The crisis in Ukraine has increased the importance of Russia’s relationship with China, its largest trade partner outside the European Union and the only country in the United Nations Security Council not to censure its actions in Crimea. Until a China pipeline is built, Russia has few export markets for gas outside Europe, leaving it vulnerable to sanctions and competition from U.S. exports of shale gas.
“This time, Russia really may close the China gas supply deal considering that it’ll be more flexible on the price,” Ildar Davletshin, an oil and gas analyst at Renaissance Capital, said by phone from Moscow. “China, too, needs this contract because the further use of coal is becoming unbearable in most developed parts of the country.”
Gazprom Chief Executive Officer Alexey Miller met China National Petroleum Corp. Chairman Zhou Jiping in Beijing yesterday to discuss the terms of a deal. They’ll meet again in Moscow later this month before Putin travels to China on May 20, according to the Russian company’s statement.
“We hope to conclude the contract in May,” Deputy Prime Minister Arkady Dvorkovich said in Beijing yesterday after meeting Chinese Vice Premier Zhang Gaoli, according to Itar-Tass news wire. “The base price is the only problem to be solved.”
A CNPC press official didn’t answer a call seeking comment.
The gas-supply deal allowing the construction of the Power of Siberia pipeline across eastern Russia into China has foundered on price. To finance the $22 billion pipeline, Russia sought to match the rates it got for its gas in Europe, a level China hasn’t been willing to pay.
This gas deal with China indicates that Russia does not expect a return to ‘business as usual’ with Europe. This tells us more about Putin’s territorial ambitions in Eastern Europe than he has told the West.
China has previously refused to pay Western European prices for Russia’s gas and now has the upper hand in these negotiations. Putin portrays the tough man image but this loss of revenue will weaken him within Russia. Moreover, gas deliveries to China cannot be switched on immediately because the expensive pipeline has yet to be constructed.Back to top