One big contract with China is not enough to withdraw dependence from gas market of Europe.
The People’s Republic of China is a promising but complicated partner, especially when Russian does not really have a choice.
The visit of President of Russian Vladimir Putin in Beijing during the period of acute aggravation of the relations with the western world is an extraordinary event itself. And the fact that in course of this visit signed was the thirty-years contract on Russian gas supply to China has forwarded this event to the top lines of the international news agencies. Let’s recall that it is planned to supply 38 billion cubic meters of gas annually to China. The Head of the Russian Corporation Gazprom Alexey Miller declared that the price for 1 thousand cubic meters of gas is a commercial secret. However uncomplicated calculations grounding on the amount of the contract of USD 400 billion uncover the price of USD 350 per 1 thousand cubic meters of gas. The Head of the Department of the Oil and Gas Complex of the Energy Research Institute of the Russian Academy of Sciences Tatyana Mitrova says that “cut price” above which profitability occurs is USD 350-360. It means that the price is at the edge of profitability, but considering its connection to oil and oil products as well such long-standing period it mostly likely to fluctuate (normally within the range of 20%) and the option for its revision is also not excluded.
Naturally this visit today is observed by the analysts primarily in the context of significant worsening of relations of Russia with the USA and Europe, caused by annexation of Crimea to Russia. By this shall be a long process and considerations of some Russian politicians that West would cope with it are hardly grounded objectively. In this respect it is enough to recall the emotional address of the new German Ambassador to Moscow Baron Rüdiger Freiherr von Fritsch-Seerhausen during the summer press festival, dedicated to the 30th anniversary of laying of the corner stone of the embassy building at Mosfil str, and the 25th anniversary of the Berlin Wall Collapse. Independently from the announced subject of the fest he could not help commenting the recent events in Ukraine as Crimea annexation by Russia and compared the situation with the annexation (according to Ambassador) of Baltic States by the Soviet Union. He said that the West would never accept this. Hardly Ambassador made this under his own initiative commenting on the attitude of Germany to the last events Within Russian-Ukrainian relations in front of several dozens of Russian and foreign journalists. Most likely it is true and the sword of Damocles of the West’s sanctions shall swing over Russia for a long time for any tiny reason (and maybe without any at all). By this these sanctions may touch upon the export of Russian hydrocarbons. Although today as President of the Russian Gas Association Pavel Zavalny noted during the opening of the Conference “Energy Dialogue Russian – EU: Gas Aspect” in Brussels, “in accordance to the last forecast of global energy development, made by the Energy Research Institute of the Russian Academy of Sciences, the rates of gas consumption growth in the EU shall comprise no more than 0.5% annually, and about 15% till 2040, by this about 70% of supplies will be covered by pipeline gas. The demand of Europe in imported gas in near future shall grow and by 2040 comprise 70% of the total demand. Respectively the key factor of energy security of the EU shall be long-term, reliable and effective, considering also the costs, satisfaction of this need”.
We are convinces that the most optimal way is not just partnership but strategic cooperation of Russia and the EU in gas sphere”.
This is all true, but Lithuania for example purchases extremely expensive condensed gas from Kuwait despite more beneficial offers of the Russian pipeline gas. Lithuanian politicians call it as the “payment for diversification”. That is why on the one hand repeatedly announced “dream” of Vladimir Putin about close approach of Russia with Europe, evidently shall remain just a dream. And on the other hand one shouldn’t calm himself down with the speculations on that Europe wouldn’t deal without Russian export of hydrocarbons at least during the following three-five years.
That is why the very fact of Gazprom introduction to the grand and promising Chinese market on permanent basis was interpreted by a part of Russian people and commentators as “Our Response to Chamberlain”: the West threatens with sanctions, and we are not afraid, we can easily show our rear to Europe just as Peter the Great instructed, following the irony of BBC. However it is necessary to analyze how important and powerful are the agreements reached in Beijing.
