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Russia-China gas deal a nightmare for Ukraine and EU

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The Russia-China gas deal is a nightmare for the Ukraine and European Union, because now Russia does not need the European market to sell its gas to avoid a budget deficit, reports.

Russia and China are going to sign a 30-year gas contract on May 20 during the visit of Russian President Vladimir Putin to Shanghai. The largest natural gas producer from Russia - Gazprom - will provide 38 billion cubic meters of natural gas a year for China from 2018. China National Petroleum Corporation (CNPC) is responsible to distribute gas within China. The price per 1,000 cubic meters was decided by both countries on Sunday when Gazprom chief Aleksey Miller and CNPC chief Zhou Jiping held a meeting in Beijing to discuss final details, including price formulas.

After this deal, Russia will not need the European market to sell gas and will not care about any possible Western sanctions over the Ukraine.

The deal has been on the table for over 10 years, as Moscow and Beijing have been negotiating over the price, the gas pipeline route, and possible Chinese stakes in Russian projects. The gas price is expected to be agreed at between $350-$400 per thousand cubic meters.

Experts believe that this is best price for Russia at the moment, because it needs a long-term contract for selling gas outside Europe, because the European Union (EU) can clamp sanctions against Russia anytime over the Russia-Ukraine standoff.

Currently there is one complete gas pipeline that runs throughout Russia to the Chinese border – the “Siberian Power” - which Gazprom broke ground on in 2007, 3 years after Gazprom and CNPC signed a strategic cooperation agreement in 2004. The pipeline stretches across Russia’s Far East (Dalini Vostok) and after extension to China, it will deliver gas near Beijing.

Gas could be delivered via Vladivostok, Russia’s eastern port city on the Sea of Japan, or through the city of Blagoveshchensk, a landlocked city in the Amur region.

However, to finish the project for 2018 delivery, Gazprom and CNPC need to come to an agreement on how to finish the proposed portion of the pipeline into China, which could cost between $22-$30 billion, according to various estimates. Russia wants China to either pay or issue a loan for the project, which has been a delaying factor in talks.

In 2009, Beijing and Moscow signed a deal that Gazprom would supply China with 30 billion cubic meters of gas a year by 2015, but via the Altai pipeline, which would deliver gas to China’s Western Xinjiang province. Russia stopped work on this project in 2013 and prioritized the “Power of Siberia” line. If and when both pipelines are activated, Russia could be pumping 68 billion cubic meters of gas annually to China without suspension in delivery for 30 years.

May 20 2014, 10:23

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