China and Russia Set to Finalize Another Major Gas Deal

Another major energy deal with Russia shows China is eager to develop overland energy supply lines that reduce its dependence on vulnerable sea lanes

Mon, Mar 9, 2015
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Russia and China plan on oil, gas and nuclear energy co-operation
Russia and China plan on oil, gas and nuclear energy co-operation

This article originally appeared at Financial Times


China and Russia will seal an agreement later this year on piped gas from Western Siberia, China’s foreign minister said on Sunday, a deal that will continue Russia’s economic shift towards Asia and away from Western Europe.

Russia’s split with the west over Ukraine has pushed it closer to China, which is eager to develop overland energy supply lines that reduce its dependence on vulnerable sea lanes. China has taken a carefully neutral stance on the Ukraine conflict, while more broadly expressing its support for Russia.

The relationship between the two on-again, off-again Cold War allies is “mature and stable,” Chinese foreign minister Wang Yi told a press conference on Sunday. “There is enormous internal impetus and room for expansion.”

Much of that expansion will be in oil, gas and nuclear energy co-operation, he added. “We will fully begin construction of the eastern gas line and sign a co-operation agreement for the western line,” he said.

During a visit to Beijing in November, Russian president Vladimir Putin reached a preliminary agreement for Gazprom, the Kremlin-controlled energy group, to supply China’s state oil company CNPC with 30bn cubic metres of gas per year from the Altai region of western Siberia. However, most of the details — including the price of the gas — are still to be worked out.

Beijing expects the deal to be finalised later this year, leading to a pipeline that will, for the first time, allow Russia to choose between exporting gas to Asia or to Europe.

Russia has also made a commitment to sell gas from its far east to China, but gas from that area of Siberia can only be sold economically to Asia. In a $400bn agreement signed during Mr Putin’s visit to Shanghai in May, Russia agreed to sell up to 38bn cubic metres a year to China.

Chinese and Russian leaders officially inaugurated construction of the Power of Siberia pipeline in September last year, but little work can be done during the harsh Siberian winter. The two sides have also disagreed over financing for the massive projects, with Russia strapped for cash amid sanctions imposed by the West. To sweeten the deal for China, Russia has offered Chinese oil firms the chance to invest directly in its upstream operations. Russia’s deputy premier Arkardy Dvorkovich said at an investment forum last month that there are no longer political barriers to China controlling strategic assets.

Increased economic ties with Russia, particularly the Russian Far East, fall under the broader One Belt, One Road strategy of increasing exports and investment in Central Asia, Mr Wang said.

China wants to create a new Silk Road economic belt that roughly retraces trade networks active at the height of China’s presence in Central Asia, during the Han dynasty 2,000 years ago, as well as a 21st-century maritime Silk Road that revisits the greatest extent of its sea power during the early Ming dynasty.

Rising investment in Central Asia, Southeast Asia, South Asia and Africa would allow China to export its surplus capacity in steel, rail and other industries, an overhang that is increasingly weighing on its domestic economy.

An added attraction for energy-hungry China is the creation of overland rail, road and pipe networks, which it views as more defensible than easily blockaded sea routes including the Suez Canal and the narrow Strait of Malacca.

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