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OPINION: Gas Price in Contract With China Beneficial for Russia

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The price for Russian gas in Wednesday’s long-term contract for supplies to China is close to the one Moscow insisted on, according to analyst Xizhou Zhou of IHS Energy.

LONDON, May 21 (RIA Novosti) – The price for Russian gas in Wednesday’s long-term contract for supplies to China is close to the one Moscow insisted on, according to analyst Xizhou Zhou of IHS Energy.

The final agreed price is presumably closer to the one on which Russia insisted, than the one that China was willing to pay. Instead, it was decided to abandon the idea of a mandatory prepayment. “This higher price level reflects China’s willingness to pay more for cleaner fuel,” Zhou said in a report published in Shanghai after the deal was signed.

Gazprom’s contract with China will allow the company to strengthen its position in the Asian market amid the tense geopolitical situation and pressure from consumers in the West, analysts noted.

“Gazprom is under increasing geopolitical and competitive pressure to diversify its market toward the East, while China’s gas market remains supply constrained as demand continues to surge,” said Zhou.

Exports to China along with the gas project in Vladivostok will allow Gazprom to preserve the role of Russia's main player in the Asian markets. However, this will also increase the administrative and management burden on the company, according to the IHS analysts.

The Russian gas supplied under the new contract will be consumed primarily in the northeastern provinces of China, the experts said. Russian gas giant Gazprom and China’s CNPC earlier in the day signed the 30-year contract on the sale of Russian gas to China at a volume of 38 billion cubic meters per year with delivery via an eastern route.

Gazprom CEO Alexei Miller declined to name the contract price for gas, citing commercial secrets. He did, however, say that the cost of the entire contract was $400 billion, which if calculated, comes to around $350 per 1,000 cubic meters.

Miller also specified that $55 billion in investments will be used for oilfield development and the construction of a pipeline.

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