The agreement of the two countries has creates a huge common project to build an international pipeline to supply China with Russian gas.
Vladimir Putin has finally accelerated the signature of the Chino-Russian agreement concrning the gas, in order to conclude a discussion that had continued for a decade without a solution. The political differences of the Russia and China were set aside, to show the new feeling of friendship between the two countries. The Russian leader was by now demonstrating his capacity as a negotiator, and his really good feelings towards China. In any case, signing an agreement with China clearly demonstrated the new orientation of the Russia, out of the West , if not of Europe, and in friendly position to the Chinese , who also had a good reason to create a success .
A bad atmosphere had been developed with the smaller neighbours, some of which responded with violence to a move of China to drill for oil in a sea area claimed by another country. The agreement of the two countries has creates a huge common project to build an international pipeline to supply China with Russian gas. Total value of the agreement has been evaluated at 400 billion dollars. Russia will sell for thirty years to China 38 billion cubic meters of gas per year, which is about 25% of the gas that Russia sell each year to Europe , an area supplied by three gas pipelines , two on land and one under the sea.
The structure of the present agreement comes straight from the first Great Russian agreement with Europe: each country will build the pipelines in its own territory. Russia will invest 55 billion dollars for the transport infrastructure, and China will lend to Russia 38 billion dollars for these investments, including the full development of the producing fields. In a way, such an agreement was inevitable. There was no other possible consumer of extra Russian gas , as Russia does not sell liquefied natural gas possibly for a preference to move with great volume, and the liquefaction technology is not cheap as that of pipeline.
Moreover, apart from Europe, China is the only great country that can receive gas travelling on land. Finally the discount offered to China is quite relevant, for large volumes compared with the European price, and the Chinese could not resist that. If one attempts to have a look to the future , and if the European experience teaches us something , its easy to say that the success of the first pipeline will open the door to a second one. The energy needs of China will not decline , t will probably increase quite steadily , and the gas pipeline is a simple , relatively cheap long standing structure ,and supplies great quantities of gas .The European example is quite obvious : the success of the first pipeline brought another one and a third .
The Russia-China agreement might be quite an useful instrument for inducing a larger use of gas, a greater income for Russia , and a more satisfying and less polluting energy structure for China .The price of gas has been addressed only by Russian sources, repeating the basic Russian position : the gas price is based on the price of crude oil or of oil products in Europe . This way of setting prices has up to now brought the price of Russian gas above the price of the gas coming to Europe by ship. The European buyers therefore forced the Russian supplier to correct somewhat its position, in order to reduce losses on imported Russian gas. An expert calculation of Russian gas would estimate the price included in the agreement at 350 dollars per 100 cubic meters , slightly lower than the European price in 2013 , $ 380 per cm.
The problem of two possible prices for gas will of course be even more complex in China, a country that can import natural gas liquefied by ship from all over the world. The gas market might split in two parts, with different prices, which would not be tenable for long. The Russo-Chinese project will satisfy quite a slice of the energy demand of China, but will not prevent gas from other sources to get into the market. The American gas producers intend to compete worldwide with their export of natural gas in liquid form, and will eventually find much harder to enter in large volumes on a Chinese market already partly supplied.
However, the Russian pipeline will not satisfy all the Chinese demand for gas. The basic concept of the Russian gas industry , an oil-tied price, would probably not prevent the America gas to enter with lower prices , in a sort of repetition of what happens to day in Europe, where pipe gas does not compete efficiently with the shipped gas in liquid form . In conclusion, an important agreement , presenting an alignment of two countries who never worked together , and in fact had periods of strong hostilities. This new friendship of two large countries might represent an important change in the political structure of our world , which might lead to a more balanced situation , and, one might hope , more interested in economic development than the display of power.