Misinterpreted Gas Deal

Misinterpreted Gas Deal:



"Facts about the Chinese-Russian “gas deal of the century” that have come to light recently show just how weak the position of Gazprom really is when it comes to negotiations with Beijing. Before the gas flows through the “Power of Siberia” pipeline, Russia must nervously wait a few years as the struggle for its full implementation will take time. Although the “historic” agreement is arguably unprofitable to the Russian economy, Deputy Chairman of Gazprom, Alexander Medvedev, sees it in a different way. He has said that the deal of the century deserves to be included in the Guinness Book of World Records as the largest gas deal in history. But what does it really look like?
 



The gas delivery pipeline, called the “Power of Siberia”, is expected to launch in 2019. The total cost of the pipeline is expected to be around 55 billion US dollars. The value of the contract with China is equally impressive: $400 billion. According to the agreement, Gazprom will receive from the China National Petroleum Corporation (CNPC) $25 billion as a prepayment for its gas supplies. This will allow the Russian energy giant to set up a significant part of the pipeline. As it is written in the contract, the Chinese-Russian 30-year gas deal will provide China with 38 billion cubic metres a year. However, the energy consultancy Wood Mackenzie, being more realistic, believes that initially it will be possible to transit only five billion cubic metres per year. The final capacity of the 38 billion cubic metres will be available in 2025. The part of the deal that remains unknown is price of the gas. However, it is estimated to reach the European level of $350 per 1000 cubic metres.
 



Although the deal was officially signed, Alexander Medvedev frankly said that its details still need to be confirmed. Among the Russian political elite, there is a dispute whether Gazprom needs state aid in order to build the pipeline or not. The Russian Ministry of Finance, unlike Vladimir Putin, claims that it does not. Instead of public funding, the ministry suggests taking loans from Chinese banks and seeking Asian investors. This is why Gazprom has debuted recently on the Singapore stock exchange. As of today Gazprom, does not receive any state aid for the needs of the Power of Siberia pipeline."



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