Gas contract with China: pros and cons

After many years of negotiations, Russia finally concluded a gas contract with China. Since then, disputes over the signing of this treaty have not abated. Opinions were divided. Some consider this transaction extremely profitable, others - unprofitable. This article will discuss the positive and negative consequences of the contract for the supply of Russian "blue fuel" to the PRC.

Terms of a transaction

What does the gas contract with China imply? Terms of the transaction are as follows: the contract is concluded for 30 years, for a sum of 400 billion dollars. A pipeline will be laid between the two countries, according to which the PRC will receive Russian natural gas necessary for the development of its economy. In addition, a sufficient amount of "blue fuel" will clean the air in the country. Annually, China will supply 38 billion cubic meters of gas. Over time, the volume of supplies can be doubled. As for Russia, in addition to obvious financial benefits, it will have the opportunity to diversify the market for its hydrocarbons and reduce dependence on Western Europe.

The Power of Siberia pipeline

Export of fuel will be carried out along the main gas pipeline "Power of Siberia". It will be part of the transport system of the Irkutsk and Yakutia gas production centers, which are oriented to supplying "blue fuel" to the PRC, Japan, Korea and the Far East.

The first phase of the Yakutia-Khabarovsk-Vladivostok gas pipeline is scheduled for commissioning in 2017. The total length of the structure will be about 4 thousand kilometers. On the first turn, there will be 3 thousand kilometers, for the rest of the gas pipeline - 800 kilometers. The diameter of the pipes of the gas pipeline is 1420 mm, its productivity is 61 billion cubic meters per year. The route of the route along which the Power of Siberia will be laid will be the location of the Eastern Siberia-Pacific Ocean oil pipeline, which will save the cost of infrastructure and energy conservation.

Motives for the transaction

There is an opinion that the gas contract with China is a breakthrough moment connected with a complex geopolitical situation in Europe. However, the conclusion of such agreements does not occur in a single day or even a few months. For fifteen years, Russia and China have built their relations. The gas contract is the result of a long and painstaking work to create a large-scale strategic partnership between the two powers with a view to consolidating their positions in the world. At present, cooperation between China and Russia has gained a new turn, both in political and economic terms. It is no accident that many people call the gas contract with China a historical event.

Diversification of the market

"Do not put all the eggs in one basket," says the popular wisdom. Indeed, Russia's constant conflicts with Western Europe can lead to unpredictable consequences. Economic sanctions, by which the EEC countries are trying to "reason" our country after the accession of Russia to the Crimea, may affect the supply of gas and oil. And if it is difficult to refuse from Russian "black gold" to Europe, since there are many oil refineries on its territory, then "blue fuel" in this sense is in the risk zone. It is extremely unprofitable for the countries of the EEC to abandon Russian natural resources. Their strategic partner - the US - in the near future will not be able to enter the European market with large volumes of natural gas. However, the threat still exists, so Russia signed a gas contract on time. China, 2014 for which has become decisive in strengthening economic relations with our country, is unlikely to threaten it with any sanctions.

Experts note that if Europe refuses to supply Russian natural gas, Gazprom will have a worthy alternative. Let's say that the volume of "blue fuel" in the European market will decrease from the current 29% to 16%. The concern, in order not to lose sales, it will be enough to increase the volume of fuel sold in China to 70 billion cubic meters.

Investments of the People's Republic of China in the Russian Economy

In 2013, China's direct investment in the economy of the Russian Federation amounted to 4.08 billion dollars. This is a very low figure, considering that the PRC invests tens of billions in the economy of other countries. However, in connection with the intensification of Russian-Chinese relations, by the year 2020 the volume of investments by the PRC should grow seven-fold. One of the most promising areas in China is called investing in the economic development of the Far East.

The organization of the export of Russian "blue" fuel to China is a large-scale investment project of global importance. Only in the Russian Federation about 55 billion dollars will be invested in the construction of gas transportation and extraction facilities . In the east of our country there will be a huge gas infrastructure that will raise the economy of the whole region. Entire branches of the Russian economy will receive a powerful stimulus for their development: mechanical engineering, pipe industry, and metallurgy. It should be noted that the "Siberia Power" gas pipeline, through which gas supplies to China will be carried out, is constructed from pipes of predominantly Russian production.

The price of fuel sold

How much will Russian natural gas cost our partners from China? This issue is being discussed all over the world. The answer to it is hidden under the veil of commercial secrets, and therefore is the main intrigue of the signed agreement. If you determine the price based on the total amount of the gas contract and the expected volume of supplies, its value will be $ 350 per 1000 cubic meters. M. Alexei Grivach, deputy director of the Energy Security Fund, is more optimistic. In his view, given the period of increasing supplies for five years to 38 billion cubic meters, the price of Russian fuel per 1,000 cubic meters. M can reach 380 dollars.

It should be taken into account that from the price of gas exported to China it is necessary to subtract the rate of the mineral extraction tax, since for the fields that will be a source for the supplied fuel, tax privileges are provided. As a result, the state budget will lose a large amount. It turns out that in the dry balance the price for "blue fuel" for China will be less than the average cost ($ 381) of gas supplied by Gazprom to Europe. And much lower than the average price for which the PRC gets it from Myanmar or Turkmenistan. According to JP Morgan, China buys natural gas from Myanmar and in Central Asia at $ 400 per 1,000 cubic meters. M.

Currency

On what terms is the gas contract concluded with China? In what currency will our eastern neighbor pay for fuel? These questions are of interest to supporters and opponents of the concluded agreement. After signing the agreement, experts began to prophesy a coup in the world financial system. The smooth withdrawal of Russian government bonds from the US government bonds and the first cross-border transaction carried out in Shanghai by VTB Bank in Chinese currency made it possible to draw very cautious conclusions. However, the agreement of the People's Bank of China and the Bank of Russia on the use of national currencies in the implementation of mutual settlements and the establishment of a joint Russian-Chinese rating agency should seriously alarm western financial tycoons. Everything goes to the fact that the largest contract concluded between the PRC and the Russian Federation will not be paid in dollars. That is why the final price for Russian fuel has not yet been disclosed. For the US, such a turn of events will be a serious blow.

Relations between Russia and China

In a global sense, China and Russia are becoming strategic partners in contrast to the countries of Europe and the United States. There is a certain tendency, according to which the world of Western values is positioned as universal. In this system, the whole world community should not only use the same goods, but also think about the same. However, the identity of such powers as Russia and China is too strong. When these countries tried to withdraw from the political chessboard, a backlash followed. States began to defend the right to their own independence and identity. China and Russia recreate their cultural space, and this is a historical trend that operates throughout the world. And in this sense, the price that Russia's contract with China assumes is not important. The gas resource is another common point of contact between the two states, which build relationships based on peaceful cooperation and mutual trust.

Conclusion

We examined the main political and economic opportunities, which opens for our country a gas contract with China. Pros and cons of this agreement need to be evaluated in the coming macroeconomic perspective. Of course, Gazprom will not receive immediate benefits from this large-scale transaction. But the concern will have the opportunity to organize an alternative sales market; To master the investments invested by our eastern partner in this project (the advance payment for the construction of the gas pipeline is 25 billion dollars); Create a huge infrastructure for the extraction and transportation of natural gas and thereby revive the economic situation in the Far East. The question of the price for the supply of Russian gas remains to this day open and is a cause for concern for some financial analysts. However, in the long term, the "pluses" of a gas contract with China are much greater than "minuses". Whether this is so - time will tell.