China, Russia a step closer on gas supply

PHOTO: China, Russia a step closer on gas supply

China and Russia's energy giants signed a framework agreement on Thursday on the Russian gas supply to China, making a leap forward in the decadelong gas negotiations.

The agreement to export gas to China through the eastern pipeline was signed between China National Petroleum Corp and Russia's Gazprom in the Russian city of St. Petersburg.

President Xi Jinping, who is there to attend the Group of 20 meeting, witnessed the signing ceremony with his Russian counterpart, Vladimir Putin, after meeting together.

The two nations also signed cooperation documents in other fields, including aviation.

The agreements "bear great significance for long-term and stable cooperation between the two nations in the future", Putin said in his talks with Xi.

China and Russia have negotiated gas supplies for more than a decade, with the price being the focus in recent years.

Under a memorandum of understanding the two energy giants signed in March, Russia will supply 38 billion cubic meters of gas to China annually from 2018. The volume is expected to increase to 60 billion cubic meters in following years.

An energy expert who declined to be named said that although the framework agreement is not legally binding, "the signing of the document, when price remains the only problem, signals the possibility of a breakthrough on the price negotiations."

Gazprom said in March that the price discussions are expected to be finished before the end of the year and lead to a long-term deal.

Li Jianmin, a researcher at the Chinese Academy of Social Sciences' Institute of Russian, East European and Central Asian Studies, said the signing of the agreement is strategically important for both countries.

"The framework agreement can be regarded as a breakthrough of the long-lasting negotiations over 10 years," Li said.

"With the eastern pipeline, China can get more diversified sources for gas imports, which will further support China's energy security," Li said. "Russia, on the other hand, is getting a very large energy market with great potential, which is very important for its economy."

Li said the shale gas revolution initiated by the US has greatly changed the global energy market and had an impact on traditional energy exporting countries, especially Russia.

"Russia might have made a compromise on the price since it is now more eager to guarantee its energy exports."

China's plan to import gas from Turkmenistan, which was highlighted during Xi's visit earlier this week, also added pressure on Russia, said Li.

This is the second time Xi has visited Russia in six months. Russia was the first country he visited after he assumed office as president in March.

During that visit, Xi stressed China will make developing its relationship with Russia a top priority of its diplomacy.

In their talks on Thursday, Xi told Putin that in past months, both countries have been implementing more than 50 projects in 16 fields that were set by the two presidents at their meeting in March.

Xi said he expects the two sides to speed up cooperation on big strategic projects in fields including energy and aviation and deepen military cooperation to "jointly respond to new threats and challenges".

Putin said he is satisfied with the rapid development of cooperation with Beijing.

Chinese Ambassador to Russia Li Hui said before Xi's trip to Russia that China's investment in Russia in the first quarter of this year surged to US$2.23 billion (S$2.86 billion) from US$740 million in all of 2012.

He added that expanding mutual investment has been a hot topic in a series of high-level meetings this year.

"The timing and conditions for China and Russia to carry out large-scale economic cooperation are mature."

Li said China would like to expand investment in Russia and launch "some strategic mega projects", and reach its target of expanding bilateral trade volume to US$100 billion in 2015 and $200 billion in 2020 at an early date.