Gas deal to exert deep geopolitical impacts

By Cui Shoujun Source:Global Times Published: 2014-5-28 19:33:01

Russian energy giant Gazprom and its Chinese counterpart, the China National Petroleum Corporation, signed a 30-year gas supply deal recently after years of marathon negotiations. The deal, worth about $400 billion, has been dubbed the "gas deal of the century."

It is more than a business agreement. It is not only a milestone in the China-Russia bilateral relationship, but also will exert a far-reaching impact on the geopolitics of the Eurasian continent.

Russian President Vladimir Putin called the deal the biggest in the history of Russia's gas industry.

This unprecedented event could relieve Russia's anxiety in the face of sinking revenue and Western sanctions, protect the country's energy export security, and boost its economy. Russia has been striving to move away from the over-dependence on the European market and diversify its energy exports.

Since the 2008 financial crisis, the global economic downturn has led to decreasing demand for Russian natural gas in the European market. The eastward expansion of the EU and NATO keeps squeezing Russia's geopolitical space. The Western sanctions imposed on Russia after Crimea's joining Russia make Moscow fully aware of the risks of being susceptible to a single market.

The EU, being the biggest market of Russia's gas exports, is the country's "cash cow." Russia's state-owned Gazprom provides 30 percent of Europe's gas, around half of which flows through Ukraine. Last year, Gazprom made $60 billion from selling 174.3 billion cubic meters of gas to Europe.

However, Russia's gas ambition in the European market has met a lot of resistance in recent times.

The EU first refused a proposal by Gazprom to transmit gas to Germany through the OPAL pipeline. It then froze talks about granting approval for the South Stream pipeline that bypasses Ukraine to transport Russian gas into southern Europe.

Moreover, the EU is accelerating its plan to find alternative sources of gas and extricate itself from Moscow's energy grip.

These moves have undoubtedly upset Russia, forcing it to tap the potential of the Chinese market, the biggest alternative market to the EU.

The gas deal is also of great significance to China. It will help enhance security of energy supply as well as deepen strategic mutual trust between China and Russia.

China is the biggest energy-consuming state as well as the fastest growing natural gas market in the world. The International Energy Association has forecast that China's natural gas demand will quadruple by 2035.

In the light of mounting pressure to curb air pollution in many haze-covered cities, China is in a desperate need of transforming its patterns of energy consumption and utilize cleaner fuels.

According to the deal inked by China and Russia, Gazprom will start to transport at least 38 billion cubic meters of gas per year to China since 2018. The annual volume will gradually increase to 60 billion cubic meters.

Continental gas pipelines are more reliable than sea routes as they wouldn't be constrained by waterways like the Strait of Malacca.

With the backdrop of the US "rebalancing to Asia" strategy, China is confronted with grim challenges on its periphery with the US which is cementing its military presence in the region.

The gas deal will upgrade the China-Russia bilateral relationship to new height. The deepening of the China-Russia energy partnership will undoubtedly propel positive interactions over a spectrum of international affairs such as the Syrian, Iranian and Ukrainian issues, offsetting strategic pressure from Washington.

Although the pricing details are a "commercial secret," Beijing and Moscow are believed to have made a concession over the price.

For China, setting an overly high price would spark dissatisfaction from Central Asian countries, while for Russia an underpriced deal would be frowned upon by the EU.

That the long-awaited deal could be reached at this moment is related to the tension between Russia and the West over the Ukrainian crisis. But the fundamental cause is the energy interdependence between China and Russia. In the long run, the deal will affect the political interactions among China, Russia, the US and the EU, and will reshape the energy pattern in the Asia-Pacific region.

The author is a research fellow of the National Academy of Development and Strategy and research director of Center for International Energy Strategy Studies, Renmin University of China.

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