Asia, Energy, Gas, News, Pacific

Russia and China Sign a Second Gas Deal

Moscow and Beijing have signed the second gas deal for a gas supply although plummeting energy prices are increasing doubts about the overall mutual Russia-China energy framework. Russia is eager to advance its relations with Asia to emphasize its independence from the West. The sanctions imposed by the United States and the European Union have limited development of its energy reserves and its ability to get financing from abroad. Last weekend, Russian President Vladimir Putin and Chinese leader Xi Jinping signed a memorandum that should eventually lead to the construction of a gas route from Russia to China which is also seen as a sign of closer cooperation.

As a result, Russia’s oil giant, Gazprom, envisages that it will ship 30 billion cubic meters of gas annually under the agreement, which is already on top of the deal that was signed in May this year. Under the May agreement, Russia shall supply China with 38 bcm a year after 2018. Moscow is confident enough and starts sending message to its European partners that it is ready to divert its attention towards Asia. Ensuring alternative markets is crucial for Russia, which relies on oil and gas for half of its revenue.

Yet, the memorandum that Russian and Chinese leaders signed last weekend (November 8-9) was non-binding. Reportedly, the mutual talks have been complicated by falling energy prices. Lower prices might jeopardize the ability of Gazprom to invest in infrastructure needed to transport Russian gas to China, which at the same time provides China with a strategic advantage. “It remains challenging to finalize that deal – again on the pricing of gas. The current falls in oil prices would make the price talks tougher. China would hope for lower gas prices (at the border) versus eastern as it’s a longer journey to reach the consumers,” said Zeng Xingqiu, an adviser to China National Petroleum Corporation. He added though that the deal should still have “some positive impact on China-Russian energy cooperation”.

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