China and Russia's relations soared to a new high as the two countries signed a preliminary gas supply agreement.

The interim agreement cuts Russia's reliance on Europe for buyers and it will guarantee one-fifth of the gas supplies China will need until the end of the decade. The accord is reached just as United States President Barack Obama arrives in Beijing for the Asia-Pacific Economic Cooperation summit.

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Mikhail Korchemkin, a director of a U.S. consultancy firm, East Europena Gas Analysis, estimates the amount of the contract.

"The price of Russian gas is linked to that of oil. Since May, the value of the Chinese contract shrank to US$300 billion," Korchemkin calculates. "The low price of oil complicates the price negotiation."

Russian oil firm, OAO Gazprom, is arranging to supply as much as 30 billion cubic meters of gas every year from West Siberia to China for over 30 years.

Another Russian gas producer, OAO Rosneft, has also sold 10 percent of its share in the Siberian unit, to state-owned China National Petroleum Corporation. The new gas supplies coming to Asia could result in a surplus on global energy markets by in the next decade.

Once gas arrives from Russia, China willl replace Germany as Russia's biggest gas market. This comes amid deteriorating ties between Russia and the Western powers like Germany, due to the crisis in Ukraine.

Kenneth Courties, who heads the Starfort Holdings and former Asia Vice Chairman at Goldman Sachs Group Inc., expects that new supplies of natural gas will be coming from everywhere.

Meanwhile, Lin Boqiang, the director of the Energy Economics Research Center at Xiamen University, says,  the gas supply deal will increase Russia's economic and political dependence on China.

The Bank of Russia has just set its growth forecast for next year to zero. It cites as factors the continuing sanctions by Western countries and oil prices at US$95 per barrel.

The value of the ruble has also gone down to record levels.

Lin says, "China is probably the only country in the world that has both the financial ability and the market capacity to consume Russia's huge energy exports, on a sustainable basis, over a long period of time."

Lin adds that the gas deal gives Putin the chance to show the U.S. and Europe that his country won't be isolated as a result of the crisis in Ukraine. The agreement may account for almost 17 percent of China's gas consumption by 2020, estimates Hong Kong-based analyst Gordon Kwan.

Russia is set to begin selling gas to China within four to six years.

TagsRussia, gas deal, gas supply deal, Ukraine