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The politics behind Russia-China’s gas deal

The signing of an estimated US$400 billion gas supply deal between Russia and China is being called an "Asian pivot" for Russia. However, talks of the deal being a historic shift is "propaganda", said analyst Mikhail Krutikhin.

MOSCOW: The signing of an estimated US$400 billion gas supply deal between Russia and China is being called an "Asian pivot" for Russia.

As one of the biggest single trade agreements in history, it may have far reaching economic and geopolitical consequences from Asia to Europe and beyond.

A decade in the making, the deal should see Russia supply 38 billion cubic metres of gas per year for 30 years to China, with the first shipments to start in 2018.

That is a significant supply, but it is still a lot less than the 162 billion cubic metres supplied to the European Union by Russia last year -- still by far its biggest, single customer.

Moscow has talked of the deal with China being a major new way of diversifying its supply in markets.

However, talks of the gas supply deal being a historic shift is "propaganda", said analyst Mikhail Krutikhin.

From Central Asia to Myanmar -- China has plenty of other sources for its gas.

Mr Krutikhin, an energy analyst at Rusenergy, said: "I think this deal has a very big political hue because basically, when we look at China, China does not need Russian gas.

"It has the balance of gas filled all the way through to 2040."

The price China and Russia negotiated has officially been kept a commercial secret. It was a major sticking point for years.

Many expected that China, playing on Russia's increasing economic isolation, would have bargained hard as they had in the past.

Some analysts implied China has managed a price of around US$350 to US$390 per thousand cubic metres, comparable to what EU countries pay.

Others think the price has been kept under wraps because it would embarrass Russia and make others demand similar deals.

China, said Mr Krutikhin, is only interested in limited gas supplies for its north-east, “but only if Russia would sell this gas at a very big discount”.

“And we believe this is why the actual price of the Russian contract is a commercial secret, because I believe there was a very big discount made for Chinese consumers by Gazprom,” he added.

With sanctions imposed on high-ranking Russian individuals and companies after Russian forces annexed Crimea, and a gas dispute that could see Russia cut gas supplies in the West, the EU has started to look seriously at diversifying its supply away from Russia.

Russia may be looking to the East to try and hedge against losing that political and economic influence.

But before any gas can even start flowing, Russia would have to stump up most of the US$55 billion needed to develop those gas fields and build the pipes to carry it. 

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