The impact of the massive natural gas deal between Gazprom and the Chinese this week will be felt for years. It has absolutely shocked me how little press has been devoted to this $400 billion 30-year deal for Russian gas. One wave of Putin’s pen has entirely shifted the way we’ll now need to look at the European energy picture.
Interestingly, no final price has been settled on for this massive deal. This is, on the face, a very bad sign for Gazprom, implying that the Chinese are demanding exceedingly cheap gas contracts assumed to be more than $100 per thousand cubic meters LESS than Russia currently charges into Europe.
But Putin is willing to deliver such cheap supply to China for more than 30 years hence because it gives him so much more leverage into Eastern Europe and the EU and a particularly strong hand to play in Ukraine. With a new and ready customer to the East, Gazprom no longer needs the EU markets nearly as much as the EU needs Gazprom. It is now the Europeans who will have to scramble, and quickly, to find new natural gas sources before the bulk of the gas starts heading for China in 2018.
That sounds like a lot of time, but it’s not – and Putin will not wait 3 years to begin turning down the spigots in the winter into Ukraine and the EU if he’s unsatisfied with political outcomes. It is a tactic that Gazprom has used successfully twice; in 2006 and 2009, and US sanctions…