China has secured almost a fifth of the natural gas supplies it will need by the end of the decade after striking a second major deal with Russia.
Russian President Vladimir Putin and Chinese President Xi Jinping signed the gas-supply agreement in Beijing the day before U.S. President Barack Obama arrived in the Chinese capital for the Asia-Pacific Economic Cooperation summit. The deal is slightly smaller than the $400 billion accord reached earlier this year, shortly after Russia’s annexation of Crimea.
Russia’s OAO Gazprom is negotiating the supply of as much as 30 billion cubic meters of gas annually from West Siberia to China over 30 years, it said yesterday. Another Russian company is discussing the sale of a 10 percent stake in a Siberian unit to state-owned China National Petroleum Corp.
Russia has turned to China to diversify its market and spur its economy as relations soured with the U.S. and Europe over the Ukraine crisis.
The initial accord “will make Russia rely more on China both economically and politically,” Lin Boqiang, director of the Energy Economics Research Center at Xiamen University, said by phone.
“China is probably the only country in the world that has both the financial ability and the market capacity to consume Russia’s huge energy exports on a sustainable basis over a long period of time,” said Lin.
It gives Putin an opportunity to show Europe and the U.S. that his country won’t be isolated over Ukraine, he said.
The two deals could account for almost 17 percent of China’s gas consumption by 2020, Gordon Kwan, a Hong Kong-based analyst at Nomura Holdings Inc., wrote today in an e-mail.
Russia may start selling gas to China within four to six years as part of the agreement with CNPC, Gazprom Chief Executive Officer Alexey Miller told reporters in Beijing.
When the new supply deal begins, China will surpass Germany to become Russia’s biggest natural gas customer, according to CNPC’s website.
“Together we have carefully taken care of the tree of Russian-Chinese relations,” Chinese President Xi Jinping said yesterday at a meeting with Putin at the economic forum. “Now fall has set in, it’s harvest time, it’s time to gather fruit.”
A second China-Russia agreement adds to pressure on liquefied natural gas suppliers, mainly in Australia where costs to build new plants are high, Adrian Wood, a Sydney-based analyst at Macquarie Group Ltd., said today by phone.
“There is a general view out there that China is going to underwrite all these projects, that Chinese demand is insatiable,” Wood said. “We’ve never shared that view. This is going to certainly weigh on demand, and therefore there will be even more competition for customers.”
Putin called the earlier agreement between state-run Gazprom and its Chinese partners “epochal.”
CNPC also signed an initial agreement with OAO Rosneft to acquire 10 percent of the Vankorneft hydrocarbon operations in Siberia. Russia and China also are considering gas supplies from Russia’s Far East, Gazprom’s Miller said.
Under the agreement earlier this year, China will import 38 billion cubic meters of gas from Russia annually over three decades starting as soon as 2018.