Date
24 September 2017
The Russian gas deal contributes to China's energy security and shift to cleaner energy while serving its political ends. Photo: Bloomberg
The Russian gas deal contributes to China's energy security and shift to cleaner energy while serving its political ends. Photo: Bloomberg

Sealed with a deal: China pays premium for Russian gas

The landmark natural gas deal signed earlier this week between China and Russia is set to push up energy prices in the domestic market, Sinoenergy reported Friday, citing market observers.

The 30-year gas supply deal, signed by China National Petroleum Corp (CNPC) and Russia’s state-controlled energy giant Gazprom, has no fixed pricing provisions. 

But analysts noted that the Chinese side made great compromises on pricing to complete the deal. For instance, the pricing will be linked to crude oil cost, which is much higher, they said. 

For China, the deal may not make too much economic sense, but it contributes to the country’s energy security and shift to cleaner energy while serving its political ends, the analysts said.

The final price for the 38 billion cubic meters of natural gas is estimated at around US$385 per 1,000 cubic meters, or almost close to the US$400 billion bill for Russian gas exports to Western Europe, industry sources said. It’s much higher than the US$320 per 1,000 cubic meters that China pays for gas imports from Central Asia at present.

On the other hand, the deal is expected to accelerate energy price reform in China, the analysts said, adding that raising gas prices might be inevitable in the long run.

Russian gas imports will translate to around 2.4 yuan per cubic meter on delivery, but actual gas prices will be much higher because of the pipeline and tax costs. By comparison, the current residential gas price in Shanghai is around 2.5 yuan per cubic meter.

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JZ/JP/CG

Freelance journalist

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