President Vladimir Putin is heading to China next week for what is anticipated to be an ambitious mission to boost Russia’s economy.
In a statement Monday Deputy Energy Minister Anatoly Yanovsky said a mammoth oil and gas deal between Russia and China, which has taken a decade to negotiate and will last for 30 years, “is 98 percent ready.”
All that’s needed now are the two nations’ signatures.
The Russian company at the centre of the contract is Gazprom who hopes to partner with China National Petroleum Corporation in a deal that would initially see 38 billion cubic metres of gas flow into China by pipeline every year starting in 2018.
That number is eventually expected to go up to 60 billion cubic metres per year.
Russia has an existing deal with China, struck in 2009 with Rosneft, that supplies China with 15 million metrice tons of crude oil annually. That amount is expected to rise to 31 million metric tons every year.
Building the pipeline to China could be pricey for Russia, with experts quoting the cost at around $80 billion. That includes financing for other related projects, which could range from building an oil refinery in China to co-participating in oil prospecting and extraction.
Given China’s growing appetite for natural gas and Russia’s push forward to tap new sources for oil and gas in the Arctic though, the pipeline could have massive returns for the investment.
China is Russia’s largest trading partner outside the EU. Bilateral trade between the two countries is expected to reach $100 billion per year by 2015 and $200 billion by 2020. This year China is aiming to raise its natural gas consumption by 11 percent. Europe consumes 75 percent of Russia’s gas exports.
In 2014 China may also become the world’s largest economy with their growth rate now more than triple what was anticipated in 2005.
With Ukraine-related economic sanctions rolling in from the west, opening up trade routes to the east could relieve some of the strain for Russia.
Some experts speculate it may be the Ukraine crisis that pushed the deal forward as Russia looked for a way to prop up its sagging economy.
Even prior to the unrest in Ukraine it hasn’t been an easy road to a partnership. The Russia-China deal has hit many snags along the way, the most notable being a disagreement on pricing.
It is not clear yet how lucrative this deal could be, but Russian business daily, Vedomosti, claims the negotiations are hovering around $360 - $400 per 1000 cubic metres of gas.
In a statement the Kremlin confirmed Putin would be in China and meeting with Chinese President Xi Jinping to finalize “several important” business agreements in trade and energy, but did not provide further details.