The Russia - China Gas Deal (Part - I)

‘The Treaty of Good-Neighborliness and Friendly Cooperation’, a strategic accord was signed between China and Russian for twenty-years in the year 2001. This treaty broadly outlines to serve as a basis for peaceful relations, economic cooperation, as well as diplomatic and geopolitical reliance between the two nations. It also can be seen as an implicit defence understanding pointing at increasing military cooperation, including the sharing of military technology between the two. The treaty also encompasses a mutual, cooperative approach to environmental technology regulations and energy conservation; and toward international finance and trade.

In line with this, a historic gas deal was signed between Russia and China two and half months back on May 21st in Shanghai, the financial capital of China. The deal was reportedly signed between Alexei Miller, Chief Executive Officer of Russian gas behemoth Gazprom and Zhou Jinping, Chairman, Chinese National Petroleum Corporation or CNPC, a Chinese state-owned oil and gas corporation. The deal resumes further significance as it was signed in the presence of Presidents of both, Russia and China, Vladimir Putin and Xi Jinping respectively.

Under this deal Russia will be supplying China with natural gas worth $400 billion over a period of 30 years at 38 billion cubic meters a year via pipeline linking gas fields in Russian province of Siberia to North Eastern China beginning in about 6 years’ time when the pipeline is slated for completion. It does not just stop at this but another such deal of same scale is also in offing between these two giant neighbours in the near future.

This contract that has been awarded to Gazprom is the biggest of its kind for the company. While Gazprom be responsible for construction of pipeline that would pass through the Russian territory, CNPC would be responsible for the work to be done within Chinese geographical limits. There has been no clear indication on the final per unit price of the gas that has been agreed upon which primarily was the cause for the decade-long deadlock in signing the deal.

Russia is the world’s largest exporter and second largest producer of natural gas after the United States and receives more than 50% of its revenues from oil and gas. Russia has been diligently working to establish its credentials as a ‘reliable’ supplier of natural gas in the international markets. Recently having annexed Crimea from Ukraine, Russia has invited the wrath of the US and the European Union. Importance of Ukraine in Russian energy supply to Europe is highlighted by the fact that 40% of Russia’s natural gas supplies to Europe pass through Ukraine and this fuel keeps the factories running and electricity flowing throughout Europe. Against this Russian bravado in Ukraine, the US and the EU have slapped sanctions on Russia and are threatening to raise the stakes. As a result EU has been looking for options other than Russia for its fuel as Russia is one of the leading fuel supplier to the European nations with 30% of their gas requirements being met by it. This certainly poses a threat to Russian economic interests and the same time gives an upper hand to the West in dealing with the Ukraine-Crimea crisis.

The complexities and the tensions have been further flared up the recent shooting down of the Malaysian passenger airliner over the Ukrainian territory for which the West and Ukraine have blamed Russia supported-rebels. Another incident which is adding fuel to this fire is that of Russian military test-firing Topol intercontinental ballistic missile from its northern test site in Plesetsk, as well as test-firing of several shorter-range missiles from its submarines in the Northern and Pacific Fleets. Russia has not just stopped at this but has accelerated other military manoeuvres. This involves the launch of air-to-surface rockets by Tu-95 strategic bombers that too from strategically sensitive Western Russia, and the very importantly entry of Northern Fleet armada led by the aircraft carrier Admiral Kuznetsov straight into the English Channel. 

(to be continued...)