Want China Times: China Stuck with Expensive Russian Gas Contracts

With international oil and gas prices spiraling downward, China has now gotten saddled with an extraordinarily expensive set of procurement contracts for natural gas with Russia, which, at the time, it regarded as a bargain.

Under the 30-year contract signed in November, Gazprom of Russia will supply an extra 30 billion cubic meters of natural gas per year from Siberia via pipeline to China over the next four to six years, on top of another 30-year contract calling for Russia to supply 38 billion cubic meters of natural gas to China annually, for a total worth of US$400 billion, signed half a year ago.

Accordingly, China will import 68 billion cubic meters of natural gas from Russia annually, becoming the largest buyer of Russian natural gas, in place of Germany, which only imports 40 billion annually. Russia will supply 17% of China's natural-gas consumption by 2020, according to Gordon Kwan, chief energy researcher of Nomura Securities Hong Kong.

The two contracts have been signed at a time when Europe plans to cut its natural-gas import from Russia by 45 billion cubic meters, worth US$18 billion a year, one fifth of the consumption of the EU and three fourths of Russian exports, sohu.com said.

Different from the unified prices on the crude-oil market, natural-gas prices vary for different countries, dependent on different market structures, including exploitation, transportation, demand, and competition. In the case of Qatar, liquefied natural gas, which was sold to the US at US$3.45/MBtu in 2013, is only one fifth of the US$17.32/MBtu China and Japan must pay. The prices have nothing to do with politrics though, just business. MORE