's president called Tuesday for the creation of a new Asian structure for security cooperation based on a regional group that includes Russia and Iran and excludes the United States.

President Xi Jinping spoke at a meeting in Shanghai of the Conference on Interaction and Confidence-building measures in Asia, an obscure group that has taken on significance as Beijing tries to extend its influence and limit the role of the United States, which it sees as a strategic rival.

"We need to innovate our security cooperation (and) establish new regional security cooperation architecture," said Xi, speaking to an audience that included President Vladimir Putin of Russia and leaders of Central Asian countries.

Xi made no mention of Beijing's conflict with Vietnam over the deployment of a Chinese oil rig in a disputed portion of the South China Sea.

CICA, whose 24 member nations also include Korea, Thailand and Turkey, should become a "security dialogue and cooperation platform" and should "establish a defense consultation mechanism," Xi said. He said it should create a "security response center" for major emergencies.

The proposal marks the latest effort by Beijing to build up groups of Asian or developing governments to offset the influence of the United States and other Western governments in global affairs.

In 2001, it founded the Shanghai Cooperation Organization with Russia and four Central Asia nations to counterbalance rising American influence in the region and to combat Islamic and separatist political movements. Beijing also is a force in the BRICS group of major developing countries with Russia, India, Brazil and South Africa.

Beijing sees common cause with other CICA members such as Russia and Sri Lanka in promoting a political model that pairs autocratic government with a market-oriented economy in defiance of the Western liberal democratic model.

CICA was formed in 1992 at the initiative of Kazakhstan but has been little more than a discussion forum. Other members include U.S. allies such as Israel, Mongolia and Uzbekistan. Japan, seen by Beijing as a strategic rival, is an observer.

The group is unlikely to produce a real security alliance, said Ross Babbage, chairman of Australia's Kokoda Foundation, a security think tank.

"Alliances are not based on a piece of paper. They're the result of real trust and interaction," he said. "There may be some agreements ahead, but in reality, I don't see an alliance emerging."

However, Babbage said Putin's presence at the meeting was significant for China-Russia relations at a time when both are diplomatically isolated -- Russia over Ukraine and China over its territorial disputes and U.S. accusations of cyber spying.

Both Putin and Xi are grappling with economic and political challenges and being assertive abroad can help to build nationalist support at home, Babbage said.

"There's an interesting synergy from shared circumstances, with large parts of the world lining up against them and expressing strong concerns over their behavior," he said.

China is embroiled in conflicts with Japan over the East China Sea and with Vietnam and other Southeast Asian countries over conflicting claims to portions of the South China Sea.

Washington has complained China is being provocative. Beijing says the Obama administration's effort to shift foreign policy emphasis toward Asia and expand its military presence in the region is emboldening Japan and other neighbors and fueling tension.

Xi said Asian nations need to respond collectively to mounting problems including terrorism, transnational crime, cyber security, energy security and natural disasters.

"We should have zero tolerance for terrorism, separatism and extremism and should strengthen international cooperation and step up the fight against the 'three forces'," he said.

[Valmy]

Putting together an alliance for Asian stability sounds good but thinking Iran and Russia would be good partners for that is rather suspect 

[Sheilbh]

I love that Gazprom apparently unprompted reassured the media that the deal is economically worth it for them. I wonder how much it'll cost them

[CountDeMoney]

Russia + China?  Yeah, that relationship always works out.
LOL on the Iran thing, just on GP.

[grumbler]

I find it amusing that the Chinese leadership is so determined to punish their neighbors for objective to Chinese assholiness that they are now making friendly with powers who will be delighted to stab them in the back.  The ghost of Foreign Minister Molotov is cackling with glee.

This deal will cost Russia some cash, but it gives Putin the foreign-policy cred he needs back home.

[Viking]

with friends like these, who needs enemies...

if anything this is Russia screaming out for help from anybody and I do mean anybody.

[DGuller]

I would be much more worried for Russians in that deal.

[Tamas]

I would be much more worried for Russians in that deal.

yeah. Who knows what kind of Siberian concessions they had to make just so China saves their economy.

[Phillip V]

It is a mutually beneficial deal for both China and Russia. China gets nearby cheaper gas than having to import LNG, and Russia sells its Siberian gas to China at about the same price as what it sells to Europe. American and Australian LNG are now dead-on-arrival. Japan will want to hook up more with nearby Russian gas that is once again much cheaper than LNG from other places.

The American dollar will probably not be used in these transactions.

China and Russia get stronger and richer while the West weakens.

http://online.wsj.com/news/articles/SB10001424052702303749904579576210686726216

[grumbler]

It is a mutually beneficial deal for both China and Russia. China gets nearby cheaper gas than having to import LNG, and Russia sells its Siberian gas to China at about the same price as what it sells to Europe. American and Australian LNG are now dead-on-arrival. Japan will want to hook up more with nearby Russian gas that is once again much cheaper than LNG from other places.

The American dollar will probably not be used in these transactions.

China and Russia get stronger and richer while the West weakens.

http://online.wsj.com/news/articles/SB10001424052702303749904579576210686726216

Natural gas is a global commodity.  This deal really doesn't strengthen or weaken anyone.  It's something of a "natural."

Russian gas may be cheaper at the end of the pipeline for now, but costs of extraction still apply.  Russian gas extraction costs will change as the easiest portions get extracted, so the cost of transportation as a function of total cost will change.

[DGuller]

and Russia sells its Siberian gas to China at about the same price as what it sells to Europe.

My impression is that this is definitely not the case.

[OttoVonBismarck]

Yes, definitely not. We know that China gets gas from Turkmenistan at $10 per MMBtu, and that this deal had long been held up because China had little interest in paying for much above that for Russian gas. But Gazprom couldn't break even on anything less than $12 per MMBtu (in particular because most of this gas is coming from wholly undeveloped gas fields in Siberia that basically would have only ever gone to China, which China and Russia know and which gives China more leverage in terms of negotiating on price), I'd expect the deal probably is barely break even for Gazprom while EU gas sales are quite lucrative for Gazprom. But, it does mean construction projects and utilization of fields that would not have been productively exploited if not for a Chinese deal.

The actual amounts aren't as much as some might expect, the yearly figure of 1.4 trillion Btu is actually only about equivalent to the gas consumption of New York State. It will still leave China getting 4/5ths of its gas from other sources than Russia and China is unlikely to abandon its LNG terminals it has been sinking tons of money into or even its overseas involvement in developing LNG terminals in countries like Australia. As grumbler points out, gas is a global market. China is hungry for it and will have to buy from many sources. This is going to be a cheaper source of gas for China than LNG, but because of China's needs versus the amount that can be supplied by Russia China will still need other sources of gas. Nothing about this makes the natural gas market no longer a global commodities market. It will alter some price points here and there but not enough to fundamentally change anything.

Note that the deal is also going to represent a much smaller portion of Chinese gas consumption in 2020, let alone 2030 or 2044 when the deal is done. China's consumption is rapidly growing, and the faster it grows its usage of natural gas the smaller portion of its total natural gas imports will be represented by this deal (which is essentially for a fixed rate of delivery per year.)

[jimmy olsen]

It begins!

[Eddie Teach]

Gotta feel kinda bad for Mongolia.

[Crazy_Ivan80]

Gotta feel kinda bad for Mongolia.

they'll manage to take over the whole thing while we're not looking. Genghis Khan will rise again!