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Russia-China Gas Deal

22 May 2014

Russia and China signed a long-awaited gas supply agreement in Shanghai on 21 May. With Presidents Putin and Xi looking on, the heads of Gazprom and the CNPC signed a deal that will see Russia supply 38 billion cubic metres (bcm) of gas to China each year after 2020 for 30 years under a contract valued in excess of $400 billion.

It is the biggest contract in Russian history and with Russia facing economic sanctions by the West there was a clear political element to the deal which has been ten years in the making. 

The talks had always stalled on the price and although no details of pricing were revealed it is likely that China struck a hard bargain, taking advantage of Russia’s diplomatic isolation, its own gas finds in Sichuan and the booming LNG market. China has also started importing gas from Turkmenistan and Myanmar. Most analysts think that China will be paying much less than Europe pays for Russian gas. Both sides will be involved in the infrastructure developments in their respective territories.

President Putin said that the price was satisfactory for both sides. But he was probably more pleased at the prospects for closer Russian-Chinese cooperation in other areas, both economic and political. China is Russia's largest single trading partner, with bilateral trade flows of $90bn in 2013. Moscow and Beijing aim to reach $200bn in the next decade.

In recent years both countries have developed ‘an axis of convenience’ whereby they have supported each other in international affairs. Most recently China has taken a neutral if not pro-Russian position on Crimea and Ukraine. This trend is likely to continue although there is also the potential for rivalry in seeking influence in Central Asia.