Russia And China Finally Sign Historic $400 Billion ‘Holy Grail’ Gas Deal

Russia And China Finally Sign Historic $400 Billion “Holy Grail” Gas Deal (ZeroHedge, May, 21, 2014):

There was some trepidation yesterday when after the first day of Putin’s visit to China the two countries did not announce the completion of the long-awaited “holy grail” gas deal, and fears that it may get scuttled over price negotiations. It wasn’t: moments ago Russia’s Gazprom and China’s CNPC announced, that after a decade of negotiations, the two nations signed a 30 year gas contract amounting to around $400 billion. And with the west doing all it can to alienate Russia and to force it into China’s embrace, this is merely the beginning of what will be a far closer commercial (and political) relationship between China and Russia.

Gazprom deal

So far there have been no public pricing details on the deal which accrording to Gazprom CEO Aleksey Miller is a “commercial secret”, and which is believed to involve Russia supplying 38 billion cubic metres of gas per year to China via a new eastern pipeline linking the countries.

According to Itar-Tass, the compromise between Russian gas export monopoly Gazprom and Chinese National Petroleum Corporation (CNPC) on Russian gas price is estimated at $75 billion, citing the Deputy Head of the National Energy Security Fund Alexei Grivach. The differences on the price for 38 and 60 billion cubic meters supplies a year were $1.5 billion and $2.5 billion, he added, so the subject of the negotiations is quite a significant one.

Gazprom expected a base price of $400 for 1,000 cubic meters, an expert of the Eurasian Development Research Center of the Chinese State Council said in April, whereas the CNPC’s proposal was $350-360 for 1,000 cubic meters.

RIA has more details:

According to Miller, only at 4 am local time it became clear “that all the principal issues have been solved.”

Russia and China have foreseen providing “preferential tax regimes,” Miller told journalists, without giving details.

Russia earlier suggested nullifying the extraction tax for gas fields delivering fuel to China, while Chinese officials expressed their readiness to cancel import taxes on gas from Russia, Rosneft CEO Igor Sechin said Tuesday.

Gazprom’s stocks rose 0.9 percent following reports that the long-awaited gas supply contract was signed. Russian stocks increased Tuesday amid positive aftermath of the first day of President Vladimir Putin’s visit to Shanghai.

In March 2013, Gazprom and CNPC signed a memorandum of understanding on the planned gas supplies to China along the eastern route via the Power of Siberia pipeline. The signing of the contract has been delayed several times as the two sides failed to reach an agreement citing a pricing issue as the main stumbling block. President Putin’s current visit to China became the final stage of the negotiating process.

The Gazprom CEO said earlier the company could receive advance payment from China for the gas, which could start flowing as early as 2018. The planned project has an estimated capacity to pump up to 38 billion cubic meters annually, which could later increase to 60 billion cubic meters.

Then this from from RT:

A memorandum of understanding was signed in the presence of Russian President Vladimir Putin and President of China Xi Jinping on the second day of Putin’s two-day state visit to Shanghai. The price China will pay for Russian gas remains a “commercial secret” according to Gazprom CEO Aleksey Miller. Gas will be delivered to China’s via the eastern ‘Power of Siberia’ pipeline.

RT producers were informed of the landmark energy deal prior to its signing after a conversation with Miller.

Under the long-term deal, Gazprom will begin providing China’s growing economy with 38 billion cubic meters of natural gas per year for the next 30 years, beginning in 2018. The details of the deal were discussed for more than 10 years, with Moscow and Beijing negotiating over gas prices and the pipeline route, as well as possible Chinese stakes in Russian projects.

Just ahead of Putin’s visit to Shanghai, Russian Prime Minister Dmitry Medvedev gave reassurance that the agreed price would be fair.

“One side always wants to sell for a higher price, while the other wants to buy for a lower price,” Medvedev said. “I believe that in the long run, the price will be fair and totally comparable to the price of European supplies.”

A major breakthrough in negotiations came on Sunday as Gazprom chief Aleksey Miller sat down with his CNPC counterpart, Zhou Jiping, in Beijing to discuss final details, including price formulas.

