Russia, China Sign New Huge Gas Deal

Just as European nations are trying to wean themselves from an erratic supply of Russian natural gas, so Russia appears determined to reduce its reliance on European customers by signing a second enormous deal to supply gas to China.

On Nov. 9 in Beijing, Russian President Vladimir Putin and Chinese President Xi Jinping signed a preliminary agreement under which the Kremlin-run monopoly Gazprom eventually would supply nearly one-fifth of the gas China is expected to need until 2020.

Under the new deal, nearly as massive as the $400 billion agreement reached earlier this year, Gazprom said it plans to supply up to 30 billion cubic meters of gas per year from western Siberia to China in the next 30 years. Russia’s government-owned oil company Rosneft also would sell 10 percent of its share in a subsidiary, Vankorneft, to the China National Petroleum Corp., owned by the Beijing government.

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As Europe moves to wean itself from Russian gas, and Russia moves to wean itself from European customers, China is weaning itself from its current reliance on coal. China’s industrial centers are choking with toxic smog, a state that in June led Xi to declare a “revolution” in energy use by changing how it consumes energy.

As part of Xi’s move to use less coal, under the new deal China will import up to 30 billion cubic meters of cleaner-burning gas per year through the proposed Altai pipeline from western Siberia. Under the previous deal, Beijing will import 38 billion cubic meters of gas from eastern Siberia via the Power of Siberia pipeline, where construction began on Sept. 1.

The flow of gas to China may begin in four to six years, Gazprom CEO Alexey Miller told reporters in Beijing. Once that happens, China will surpass Germany as Russia’s largest gas customer.

“Cooperation between China and Russia is utterly important in order to keep the world within the limits of international law, to make it more stable, more predictable,” Putin told Xi during the signing ceremony at China’s Great Hall of the People.

For his part, Xi said, “Together we have carefully taken care of the tree of Russian-Chinese relations. Now fall has set in, it’s harvest time, it’s time to gather fruit.”

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Putin has worked hard to secure more Asian customers in the face of Western sanctions imposed because of Moscow’s unilateral annexation of Ukraine’s Crimean peninsula and its suspected role in the ongoing violent unrest in eastern Ukraine.

While Russia’s shift from Europe to China may ease the pain of the US and EU sanctions, the deal also “will make Russia rely more on China both economically and politically,” Lin Boqiang, director of the Energy Economics Research Center at Xiamen University, told Bloomberg News on Nov. 10.

“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 said.

By Andy Tully of Oilprice.com

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