China looks like big winner in landmark gas deal; U.S., Canada may be losers

|By:, SA News Editor

The dust has settled on Russia’s landmark gas supply deal with China, with the lack of details released about the price making it difficult to determine who wins and loses.

Gazprom (OGZPY) CEO Alexei Miller said the contract is worth $400B over its 30-year life, which suggests an implied price for the gas of ~$350 per thousand cubic meters; at that price, China may have gained the upper hand.

The deal is a potential "economic game changer" for PetroChina (PTR), which lands a deal at a price that carries as much as a 40% discount to current LNG market prices.

In addition to the sub-prime return for Gazprom, developing the pipeline to China and the fields needed to supply it will cost ~$55B before the gas starts flowing in four to six years.

The accord may also mean liquefied natural gas export projects are less likely to be built as the additional Russian pipeline gas pressures prices, and gives China greater leverage to secure better pricing deals with Canadian and other exporters looking to capture a slice of the Asian market.

Some say the U.S. is a loser too, as the deal could spell "the end of the American Century" and shines a harsh light on U.S. energy policy.

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