• 3 minutes Could Venezuela become a net oil importer?
  • 7 minutes Reuters: OPEC Ministers Agree In Principle On 1 Million Barrels Per Day Nominal Output Increase
  • 12 minutes Battle for Oil Port: East Libya Forces In Full Control At Ras Lanuf
  • 7 hours Oil prices going Up? NO!
  • 17 hours Renewables to generate 50% of worldwide electricity by 2050 (BNEF report)
  • 16 hours Reuters: OPEC Ministers Agree In Principle On 1 Million Barrels Per Day Nominal Output Increase
  • 2 hours The Tony Seba report
  • 22 hours Oil prices going down
  • 1 day Could oil demand collapse rapidly? Yup, sure could.
  • 3 hours Saudi Arabia turns to solar
  • 15 hours China’s Plastic Waste Ban Will Leave 111 Million Tons of Trash With Nowhere To Go
  • 2 days Oil Buyers Club
  • 9 hours Kenya Eyes 200+ Oil Wells
  • 9 hours Are Electric Vehicles Really Better For The Environment?
  • 2 days Russia's Energy Minister says Oil Prices Balanced at $75, so Wants to Increase OPEC + Russia Oil by 1.5 mbpd
  • 24 hours Battle for Oil Port: East Libya Forces In Full Control At Ras Lanuf
  • 2 days Gazprom Exports to EU Hit Record
  • 2 days Could Venezuela become a net oil importer?
  • 23 hours Tesla Closing a Dozen Solar Facilities in Nine States
Alt Text

Did OPEC Need To Cut Oil Output At All?

Global oil demand continues to…

Alt Text

Global Energy Consumption Soars To New Heights

The new BP Statistical Review…

Alt Text

The Oil Giant That Saw Its Cash Reserves Plunge 90%

India’s top oil exporter has…

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

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




Back to homepage

Trending Discussions


Leave a comment

Leave a comment




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