The Oil and the Glory

How to read the Russia-China pipeline deal

How to read the Russia-China pipeline deal

Moscow and Beijing have spent two decades trying to patch up relations that went bitter long ago in a battle over Communist purity. In the latest installment in the rapprochement, they are using their most hallowed mutual interest — oil and gas — to signal that this time bygones really are bygones. In Beijing today, Russia’s Dmitry Medvedev agreed to supply a huge volume of oil and gas to China, not to mention coal and two 1,000 megawatt nuclear power reactors. Then came the pipelines. In a ceremony, Medvedev and China’s Hu Jintao marked the completion of the first oil pipeline connecting the countries, a 624-mile project. Not to be outdone, another Chinese neighbor, Turkmenistan President Gurbanguly Berdymukhamedov, debuted new equipment that allows the former Soviet republic to almost double its natural gas supplies to China through a 4,300-mile long pipeline.

This is a multi-dimensional charm offensive. Beijing wants to show that, just because it’s quarreling with Japan and the United States, it also can be quite a friendly chap. As for Russia, it wishes to issue a warning to Europe, which has spent much of the last four years loudly proclaiming an intention to wean itself off of reliance on Russian gas. The message: There are other fish in the sea.

Quite apart from the show is substance, says Neil Beveridge, an analyst with Sanford C. Bernstein. He told Bloomberg in a video interview that the deals play into the strategic interests of both countries — Russia is seeking new energy markets as natural gas demand from Europe flags, and China is looking for certain supplies given its surging economy. “Energy security is very important for China,” Beveridge said.

The new supply for China occurs as Beijing has been shrinking its oil relationship with Iran, according to Tehran Bureau, where Thomas Strouse writes that Iranian oil imports to China fell for the first eight months of the year by almost a quarter over the same period in 2009.

In a news release Gazprom said that a final gas contract including price ought to be signed by the middle of next year, with first shipments in 2015. Igor Sechin, Russian Prime Minister Vladimir Putin’s powerful oil czar, appears giddy. “Russia is ready to meet China’s full demand in gas,” Sechin said in an Associated Press piece by Gillian Wong. The gas deal is for almost a third of China’s annual import demand of 100 billion cubic meters of natural gas.

Despite the show, on the morning after Beijing will stick with other supply contracts as well as the deal with Russia. Wholly focused on the security of diversity, Beijing is highly unlikely to sign any exclusive supply deal with any one country.