Russia-China (Finally) Ink Natural Gas Deal

Early reports indicated that Vladimir Putin would be returning to Russia without finalizing a massive, decades-in-the-making, natural gas deal with China. The two sides reached agreement late Tuesday and news outlets have spent Wednesday highlighting the $400 billion Russia hopes to bank via Gazprom for transferring natural gas from Siberia to China.

While official details are still scarce, reports from Russian state media match up with expectations. Russia Today reports that, under the deal, Russia will supply China with 38 billion cubic meters of gas per year “via the eastern ‘Power of Siberia’ pipeline, which crosses Siberia and reaches China’s populous northeast regions.”

The impetus for the deal is unsurprising. Both China and Russia seek to diversify. In Russia’s case, away from reliance on Europe as a main customer. For China, to fuel continued growth. Also unsurprising, though a touch premature at this juncture, are Western fears about what this means for Europe.

In a particularly hyperbolic paragraph, the Washington Post warned that:

In the stroke of a pen, the agreement significantly shifted in Russia’s economic relations with its neighbors, creating a new major export market to the east and reducing reliance on European partners at a time when relations are close to an all-time low. Putin called it a “watershed event.”

Yes, China and Russia signed an energy deal. But the signing of the deal alone took a decade. Building the infrastructure will take many more years. Russia has by no means “created a new major export market” and will have to wait to actually “reduce reliance on European partners.”

The Yakutia–Khabarovsk–Vladivostok Pipeline, more dramatically called the ‘Power of Siberia’ Pipeline, is mostly just on paper at this juncture. Gazprom is projecting the first stage to come online in 2017 (or 2018, or 2019, according to various sources), though I am curious as to when the last time a gas pipeline of this magnitude came online as scheduled.

2013-12-18-map-sila-sib-en

 

Keith Johnson, writing in Foreign Policy, points out that while the deal gives Russia an additional market, “it won’t come at the expense of Russia’s gas business with Europe…because the gas to supply China will come from different fields in Russia’s Far East.”

The deal is a symbolic score for Russia and a chance for China to flick its nose at the West. “Russia needed to send a big signal,” Leslie Palti-Guzman, a Senior Analyst, Global Energy and Natural Resources at the Eurasia Group is quoted in Forbes as saying, noting that “the deal allows them to show that they can sustain strong economic ties with a growing power, even in the face of sanctions.”

While the timing of the deal is a symbolic win and a convenient snub for both Russia and China, questions about the details remain, and sustained benign bilateral relations between Russia and China are not guaranteed.

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