With no doubts different aspects of this Russian-Chinese approach are important. As to the substitution of the western partner for the eastern one, such full-value substitution is quite illusive. The case is about supply to China of 38 billion cubic meters of gas annually. In 2013 Russia supplied 162.5 billion cubic meters of gas to Europe and Turkey. According to some Russian experts in order to ease somehow the dependence from European gas flow, export to China should be increased at least up to 100 billion cubic meters of gas annually. For Moscow it is not only about extension of hydrocarbons supplies to China, although the interest of Russia in extension and diversification of export in terms of cooling down the relations with Europe is evident. President of the RGA in his final address during the Conference “Energy dialogue Russia-EU: Gas Aspect” in Brussels underlined that for Russia energy export to the EU states is of great significance. The region covers two thirds of the total Russian oil and oil products export, and about 70% of natural gas export. But dependence of Russian export from European market gradually reduces in favor of Asia-Pacific region, yet mainly for oil, but this process is a long one. According to the calculations of the specialists, the shares of these markets shall match no earlier than in 2030.
For Russia the agreements with Beijing mean a real opportunity provided technological and financial support of China to start accomplishment of the program on East Siberia and Far East exploration, which evidently yet stall. In this respect it is enough to remind about the critics of Prime Minister Dmitry Medvedev addressed to the Foundation for Far East and Baikal region development. That is why only accomplishment of gas projects means the need to end the construction of the gas pipeline “Power of Siberia” and increase of production at Chayadinsk and Kovyktinsk fields. The experts estimate the terms of the works to cover four-five years, and the cost of USD 55 bln. That s why Vladimir Putin has already named them “without exaggeration the biggest construction for the following four years to come”. Evaluating the agreements reached with China the observer of the British Daily Telegraph David Blair wrote: “One shouldn’t be confused, the treaty signed in Shanghai between Russia and China is only in its part about gas. Naturally Gazprom shall be pleased to get a purchaser of 38 cubic meters of gas annually starting from 2018. But for Putin this event is much more significant than all these pipelines and gas prices. For him the ceremony on Shanghai is the crown of a great strategy. Meanwhile America and the EU are trying to punish Russia economically, Putin thinks that he has crossed all these attempts by turning East and creating the new anti-West axis together with his powerful neighbor. During his stay in China Putin said: “Our positions on main international issues are similar or even the same”. So he acted there not like a top-ranked gas trader, but as the Russian leader attempting to the thing which once President of the USA Nixon had made in China. We remind that when Nixon met then Chinese leader Mao, they both understood the significance of the moment. Nixon used it to change the balance of powers in the Cold War, and Mao protected his regime from the war with the Soviet Union. Now it is known that in October 1969 Máo Zédōng was so badly afraid of the Soviet preventive nuclear strike that order the members of the CCP administration to leave Beijing and spread all over the country.
The newspaper reports that Putin thinks that in the great game “strategic triangle” between Russia, the USA and China he got two parties together by this weakening the third one significantly. But the same Daily Telegraph wonders how realistic such hopes are.
Great doubts according to the newspaper are also incited by the fact that President of China Xí Jìnpíng shares such grandiose view of this gas deal. The thing that Putin considers to be a powerful strategic step can be observed by China as pure business. The answer to the question, who needs this deal the most, is evident, underlines the observer of Daily Telegraph David Blair. In comparison with his Russian partner Chinese President does not experience any pressure. Russian economy (the scope of which does not exceed Italian, as we remind) has the sword of Damocles of Europe and the USA above its head, meanwhile Xí Jìnpíng is the master of one of the most powerful economies in the world. The truth is that China needs energy resources, but Russia is just another supplier. China is able to purchase gas from Turkmenistan, Burma, Qatar or Australia.
Naturally we should also consider that British prone (as the most politicians in the West) to depreciate the agreements reached with China. But the same evident is the intention of Beijing to use the current situation of Moscow to tie it up stronger economically and politically. The case eventually is not only about gas. Chinese tacticians are good at analysis for decades forward. And in future there is a sign of struggle with the USA for global leadership. And in this respect the hopes of Putin for the support of China are quite likely to become true.
Translation from the NG.ru