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Europe Left out in the Cold as Russia, China Ink 30-Year Energy Agreement

A 30-year sales and purchase agreement between Gazprom and China National Petroleum (CNPC) leaves Washington's European partners scratching their heads

“Sanction me this and sanction me that”, noisy are these sanctioned times of conditional gift giving. Reminds me of a 1966 Bob Dylan song aptly named “I Want You” where he sings: Now your dancing child with his Chinese suit, He spoke to me, I took his flute… No, I wasn't very cute to him - Was I ? Seems hurting the ones you should love has gone from the bedrooms of this world to the capitals, replacing impassioned couples with heads of states. Odd times for sure.

All this has a point, and it concerns gas and pipelines. Some may have heard of the “Power of Siberia” project. The Power of Siberia gas pipeline (Gazprom) will transport gas from the Irkutsk and Yakutia gas production centers to consumers in Russia’s Far East and China. This is specifically referred to as the “eastern route” branch of the main Power of Siberia pipeline, as there are other branches heading to the Primorsky Krai and elsewhere for exports as LNG to Japan, etc.

Total pipeline span is a length of 3,000 kilometers and measuring 1,420 mm in diameter, the pipeline has an export capacity of 38 billion cubic meters per year. This is a 30-year sales and purchase agreement between Gazprom and China National Petroleum (CNPC).

The agreement is to supply those 38 billion cubic meters of Russian gas to China yearly. The actual gas movement to China through Khabarovsk is scheduled to start by May 2019, in 22 months. On the China side, the receiving pipelines for this “eastern route” are pretty much completed barring finishing work and various bells and whistles. On the Russia side where the pipelines total about 2500 kilometers, a bit more than 1000 kilometers are already welded in place.

Today, with the clock visibly ticking down the Russian side has supercharged efforts despite sanctions and bought some equipment to speed completion. Notably from Caterpillar factories in Illinois as well as China. Seems they just happened to have had some equipment on hand, such as 70 Caterpillar 336DL hydraulic excavators, and 50 of their huge D9R bulldozers and some other related equipment allowing for the completion of the pipeline on time. The excavators are built in China, with some components and final assembly done at Caterpillar’s St. Petersburg Russian factory. The fifty bulldozers are all 100% made in Illinois, do the math.

No wonder some countries that come under the umbrella of the EU, or are allied with the US in Asia (Volvo, JCB, Komatsu, Liebherr, etc.…) might scratch their heads and ask if this is free and fair trade? Why not us, we’re right next door? After all, the initiator and coordinator of sanctions against trading with Russia is our friend the USA. Not very cute, is it? Tough love… no doubt.

Paul Goncharoff is Chairman, Disciplinary Committee, National Association of Corporate Directors, Russia

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