Although Europe is still Russia’s largest energy market – buying more than 160 billion cubic meters of Russian natural gas in 2013 – Moscow will use every opportunity to diversify gas deliveries and boost its presence in Asian markets.

“I wouldn’t look for politics behind this, but I have no doubt that supplying energy to the Asia Pacific Region holds out a great promise in the future,” Medvedev said.

In October 2009, Gazprom and CNPC inked a framework agreement for the Altai project which envisions building a pipeline to supply natural gas from fields in Siberia via the western part of the Russia-China border.

In March 2013, Gazprom and CNPC signed a memorandum of understanding on Russian gas supplies to China along the so-called eastern ‘Power of Siberia’ route. When both pipelines are activated, Russia can supply Asia with 68 billion cubic meters of gas annually.

Last year, China consumed about 170 billion cubic meters of natural gas and is expected to consume 420 billion cubic meters per year by 2020.

Regardless of what the final price ended up being, and whether or not China got the upper hand in the negotiations, the final outcome is there and it is real: as a result of his disastrous foreign policy in the past two months, Barack Obama finally pushed Russia into China’s hands, culminating with a deal that was ten years in the making and was never certain, until the Ukraine crisis.

And yes, this was all predictable from day one. Here is what we said precisely two months ago:

If it was the intent of the West to bring Russia and China together – one a natural resource (if “somewhat” corrupt) superpower and the other a fixed capital / labor output (if “somewhat” capital misallocating and credit bubbleicious) powerhouse – in the process marginalizing the dollar and encouraging Ruble and Renminbi bilateral trade, then things are surely “going according to plan.”

For now there have been no major developments as a result of the shift in the geopolitical axis that has seen global US influence, away from the Group of 7 (most insolvent nations) of course, decline precipitously in the aftermath of the bungled Syrian intervention attempt and the bloodless Russian annexation of Crimea, but that will soon change. Because while the west is focused on day to day developments in Ukraine, and how to halt Russian expansion through appeasement (hardly a winning tactic as events in the 1930s demonstrated), Russia is once again thinking 3 steps ahead… and quite a few steps east.

While Europe is furiously scrambling to find alternative sources of energy should Gazprom pull the plug on natgas exports to Germany and Europe (the imminent surge in Ukraine gas prices by 40% is probably the best indication of what the outcome would be), Russia is preparing the announcement of the “Holy Grail” energy deal with none other than China, a move which would send geopolitical shockwaves around the world and bind the two nations in a commodity-backed axis. One which, as some especially on these pages, have suggested would lay the groundwork for a new joint, commodity-backed reserve currency that bypasses the dollar, something which Russia implied moments ago when its finance minister Siluanov said that Russia may refrain from foreign borrowing this year. Translated: bypass western purchases of Russian debt, funded by Chinese purchases of US Treasurys, and go straight to the source.

Here is what will likely happen next, as explained by Reuters:

Igor Sechin gathered media in Tokyo the next day to warn Western governments that more sanctions over Moscow’s seizure of the Black Sea peninsula from Ukraine would be counter-productive.

The underlying message from the head of Russia’s biggest oil company, Rosneft, was clear: If Europe and the United States isolate Russia, Moscow will look East for new business, energy deals, military contracts and political alliances. 

The Holy Grail for Moscow is a natural gas supply deal with China that is apparently now close after years of negotiations. If it can be signed when Putin visits China in May, he will be able to hold it up to show that global power has shifted eastwards and he does not need the West.

* * *

To summarize: while the biggest geopolitical tectonic shift since the cold war accelerates with the inevitable firming of the “Asian axis”, the west monetizes its debt, revels in the paper wealth created from an all time high manipulated stock market while at the same time trying to explain why 6.5% unemployment is really indicative of a weak economy, blames the weather for every disappointing economic data point, and every single person is transfixed with finding a missing airplane.

To conclude with the traditional geopolitical balance of power summary: Putin wins (again), Obama loses (again), and the monument to the dollar’s status as world’s reserve currency gets yet another tarnishing blow.

