Russia and China Sign Another Major Gas Deal

After a decade of negotiations, Russia and China have now closed two major gas supply agreements, with a memorandum of understanding for a second route west of the first being signed on Nov. 9.

According to Russian media, Russian President Vladimir Putin and Chinese leader Xi Jinping agreed on a deal to supply 30 billion cubic meters of gas a year to China via the so-called Altay route. Arrangements for the first route, via the Power of Siberia pipeline in the east—already under construction—were closed in May.

The Altay route will supply gas from central Russia to western China via the two countries’ narrow shared border between Kazakhstan and Mongolia. The reported price for the gas was $350 to $400 per 1,000 cubic meters, in line with the previous agreement. The eastern pipeline will supply northeastern China from Russian gas fields in Siberia.

The negotiations also included addition agreements between the Russian and Chinese companies behind the deal. Russian gas firm Gazprom and China National Petroleum Corp. signed a framework agreement on gas deliveries; another memorandum of understanding was signed between Gazprom and China National Offshore Oil Corp.

China has been seeking new supplies of gas to feed its rapidly growing market, both for domestic heating and industrial and power use. The country needs to ease its dependence on coal for environmental reasons, but its drive to build up gas-fired capacity has been constrained by strong domestic heating demand and the need to import expensive liquefied natural gas.

Russia, meanwhile, has been looking for new customers to move away from dependence on Western Europe, a market that has been roiled by the crisis in Ukraine. The two countries have been talking on and off since the 2000s, but China’s refusal to pay Gazprom’s traditional oil-indexed prices has long been the main sticking point. The two agreements this year apparently signify that the differences have at last been resolved.

—Thomas W. Overton, JD is a POWER associate editor (@thomas_overton, @POWERmagazine).





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