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.

The EU must create an energy union to secure its gas supply because the current dependence on Russian energy makes Europe weak, Poland’s prime minister, Donald Tusk, wrote in an article in the Financial Times.

 Russia, which provides around one third of the EU’s oil and gas, sent shockwaves through the international community with its military intervention and annexation of Ukraine’s Crimea peninsula in March.

 Tusk noted that the EU was creating a banking union, with a single supervisor, and a single resolution mechanism and fund to close down failing institutions.

 The EU was also already jointly buying uranium for its nuclear power plants. The approach to Russian gas should be the same,.

“I therefore propose an energy union. It will return the European Community to its roots,” EU precursor the European Coal and Steel Community was formed in 1952.

 Such a union should be based on several elements, he explained.

The first of these would be the creation of a single European body that would buy gas for the whole 28-nation bloc. Another would be that if one or more EU countries were threatened with being cut off from gas supplies, the others would help through “solidarity mechanisms“.

The EU must also help finance gas storage capacity and gas links in the countries most dependent on gas sold by the state-owned Russian gas monopoly Gazprom. The energy union would also seek agreements to buy gas from exporters outside Europe, such as the United States or Australia. It could be transported to Europe by ship in liquefied form.

“Today, at least 10 EU member states depend on a single supplier – Gazprom – for more than half of their consumption. Some are wholly dependent on Russia’s state-controlled gas giant,” Tusk said.

Another element was the full use of the EU’s existing fossil fuels, including coal and shale gas.

“In the EU’s eastern states, Poland among them, coal is synonymous with energy security. No nation should be forced to extract minerals but none should be prevented from doing so – as long as it is done in a sustainable way,” Tusk said.

 Finally the EU should strengthen the existing Energy Community of the EU and eight of its eastern neighbours, created in 2005 to extend the European gas market eastward.