 

6 thoughts on “Russia And China Finally Sign Historic $400 Billion ‘Holy Grail’ Gas Deal

  1. They had each other over a barrel.
    China’s coal dependence was getting increasingly expensive as an import (Australia & Vietnam will suffer being the main suppliers).
    Also, the clean air processors needed with coal power stations, don’t exist in China, hence the 1951 London SMOG pollution.
    On the other hand, despite protestations by Business leaders in EU, the US has forced Merkel’s hand and sanctions are obviously having a marked effect on Russia’s post 1990 export markets, despite the fact both EU & US are cutting their noses to spite their faces.
    So, the prices were knocked down, but until the details are known, nobody can really comment.
    The point is, as explained by T, they shut the front door and forgot he had a back door.
    We mustn’t forget Russia has been supplying China & India with all forms of weaponry for decades, so the infrastructure for trade is well established, and as the US MIC are well aware, once their feet are under the table, it is difficult to kick them out because upgrades,maintenance and support entangle Governments for ever.
    Nevertheless, this contract can only harm EU, and it will be interesting to see how Merkel reacts, especially after the EU elections, because if there is a ground shift, as it looks like, a sensible leader will climb down, pull out of Kiev, and leave the UN/US standing out like a nudist at a football match.

  2. Looks like a few greedy gut billionaires are making landslide deals. They are now openly showing their wealth, their monopolies, and their allegiances. The US is the loser, the man out.
    Why? Using hammers to swat flies has made the world sick of us, we have no friends left. We have a corrupt, criminal government that serves the greedy guts, and does not care about the future of this nation. All good jobs outsourced………our country has been destroyed by the Vandals Within as Lincoln called them…….160 years after he warned of it……a few seconds in the passage of time…..
    Putin has showed himself reasonable and mindful. People must remember he headed up the KGB, so he isn’t much better, he is just smarter. If he is as smart as I think he is, he won’t let the groups of idiots gain control, as has happened here.
    Putin will make history. Obama is a shameful footnote…..he was swept to power with such a huge mandate, he could have done great things. Instead, he continued and completed the Bush policies, using the Clinton administration to do it. Sold out every group around the world……..total sell out. A lousy footnote, that is all he will be in history.
    He is a great disappointment to the world. In a couple of years, he will retire, and fools will buy his books and pay for autographs. He won’t have to work another day……with special tax payer protection for the rest of his miserable life. It isn’t right.
    Nothing the US does is right any longer. We have lost the world……and once, we had them on our side, today, they side with the Eastern Coalition.

  3. To Squodgy: yes, the Russians provided E120,000 a year GDP……I wonder how hard this deal will hit them.
    Does Russia have any pollution controls to sell China? Without them, the exodus from China by the super rich and regular greedy guts who have found Vietnam provides cheaper labor…….as well as US private prisons. They sell convicts at 70 cents a day to do work for greedy corporations. The corrupt US government gives the same corporations tax cuts for employing convicts regardless they are undercutting labor costs in America, adding to the economic distress.
    Real unemployment in the US is close to 40% and nothing is being done to make it any better. Nothing of value gets done, just back door deals for greedy gut corporations in the dark of night.
    If China does not fix their smog problem, equal to the problems London underwent in 1850, nobody will move there. Corporations will be dealing with horrible breathing issues of their labor forces who are rioting at the rate of hundreds a day for better work conditions………..they are leaving China in droves. The rich Chinese have already moved to Australia and the UK, and rich corporations are moving to Vietnam and other cheaper labor markets.
    Russia had better be careful with whom they tie alliances…..China is in deep financial trouble, they have relied totally on cheap labor for corporations and exports. Their exports are falling. The US was their #1 buyer until 2007, then it was the EU, now……who?
    As you point out, this will push the EU into deeper trouble. Germany is mired in debt due to bailing out of other nations who use Enron accounting to hide their debts. They are all in trouble, Squodgy, there is far less money in the real economy than these idiots want to accept.
    This will throw the EU into another recession, just like the US……..
    At some point, some reality has to be allowed into the game. Looks like they are creating another shell game.

  4. Marilyn,
    He was voted in on a landslide despite dubious qualifications which, even today, cast so much doubt on his eligibility for the post that even a redneck would pick up on it just shows the logical standard of Mr Average American.
    Come on, admit it, you’ve all screwed up.

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