A last minute agreement over a huge gas deal has spared the blushes of Russian president Vladimir Putin and allows him to return home with a 30-year agreement with China. On Wednesday, PetroChina, the country’s state-owned subsidiary of China National Petroleum Corp, announced that it had agreed the deal with Russia that is thought to be worth well over $400bn. The firm did not reveal the exact price details, however.
A sudden delay to its signing threatened to cause embarrassment to Putin
Russia has been talking up its potential deal with China as a sign that it doesn’t need Europe’s money for its gas, but a sudden delay to its signing threatened to cause embarrassment to Putin.
Whilst he tours China on his first state visit to the country, Putin has been consistently saying that the deal will be signed, therefore offering Russia an alternative source of income for its gas after the recent troubles with Ukraine and western leaders. At the beginning of the week, Russia’s deputy energy minister, Anatoly Yanovsky, had described the negotiations as being “98 percent ready”.
However, what have been fraught and strenuous negotiations between PetroChina, and Russia’s Gazprom looked like they might have failed to be completed by the time Putin departed today. Speaking to the Financial Times earlier this morning, PetroChina spokesman Mao Zefeng said that price issues over the 30-year, $456bn had yet to be ironed out. “We won’t be signing. At the moment the import price and the domestic price are inverted. We are already losing money on imported gas, and we can’t lose more.”
Russia sees China as a crucial partner in the aftermath of its foray into Ukraine. Having upset western leaders with its annexing of the state of Crimea and apparent meddling in eastern Ukraine, sanctions and the threat of Europe turning its back on Russian gas has meant Putin has looked to China to fill the potential export gap. Europe is currently Russia’s largest buyer of gas, but it is thought that it will look to the US in the future.
Shamil Yenikeyeff, research fellow at the Oxford Institute for Energy Studies, told the Wall Street Journal that the deal was vital for Russia’s economy. “Russia needs this China deal very badly because it needs to signal to [Brussels] and to some EU nations that it’s taking a step that’s economically profitable and that it’s found a new market for its gas.”
Negotiations between China and Russia began almost a decade ago, but have proven extremely hard to complete. China wants a cleaner source of energy to fuel its rapid growth, but is unwilling to pay Russia the roughly $12 per cubic feet of gas that the country currently charge Europe. China has been in the driving seat in terms of bargaining with a Russian administration running out of friends, but Putin will be relieved that he is able to return with an agreement sealed with Asia’s largest economy.
