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China and Russia Ink Mega Gas Deal



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On May 20, 2014 reports broke[1] that a long anticipated gas deal[2] between China and Russia would not be forthcoming on Russian President Vladimir Putin’s current trip to China. Hours later[3] the blockbuster deal to sell up to 38 billion cubic meters of Russian natural gas a year to energy hungry China for a term of between 20 and 30 years to begin in 2018 was announced. Negotiations regarding the deal have been going on for at least a decade with pricing being the major sticking point. However the final pricing terms were unannounced, so it is unclear if this is a final agreement or another in a series of memoranda of understanding. The route the pipeline will take to transport the gas from Russia to China was also not disclosed. Agreements regarding coal and LNG exports to China were also formally signed.[4]

Many in the West see the timing of this deal as a reflection of Russia’s need to diversify away from its reliance on gas exports to Europe. While this is certainly a factor it must be remembered that this deal was going to happen regardless of Russia’s relations with Europe as China has been extremely active in securing long term access to energy supplies. Perhaps most notably last year when Chinese President Xi Jinping went on a tour of Central Asia and returned to Beijing with energy supply agreements from Kazakhstan[5], Tajikistan, Turkmenistan[6], and Uzbekistan[7]. Nonetheless it appears likely that China was able to obtain better terms from Russia than in the past. Whether this is a result of current geopolitical concerns, diversification of supply, or both is unclear. What is clear is that this is one of, if not the largest, gas supply deals in history. No doubt the final terms of the deal will make for interesting reading.