Russia and China have signed a 2.49 trillion yuan ($400 billion) natural gas deal after more than a decade of negotiations.
Russian President Vladimir Putin is turning eastward as sanctions imposed by the U.S. and the European Union because of the standoff over Ukraine batter the Russian economy. The increasing alienation makes trade with China, the country’s largest trading partner after the two-way volume surged sevenfold in the past decade to about $94 billion last year, even more important.
Putin, in Shanghai for an Asian regional conference, called the signing an "epochal event".
Gazprom Chief Executive Officer Alexey Miller signed the deal with Zhou Jiping, chairman of China National Petroleum Corp. The agreement is for 38 billion cubic meters of gas annually over 30 years, or about 20 percent of its sales to Europe, Miller said. While he declined to give a price, he said the total value would be about $400 billion.
China may make as much as $25 billion in advance payments under the contract to invest in the necessary infrastructure, Russian Energy Minister Alexander Novak told reporters yesterday. The government in Beijing, responsible for a pipeline on its territory, will spend at least $20 billion on its construction, Putin said.
The new deal gives Russia significant leverage in talks with the European Union, currently a major gas customer, in talks over Ukraine, due to resume on May 26. Analysts point out however that despite the vast size of the new deal, China won't be replacing Europe as Russia's main customer any time soon.
If there's a winner, it's China. It used Russia's desire to send the U.S. and Europe a message as a lever to get both a better price and its preferred pipeline route for the gas. For his part, Putin has a big new customer for Russian exports, and can tell the U.S. and Europe that Russia is fine without the European market, thank you. China diversifies its energy supply -- among other things, it's keen to rely less on coal -- and does so on favorable terms. Expressions of solidarity about the drawbacks of democratic capitalism and the merits of other value systems are a bonus for both sides.
What the deal doesn't signify -- not yet, at least -- is a global realignment that puts the U.S. and Europe at a grave disadvantage. The tortuous history of Russia-China relations shows that their long-term interests are not complementary. Putin won't want Russia to depend on China any more than he wants it to depend on Europe. Anyway, the gas exports in the new pact, once onstream in 2018, will be about a quarter of what Russia sells to Europe. Even if the deal is enlarged later, the idea that Russia can now get along fine without the European market is nonsense.
[Image via Getty]
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