Russia-China gas mega-deal signed

[K. A. Pital]

http://www.reuters.com/article/2014/05/ ... 7K20140521

(Reuters) - China and Russia signed a long-awaited, $400-billion gas supply deal on Wednesday, securing the world's top energy user a major new source of cleaner fuel and opening a new market for Moscow as Europeans look elsewhere for their energy.

Russian President Vladimir Putin and Chinese counterpart Xi Jinping applauded as they witnessed the deal being signed in Shanghai between state-controlled entities Gazprom and China National Petroleum Corp (CNPC).

The deal is a political triumph for Putin, who is courting new partners in Asia as customers in Europe attempt to reduce their reliance on Russian gas to bolster their bargaining positions with Moscow after its seizure of Crimea from Ukraine.

But from a commercial point of view, much depends on the so far undisclosed price and other terms of the contract, which has been more than a decade in the making.

Industry insiders said China had the upper hand in negotiations as they entered their final phase, aware of Putin's need for new customers as his isolation in Europe intensified.

"This is indeed a historic event for the gas sector of Russia and of the Soviet Union," he said. "This is the biggest contract in the history of the gas sector of the former USSR.

"I want to stress that there was hard work done on the expert level. Our Chinese friends are difficult, hard negotiators," he said, noting that negotiations went on until 4 a.m.

"Through mutual compromise we managed to reach not only acceptable, but rather satisfactory, terms on this contract for both sides. Both sides were in the end pleased by the compromise reached on price and other terms."

SOME QUESTIONS REMAIN

Industry estimates showed that the price of the agreement may have come in at around $350 per thousand cubic meters. The Western European average is $380.

Company sources said China offered to pay more than the approximately $9 per million British thermal units (mmBtu) it pays for Turkmenistan supplies, while the lowest offer by Russia was at about $9.67 per mmBtu.

Another potential sticking point has been whether China would pay a lump sum up front in order to fund considerable infrastructure costs.

Gazprom CEO Alexei Miller said that element of talks remained unresolved, but Putin said China would provide $20 billion for gas development and infrastructure and that the price formula was similar to the European price tied to the market value of oil and oil products.

Analysts said broader, political factors were likely to have been at play around the negotiating table.

"Given the EU sanctions that could potentially hit Russia, I don't think Gazprom is in a position to strike a very high price for its gas," said Gordon Kwan, head of Asian oil research at Nomura.

He added that CNPC would be driving a hard bargain in the wake of a corruption investigation that rocked the company last year and as Xi seeks to stamp out graft more broadly.

The gas will be transported along a new pipeline linking Siberian gas fields to China's main consumption centres near its coast. Russia will begin delivering from 2018, building up to the annual target of 38 billion cubic meters, officials said.

Putin announced that Russia planned to invest $55 billion in exploration and pipeline construction up to China. CNPC said it would build the Chinese section of the pipeline.

Shares in Gazprom rose almost two percent after the deal was announced, but they retreated to be up 0.8 percent at 1236 GMT.

(Additional reporting by Fayen Wong and Chen Aizhu in Shanghai and Olesya Astakhova and Alexander Winning in Moscow; Writing by Mike Collett-White; Editing by Alastair Macdonald)

Well, some idiots who forecasted that Russia would be selling at 200 per thousand cubic meters were wrong. The idiots who thought China would be paying 400 per were also wrong. But $350 per thousand cu.m. is an almost European price, and this is really interesting.

Reuters forgot to mention that the annual target of 38 million cu.m. has the upgrade to 60 million option written in the contract. Which, considering China's drive for cleaner power, may just be worth it.

[mr friendly guy]

The signs were pretty much there before. It was only waiting for Putin to arrive in Shanghai to do the honours. As expected China would most probably manage to negotiate slightly cheaper price because of Russia's problems with the EU.

[K. A. Pital]

350 is an okay price for China, I believe. But seriously, no one would expect it to pay 380 while ~350 is still profitable for Russia.

[Thanas]

I think this is a good deal for both nations. Let's hope this time the money will be used effectively and not just disappear in Putin's pockets.

[Metahive]

OK, I have to admit I was giggling immaturely when I read that Russia sold several million units of "cu.m" to China. I always thought the official abreviation was "cbm" "m*3"?

[K. A. Pital]

Cu. m is also used sometimes, but cbm is the industry and international trade standard, you're right.

[mr friendly guy]

OK, I have to admit I was giggling immaturely when I read that Russia sold several million units of "cu.m" to China. I always thought the official abreviation was "cbm" "m*3"?

Then I can make you laugh even more by pointing out Britain sold pig semen to China during a recent trade deal with David Cameron. Hey the need to diversify the gene pool of their pigs and British pigs are well renown.

[Metahive]

Then I can make you laugh even more by pointing out Britain sold pig semen to China during a recent trade deal with David Cameron. Hey the need to diversify the gene pool of their pigs and British pigs are well renown.

So well-renowned in fact, they are even allowed to sit in parliament and become prime minister!

