OREANDA-NEWS. May 30, 2014. Russia's USD400 billion gas deal with China may pave the way for cheaper energy for the rest of Asia and put in question the viability of future gas developments around the world.

By committing to the 30-year accord, Beijing will help finance the development of two vast gas fields in Eastern Siberia. While much of that output will go to China, there will still be plenty of relatively cheap gas left over that Russia plans to pipe to the Pacific coast near Vladivostok and ship as liquefied natural gas to elsewhere in Asia.

That will put downward pressure on energy prices in the region and avoid Russia becoming too reliant on China. Russia made a similar maneuver several years back when it built a crude-oil pipeline to the Pacific with a spur pipeline into China.

Russia's \\$400 billion gas deal with China may pave the way for cheaper energy for the rest of Asia and put in question the viability of future gas developments around the world.

By committing to the 30-year accord, Beijing will help finance the development of two vast gas fields in Eastern Siberia. While much of that output will go to China, there will still be plenty of relatively cheap gas left over that Russia plans to pipe to the Pacific coast near Vladivostok and ship as liquefied natural gas to elsewhere in Asia.

That will put downward pressure on energy prices in the region and avoid Russia becoming too reliant on China. Russia made a similar maneuver several years back when it built a crude-oil pipeline to the Pacific with a spur pipeline into China.

The agreement "will have profound impacts on multiple fronts including political relationships among China, Russia, Europe and the U.S., domestic gas market in China, and [the] LNG market in Asia," said analysts at Bernstein Research in Hong Kong. Higher-cost LNG projects "will be less likely to be developed."

Developing sites capable of producing gas can costs tens of billions of dollars and take years to bring online, leaving their backers vulnerable to sudden changes in the market, like the recent China-Russia deal or the unlocking of shale gas reserves in North America.

Some in Australia have already been hit by big cost overruns, including projects backed by Chevron Corp.  , ConocoPhillips, Total SA and BG Group PLC. Others like those planned offshore Mozambique by Anadarko Petroleum Corp. and Italy's Eni SpA are awaiting a final go-ahead.

While the Russia deal and development of China's own shale reserves and offshore gas deposits may put some projects at risk, producers say things aren't that bad.

Peter Coleman, chief executive of Woodside Petroleum Ltd., Australia's biggest exporter of natural gas by volume, said Thursday that despite the Russia agreement, China will still need a lot of gas from various supply sources. "China's growth is coming off such a small base at the moment," he said. "It's got a lot of headroom in it."

The Russian gas isn't expected to reach China for at least four years, and by the end of the decade will amount to around 10% of China's supply.

Others say China will also still need to have a variety of energy importers given the sometimes tense relations between countries that can lead to trade disruptions.

Another potential major source of gas to China and Asia is Canada, where more than a dozen LNG export projects are planned. State-owned Chinese companies are heavily invested in some of the larger ones, including the Kitimat venture and one spearheaded by Malaysia's Petronas.

"I don't think there's a country in the world that today wants to depend on Russia as their sole supplier of natural gas," said Christy Clark, premier of Canada's gas-rich British Columbia province. "Providing the assurance that we are not going to play politics with energy—I think that's worth a lot to our potential partners out there, I think especially China."

Just how much China will pay Russia isn't clear, but Barclays analysts say it could be around USD350 per million standard cubic meters, making it slightly cheaper for Chinese consumers than imported gas from the existing Turkmenistan-China Central Asia pipeline, but more significantly, around 40% below the cost of LNG brought in by sea.