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May 21, 2014

Russia and China sign $400bn gas contract

Russia's Gazprom and China's China National Petroleum (CNPC) have entered into a historic gas deal worth $400bn following ten years of negotiations.

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Russia’s Gazprom and China’s China National Petroleum (CNPC) have entered into a historic gas deal worth $400bn following ten years of negotiations.

The deal will provide China, the world’s fastest growing economy, with the natural gas it needs to keep in pace for the next 30 years.

A memorandum of understanding (MOU ) was signed in the presence of Russian President Vladimir Putin and Chinese President Xi Jinping on the second day of Putin’s two-day state visit to Shanghai.

According to the terms of the MOU , Gazprom is expected to deliver some 38 billion cubic metres of natural gas a year eastward to China’s burgeoning economy, starting around 2018.

No official price was announced by either party.

Russia has been keen to find an alternative energy market for its gas to decrease its dependency on European markets.

"Russia has been keen to find an alternative energy market for its gas to decrease its dependency on European markets."

The worsening of relations with their European counterparts and the subsequent US sanctions following the crisis in Ukraine have further prompted Russia in seeking alternative options for its energy exports.

The deal is also expected to help China increase the proportion of cleaner-burning gas in its energy mix and secure a reliable partner for serving its energy needs.

President Putin said in a statement to the Russian news channel Rossiya: "The price is satisfactory for both sides.

"It is tied, like it is envisaged in all our international contracts with Western partners, specifically our partners in Western Europe, to the market price on oil and oil products.

"It is an absolutely calibrated, general formula for pricing."

More than $70bn would be spent on infrastructure investment from both sides in what is said to be the world’s largest construction project, with Russia funding $55bn up front and China contributing $22bn for pipelines on their respective territories.


Image: Foreground: Alexey Miller and Zhou Jiping; background: Vladimir Putin and Xi Jinping. Photo: courtesy of Gazprom /RIA Novosti.

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