Russia, China Finally Ink Landmark Energy Deal

Russia and China finally inked a huge energy deal Wednesday that will see Russia provide natural gas to the fast-growing market in China for the next 30 years. The agreement, coming just one day after a surprising and disappointing impasse cast a shadow on a much-touted visit by Russian president Vladimir Putin to Shanghai, caps a nearly two-decade odyssey in which both countries have sought to diversify their energy business.

The exact terms of the deal have not been made public, so it is hard to say exactly how much of a bargain China extracted from Russia, which is looking east for new export markets.

People close to the negotiations said that China had agreed to pay about $350 per thousand cubic meters, which is less than the roughly $380 per thousand cubic meters that Russia’s Gazprom charges most customers in Europe. That would equate to around $10 per million British thermal units, roughly in line with the prices that Beijing sought during tough and protacted negotiations.

Gazprom, however, did not make public the pricing terms of the deal, which had been the sticking point since the two sides first began talking in the late 1990s and which as late as Tuesday remained contentious.

The deal calls for Russia to develop gas fields in eastern Siberia and ship 38 billion cubic meters of gas per year to the populous northeastern corner of China. Both sides could still apparently expand the deal to as much as 60 billion cubic meters of gas a year. The initial deal would supply about one-quarter of China’s natural-gas demand today, but will only meet about 10 percent of China’s gas demand in 2020, when the fields and pipelines are expected to be operational.

The Russia-China gas deal will give Moscow an alternative market for one of its main exports, and will help China meet part of its rapidly-growing demand for cleaner sources of energy. But it won’t come at the expense of Russia’s gas business with Europe. That’s because the gas to supply China will come from different fields in Russia’s Far East.

Still, in the next decade, it will give Russia a way to lessen its dependence on the slow-growing European gas market–and a way to take the sting out of future efforts by the West to use the energy weapon against Moscow.

As the Chinese market develops, it will offer Russia an alternative source of export revenues to complement its European business, which will make it more difficult for European countries to strike back at Moscow by reducing the amount of energy they buy. In the wake of Russia’s annexation of the Crimean peninsula, the United States and the EU have sought to take advantage of Moscow’s dependence on energy exports, which account for about half of Russia’s federal revenue.