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China gets into bed with Putin

The pricing implications of the $400bn gas supply deal between Russia's Gazprom and China could see the likes of BG Group and Shell think twice about committing capital for further LNG expansion in Asia Pacific.
May 29, 2014

In the week in which Prince Charles demonstrated that he had inherited his father's gift for diplomacy, Russia and China finally signed a $400bn (£238bn) gas supply deal that had been a decade in the making. The timing couldn't have been better, at least from a Russian perspective. With all the talk centred on the political impasse in Ukraine, and the necessity for Europe to diversify its gas supplies away from Russia, Gazprom promptly turned around and secured a huge new export market at a single stroke.

The deal infuriated some politicians in Washington, who seem positively dewy-eyed over the lost certainties of the Cold War era when Beijing and Washington struck up an alliance of sorts against the Soviet Union. But the imperative for the trans-Siberian pipeline route has less to do with the Kremlin's increasingly fractious relationship with the west, rather than China's determination to tackle the toxic legacy of its industrialisation.

The Communist Party can no longer simply pay lip-service to demands that it deal with China's appalling air quality. The problem has become so acute in many of China's provinces that it now threatens to retard the rapid economic development that gave rise to it in the first place. But, it is one thing grounding flights because of increased levels of airborne particulates; quite another when they are shown to slow down the rate of photosynthesis in plants – thereby imperilling the country's food supply. That was one of the more alarming findings on China's air quality that was made public earlier this year by the country's Academy of Sciences. And given China's experience of famine in the 20th century, it's little wonder that the Communist Party now seems intent on addressing this coal-fired issue as a matter of urgency. As recently as 2009, China was importing around 58bn cubic metres (bcm) of natural gas. Imports have all but tripled in the intervening period, and are now expected to increase five-fold over the next 10 years.

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