/daily quota of Tory bashing met

[LaCroix]

According to my wife, this actually might make gas in Europe cheaper, long term. To keep their export steady (and because Russians like to have 'X-year' plans) Russia usually is quite insistent that contracts have to be long-term, and are not very cooperative when it comes to adjusting the annual delivery numbers (especially when you want to adjust them down), but at the same time, deliver the most expensive gas. The traders HATE dealing with Gazprom, but need them at the same time.

In the end, many countries just eat the crow, and have to buy a base amount in Russian gas, and then meet the rest of their need by buying the cheaper ones.

Now that they finally have somone to buy their surplus in bulk, they might be less of a nuisance in that regard.

[mr friendly guy]

http://rt.com/business/160520-key-russia-china-deals/

Its RT but I don't think they will say over something as mundane as what trade deals Russia and China signed

Russia has secured more than 40 business contracts with China during President Putin’s visit to Shanghai. Top is the $400 billion gas contract, there are also deals in finance, investment, aircraft, and automobiles. Here is RT’s list of key agreements.

1. Russia's Gazprom and China's CNPC signed a historic gas deal worth $400 billion, which will provide the world's fastest growing economy with the natural gas it needs to expand over the next 30 years.

2. The Russian United Aircraft Corporation and China's Commercial Aircraft Corporation COMAC have confirmed plans to build a 400-seat, wide-body, long-range passenger aircraft, a potential rival to Boeing of the US, and Europe's Airbus. The new program aims to become one of the biggest large-scale international cooperation projects in both aviation and high-tech.

3. Russia’s biggest independent natural gas company NOVATEK signed a deal to supply China's CNPC with 3 million tons of liquefied natural gas annually for 20 years from their joint Yamal LNG project in the Russian north. The plans for the Yamal LNG project involve building a plant that can produce 16.5 million tons of LNG annually by 2020. It is slated to start production in 2017 with an initial output of 5.5 million tons of LNG per year.

4. Russia’s second biggest financial institution, VTB, signed a deal with Bank of China to bypass the dollar and pay each other in domestic currencies.

5. SIBUR, a leading Russian gas processing and petrochemicals company, signed a contract with China Petroleum and Chemical Corporation or Sinopec to establish a joint venture for the construction of a nitrile butadiene rubber (NBR) plant to produce 50,000 tonnes a year. Sinopec's share in the joint venture will be 74.9 percent and SIBUR's will be 25.1 percent.

6. Chinese auto maker Great Wall Motor Co. said it is planning to build a car plant in Russia’s Tula region, investing up to $521 million in the project capable of producing up to 150,000 vehicles a year.

7. Russia and China agreed to build the first cross-border rail bridge over the Amur River by 2016. The bridge will cut transportation times and increase trade.

8. Russia's Eurocement signed a number of contracts with companies within the Sinoma, CNBM and Sinomach Groups for the supply of equipment to new cement plants in six different regions of Russia (Leningrad, Ryazan, Bryansk, Arkhangelsk Ulyanovsk and Samara Region). The contracts are valued at more than $500 million.

9. Russia-China Investment Fund (RCIF) and Vcanland, a leading Chinese tourism developer, have agreed to invest $800 million in the development of tourism and social projects. The geographical focus will be on destinations such as Hainan Island, Lake Baikal, and the cities of Vladivostok and Sochi.

[LaCroix]

4. Russia’s second biggest financial institution, VTB, signed a deal with Bank of China to bypass the dollar and pay each other in domestic currencies.

I do see some freedomizing in the near future... (Hint for sour-pusses: That's a joke)

Russia and China puttting a crack in the Petrodollar-Fortress is something that has he potential to make big waves.
(I wouldn't be surprised if both nations were to offer the EU to accept € as trade currency, soon, even if just to spite the US.)

[Fingolfin_Noldor]

I think the deal in one swift stroke just allowed Russia to bypass a good chunk of sanctions.

[K. A. Pital]

Actually, both Russia and China hold a significant part of their strategic currency reserves in Euros. And, of course, increasing the amount of the so-called 'mutual exchange reserves' in yuans and roubles allows for direct trade.

OAK-COMAC deal also includes making a new-generation heavy helicopter in the Mi-26 class, which would be used by both RU and CN militaries and civilian transport agencies (Far North for Russia and the Pamir mountains in China look like good places for such a machine).

[mr friendly guy]

I think the deal in one swift stroke just allowed Russia to bypass a good chunk of sanctions.

I didn't realise Europe, US and allies had put sanctions of note on Russia. Just on a few of Putin's buddies, one who has openly scoffed at the travel bans.\

Although its a good idea to get this deal in the bag just in case Europe follows through.

[Fingolfin_Noldor]

I think the deal in one swift stroke just allowed Russia to bypass a good chunk of sanctions.

I didn't realise Europe, US and allies had put sanctions of note on Russia. Just on a few of Putin's buddies, one who has openly scoffed at the travel bans.\

Although its a good idea to get this deal in the bag just in case Europe follows through.

The sanctions aren't significant, but the United States has been pushing for broader sanctions (like whinny bitch) which Europe does not want to enforce.

It however puts into question how long this will be a relationship of equals though. Russia isn't exactly growing and will likely be more dependent on China in the future.

[K. A. Pital]

It however puts into question how long this will be a relationship of equals though. Russia isn't exactly growing and will likely be more dependent on China in the future.

