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28 May, 2014 17:28

China to pay about $390 for Russian gas – energy expert tells RT

China to pay about $390 for Russian gas – energy expert tells RT

As the gas price in the $400 billion Russia-China deal hasn’t been officially announced, Konstantin Simonov, general director of Russia’s National Energy Security Fund, said it would be about $390 per 1,000 cubic meters.

“In the end, I think, we got a very good price,” Simonov told RT on the sidelines of last week’s St. Petersburg Economic Forum.

Simonov thinks that the widely reported sticker price of $350 per 1,000 cubic meters is a simple oversimplification of the minute details of the $400 billion gas deal under which Gazprom will supply China with 38 billion cubic meters (bcm) of natural gas over the next 30 years.

Simply dividing $400 by 38 bcm over the 30-year time period doesn’t take into account the full scope, Simonov said.

Under the contract, supplies of Russian gas via the Eastern route will reach the full capacity of 38 bcm a year only after the fifth year of supplies. During the first five years deliveries will only be 16 bcm annually, Simonov explained.

This means that the total gas supply will exceed a trillion cubic meters and the price will come closer to $390.

Russia's President Vladimir Putin (L) and China's President Xi Jinping shake hands after signing an agreement during a bilateral meeting at the Xijiao State Guesthouse ahead of the fourth Conference on Interaction and Confidence Building Measures in Asia (CICA) summit, in Shanghai on May 20, 2014.( AFP Photo / Carlos Barria)

Mutually beneficial

When negotiations first began in 2004, Gazprom said it wouldn’t accept a price below the average price for Europe, which now stands at $375-380.

The Chinese were also able to use the threat of diminishing European demand as well as Western-led sanctions to their advantage in the negotiations. But the final price is closer to the upper end of the expected $350 - $400 range, which is good for Russia, Simonov said.

“Has China lost? I wouldn’t say so,” Simonov said.

Russia was able to offer China not only gas, but gas in the region it needs it, the most populous northeastern regions, Simonov said.

Some activists were suggesting to “build a pipeline from Turkmenistan, we’ll build a pipe from Burma, we have LNG plants in the east.”

However, importing gas from Russia may prove to be a better economic alternative to Central Asia because Russia can deliver gas to China where it needs it.

“And when gas comes from Turkmenistan to the west of China, it’s not needed there, because key production facilities are in the east and it would have been necessary to transport it across the entire country. And that’s 4,000 kilometers,” Simonov said.

“In the gas business transportation is very important.” And “is very expensive.”

For example, LNG transport from Australia, another supplier to China’s booming energy economy, is price between $600-700 bcm.

AFP Photo

Changing perception

The Russia-China megadeal may become a precedent for future deals, Simonov said.

The Chinese are largely perceived as “crafty people” who, of course, pursue their own interests, the expert added. This is part of why the deal was discussed for over 10 years before signing. But the latest deal showed that when they feel they can be hurt they can be flexible.

The gas deal between Gazprom and China’s CNPC is the beginning of Russia’s incursion into the hot and expanding Asian market, as the two countries plan to cooperate more closely on trade, investment, and military projects as well.

Russia will supply China with 38 billion cubic meters of gas per year via the eastern Power of Siberia pipeline, which crosses Siberia and reaches China's northeast regions. A route that could deliver gas to China from Russia's west is also in the works.