• 4 minutes Oil Price Editorial: Beware Of Saudi Oil Tanker Sabotage Stories
  • 7 minutes Mueller Report Brings Into Focus Obama's Attempted Coup Against Trump
  • 11 minutes Magic of Shale: EXPORTS!! Crude Exporters Navigate Gulf Coast Terminal Constraints
  • 14 minutes Wonders of Shale- Gas,bringing investments and jobs to the US
  • 57 mins Why is Strait of Hormuz the World's Most Important Oil Artery
  • 1 hour Level-Headed Analysis of the Future of U.S. Shale Oil Industry
  • 5 hours Trump bogged down in Mideast quagmire. US spent $Trillions, lost Thousands of lives, and lost goodwill. FOR WHAT? US interests ? WHAT INTEREST ? . . . . China greatest threat next 50 years.
  • 6 hours Another surprise 'build'
  • 2 hours Apple Bid To Buy Tesla in 2013 For $240 a Share
  • 9 hours Struggle For Supremacy: Kremlin Condemns Alleged U.S. Ultimatum To Turkey Over Missile Deal
  • 14 hours Solar Cheaper than Coal
  • 6 hours CLIMATE PANIC! ELEVENTY!!! "250,000 people die a year due to the climate crisis"
  • 4 hours California's Oil Industry Collapses Despite Shale Boom
  • 6 hours IMO 2020 could create fierce competition for scarce water resources
  • 6 hours IMO2020 To scrub or not to scrub
  • 15 hours Crude oil?
  • 7 hours Global Warming Making The Rich Richer
Alt Text

The 2 Energy Giants Reshaping The Middle East

Typical crude oil producers such…

Alt Text

Saudi Arabia Strikes Back In Yemen

Saudi Arabia has launched an…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

Trending Discussions

Russia’s Weakened Hand Could Pay Off For Beijing In Major Gas Deal

A major gas deal between Russia and China could finally be sealed this week when Russian President Vladimir Putin visits China on May 20-21 and meets with President Xi Jinping. In the lead up to Putin’s arrival, the two sides have been working on putting the finishing touches on a 30-year contract for a gas deal a decade in the making, and Russian officials have suggested that the deal will be completed by Putin’s arrival.

Gazprom’s CEO Alexei Miller announced on a Russian news show last weekend that Russia and China were “one digit” away from finalizing the agreement. “There is just one question - it's ... a starting, base price in the price formula which, it's remarkable, has already been fully agreed upon with our Chinese partners,” he said on May 17. “It's a very little more - to put in only one digit, and a 30-year contract to supply 38 bcm of gas from East Siberia to China will be signed,” said Miller.

38 billion cubic meters (bcm) of natural gas is equivalent to one-quarter of China’s current gas consumption. The contract begins in 2018 and runs through 2048.

To get the gas into China, Russia plans on building a $23 billion pipeline that will span the length of Russia, just north of the Chinese border. It will connect with China at four points – one near where the borders of China, Kazakhstan, Mongolia and Russia meet, and three more connections much further east, including one at Vladivostok.

The negotiations have taken so long mostly because neither side wanted to give in on price. China was looking for similar or better pricing than what Russia gives to Europe, which would be between $10 and $11 per thousand cubic foot (mcf). For years, Russia held out for a higher price, but the crisis in Ukraine has weakened Russia’s hand. Gazprom gets about 80 percent of its revenue from selling gas to Europe, and with Russia’s relationship with its western neighbors deteriorating quickly, Russia needs other markets. That has it looking east.

Related Article: China Burning and Consuming Most Of World's Coal

China has gained even greater leverage over the years from working with Turkmenistan on natural gas supplies. China already receives about half of its natural gas imports from Turkmenistan – 20 bcm – and the two sides agreed last year to triple the volume to 65 bcm by 2020.

So while Russia was waiting for China to cave, the Middle Kingdom was finding alternative suppliers.

Moreover, not only is Russia feeling exposed by its dependence on a European market that could shrink in the coming years, but it is also in a race against the clock to meet rising Asian gas demand. That’s because a lot of liquefied natural gas capacity is set to come online in over the next three to five years; both Australia and the U.S. have ambitious plans to send LNG to Japan, South Korea and China. Russia is in a much better position geographically to meet that demand, but it would need to accelerate building pipeline capacity and liquefaction terminals before Australian and American companies beat them to the punch.

All this is to say that China has capitalized on Russia’s vulnerability, and before the last "i” is dotted on the gas contract, Beijing might have what it wants.

If that happens, it would be a major concession by Russia. As Steve LeVine notes over at Quartz, the $10-$11/mcf price Russia may agree to would be below the $12/mcf that Gazprom needs to merely break even.

For the deal to go through, China might have to pay a large amount upfront instead of over 30 years. Investors continue to pull billions of dollars out of the Russian economy in the response to the crisis in Ukraine, so Moscow could use Beijing’s money.

By Nick Cunningham




Download The Free Oilprice App Today

Back to homepage

Trending Discussions


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News