If Russia was waiting to make this deal 4-5 years down the line, it would be dealing with a larger and more powerful China with way more clout than even now. Which would make the agreement even more unequal, up to the point where Russia would be the same as the Central Asian -stans in terms of leverage.

So making it now was actually smart. The biggest market in the world 5-10 years down the line is now open to Russian gas with a possibility of expanding to 60-70 million CBM on an annual basis, and the precondition for further talks about the new Altai pipeline which could supply China's North West and simultaneously go down to India, Pakistan (a long-term goal for Russian energy sector).

[mr friendly guy]

But guys, Russia gained Crimea's whopping $4.5 billion economy. Plus Crimea can turn itself into a Singapore equivalent.

On a more serious note, Russian economic growth doesn't look good.

[K. A. Pital]

This just in: Russia is renewing all relevant economic and tech cooperation agreements with China. Including the one about peaceful space exploration given the NASA sanctions now target both Russia and China.

[Fingolfin_Noldor]

It however puts into question how long this will be a relationship of equals though. Russia isn't exactly growing and will likely be more dependent on China in the future.

If Russia was waiting to make this deal 4-5 years down the line, it would be dealing with a larger and more powerful China with way more clout than even now. Which would make the agreement even more unequal, up to the point where Russia would be the same as the Central Asian -stans in terms of leverage.

So making it now was actually smart. The biggest market in the world 5-10 years down the line is now open to Russian gas with a possibility of expanding to 60-70 million CBM on an annual basis, and the precondition for further talks about the new Altai pipeline which could supply China's North West and simultaneously go down to India, Pakistan (a long-term goal for Russian energy sector).

Yeah for sure. Better now than later when the leverage is even less. I mean, we fully expect China to equal the combined EU at some point in the future.

[K. A. Pital]

Actually, PPP-wise China is already equal to the EU or the US. In 10-15 years that will be US+EU combined. Not acting on this writing on the wall would be suicide.

[mr friendly guy]

With the revisions made to how GDP PPP is calculated China should be pretty close to the US at the end of 2013 (although the revised figures for 2013 haven't come in yet, only for 2012). It does appear that in PPP terms the US is now bigger than Europe, so China should be pretty close to the EU. Since we are near the middle of the year, perhaps China has matched the EU already.

In terms of relationship between the two, while China has the stronger economy, doesn't Russia still have the stronger military?

[K. A. Pital]

Military does not help your economy to do better. Deals, especially good deals, do.

[mr friendly guy]

Since we are on the topic of Russia China deals, here is one I didn't see coming.

http://en.itar-tass.com/non-political/732658

Russia plans to place GLONASS ground stations in China

Non-political May 22, 15:53

MOSCOW, May 22./ITAR-TASS/.Russia plans to sign an agreement with China this year to place ground stations of global navigation satellite system GLONASS in China and to deploy Chinese navigation satellite stations Beidou in Russia, deputy head of the Federal Space Agency (Roscosmos) Sergey Savelyev said on Thursday.
Russia and China see prospects for co-operation between global navigation satellite systems GLONASS and Beidou in the sphere of regional support and the development of chipsets. They consider ensuring compatibility of the national navigation systems, similar to the American GPS.
Roscosmos together with Russian Foreign Ministry also preparing project of updated intergovernmental space agreement with China. Detailed consultations may begin this summer, Savelyev said.
At the same time the Federal Space Agency (Roscosmos) did not resume talks with US partners to place Russian ground stations of global navigation satellite system GLONASS in the United States, Sergey Savelyev said.

“Talks did not start yet, but Roscosmos is prepared for them. I hope that we will receive some response from US partners and I hope that talks will take place. It is certainly early to say about their results now. No official response came from American partners yet,” he said.

There is more about the deal Russia also wants to sign with India which I will skip

The Glonass network is Russia’s analogue of the US Global Positioning System (GPS) and the system, which was put into operation in 1993, provides real-time positioning and speed data on the surface objects, as well as on the sea and airborne objects.
There are currently 29 Glonass satellites in orbit time with 24 of them active providing global coverage, while four are kept as backups and one undergoes test flights.

For those who aren't in the know, Beidous is already providing coverage for China. Its was expected to provide global coverage by 2020. However it now appears the to be delayed.... Sorry I was just trolling the China bashers. I meant to say Beidou is now expected to be up and running by 2017. By comparison Galileo was expected to be up and running by 2019, but it appears to have slowed down slightly.

[A-Wing_Slash]

Can North America provide Europe with enough natural gas to cut of Russia there entirely? I don't like frakking, but it at least give us enough that if the infrastructure exists that might be what Obama's endgame is. Also would help to delineate a maritime Atlantic alliance vs an east Eurasian land alliance global balance of power.

[Fingolfin_Noldor]

Can North America provide Europe with enough natural gas to cut of Russia there entirely? I don't like frakking, but it at least give us enough that if the infrastructure exists that might be what Obama's endgame is. Also would help to delineate a maritime Atlantic alliance vs an east Eurasian land alliance global balance of power.

If you are gonna ship it, it's gonna be expensive.