A 30-year natural gas deal worth $400 billion that was 10 years in the making, was signed by Russia and China last week.
The deal, from a Chinese perspective, was spurred on by the country’s unsustainable dependence on coal-fired power stations, on which it relies to serve 70% of it’s energy requirements.
China seeks to raise natural gas consumption by 11 percent in 2014 and close coal-fired power stations, according to a report by CNPC Economics and Technology Research Institute.
The landmark China-Russia deal may also have been accelerated by Russia’s troubles in the West, where it has had economic sanctions imposed by the US and other European nations, owing to Moscow’s actions in the Ukraine crisis.
The agreement enables Russia’s to expand the market for its gas, which now goes mostly to Europe.
US 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. “And if the world benefits as a result of that, that’s fine,” he said.
US Treasury Secretary Jacob Lew had appealed to China during a visit last week to avoid taking steps that might offset the West’s sanctions against. However, American officials have acknowledged China’s pressing need for energy.
Russia will invest $55 billion in fulfilling the contract, while China will invest at least $20 billion.
Putin said that plans to build a pipeline to link China’s to Russia’s Pacific port of Vladivostok would be the ‘world’s biggest construction project’, set to take place over the next four years. The development of a gas centre on the Pacific will allow Russia’s government-controlled energy company, Gazprom, to export to markets in Japan and South Korea.
The terms of the Russia-China pipeline delivery contract will entail the supply of 38 billion cubic metres of gas per annum for 30 years, starting in 2018. This would represent about a quarter of China’s current annual gas consumption of nearly 150 billion cubic meters.