The Not-So-Mighty Russia-China Gas Deal

The Not-So-Mighty Russia-China Gas Deal

05/23/14

Paul J. Saunders

Energy, Russia

Why shifting from celebratory toasts to moving gas out of the ground could prove challenging.

This week’s 30-year $400 billion Russia-China natural gas deal has justifiably attracted considerable attention for both its scale and its symbolism. Indeed, it is an important agreement that could have profound consequences. Nevertheless, there may also be less to the immediate arrangement than meets the eye.

On the surface, the agreement appears to be a major accomplishment for President Vladimir Putin and for Gazprom, Russia’s state-controlled natural-gas monopoly, even if the company made price and other concessions to secure the agreement with China National Petroleum Corporation, China’s largest energy producer. Mr. Putin accurately described the deal as "the biggest contract in the history of the gas sector of the former USSR" and, as this thinking goes, artfully deflected Western efforts to isolate Russia politically or economically over the annexation of Crimea, implied that a new Moscow-Beijing axis could produce a global political realignment, and secured an important new role for Gazprom in Asia’s vast energy markets.

Some appropriately question just how much Moscow had to give away—Russia needed this deal, and international observers expected it, so failure could have left the Kremlin looking somewhat deflated. The fact that the Russian president himself acknowledged that the Chinese had been “difficult, hard negotiators” and that the final pricing appears to be below what Gazprom originally sought adds weight to this. Others speculate whether it is really in Russia’s national interest to be too close to China or express skepticism that Moscow and Beijing can ever get along due to mutual suspicion and competing aims. But these are long-term questions and may not be answerable until after Russia, China, Europe, Asia, the United States and others have already experienced the consequences.

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