China and Russia signed a widely anticipated 30-year natural gas agreement in Shanghai. This agreement will diversify both sides’ energy consumption and supply structures

The 30-year gas supply deal, worked out in Shanghai between China National Petroleum Corp (CNPC) and Russia’s state-controlled entities Gazprom, ended a decade of negotiation between the two countries.

CNPC said in a statement that the imported natural gas will mainly supply regions around Beijing, cities in northeast China as well as the Yangtze River Delta.

According to the agreement, the east route pipeline will start providing China with 38 billion cubic meters of natural gas annually from 2018.

The price details have not been disclosed but earlier media reports projected the contract price could be $400 billion. It means that the final price is around 350 US dollars per thousand cubic meters.

Both countries get advantages: China will have more leverage when it negotiates with the other natural gas exporters in the future. And Russia obtains a huge, new market outside Europe.

One key point was who should pay to build the pipelines. If China can pay in advance for the imported gas, Russia will use the money to build the pipeline.

The gas from Russia accounts for only a small part of China’s overall energy consumption. Developed countries remain major trade partners for China.

China needs the gas to help it cut its coal-fired smog levels, and it wants to diversify supply. It had the luxury of time in which to negotiate, something Mr Putin was short of.

The perceived motive for the deal is that Russia needs a second market for its gas, so it can face up to European sanctions. Given that the “Power of Siberia” pipeline won’t start pumping gas into Chinese factories until 2018 at the earliest, its economic effect on the European crisis will be limited.