Caspian Report - Issue: 08 - Fall 2014

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MESUT HAKKI CASIN 90 I will focus on how this energy partnership influences various aspects of political and economic life in the Eurasia —including the energy sector. The article will also consider Russia’s current efforts to shape the East–West energy security dynamic. Notably, Russia has decided to shift its export marketing away from Europe and toward Asia. This growing interdependence between Russia and EU market consumers reflects the rise of new energy players such as China and India, and the emergence of new energy agendas. THE NATURE OF THE ENERGY COOPERATION BETWEEN CHINA AND RUSSIA Evaluating the new China-Russia agreement requires an analysis of the character of these states’ decision-making process in relation to multi-level interest balances. Within this approach, Russian President Vladimir Putin and Chinese President Xi Jinping have signed a new gas cooperation contract after a decadelong negotiation process. This historical decision highlighted Russia’s defiance of its isolation by the US and EU, in relation to the conflict in Ukraine. Under the $400 billion natural gas supply contract between Russia’s Gazprom and China’s National Petroleum Corporation (CNPC), Russia will supply 38 bcm annually for 30 years via a new pipeline. 2 The new pipeline will stretch 4,000 kilometers, linking the Chayandinskoye and Kovyktinskoye gas fields in eastern Siberia with Khabarovsk and with Vladivostok on the Pacific coast. 3 Spurs will be drawn to China at Blagoveshchensk and Dalnerechensk, and an LNG terminal will be built at Vladivostok. The total cost has been estimated at $77 billion, of which Gazprom will cover US$55 billion and China the rest. China will provide a pre-payment of US$25 billion towards construction. 4 Of course, this commercial agreement entails several political, economic and also environmental consequences, which we will evaluate in relation to mid and long term energy sector developments. Why is this energy agreement so important Will both sides benefit from the contract or lead to losses of Russian market by EU or US companies Will Russia gain from major investments and modern technologies, and will China resolve the energy security Will the Russia- China alliance represent an increasingly powerful new alliance that can challenge the United States and EU Currently, China may have secured a reduced price given the Kremlin’s current isolation stemming from the events on the Crimean Peninsula. But 2. Jane Nakano, Edward C. Chow: “Russia-China Natural Gas Agreement Crosses the Finish Line”, 28 May, 2014, http://csis.org/publication/russia-china-natural-gas-agreement-crosses-finish-line. 3. The approximately 4,000 km pipeline will be 56 inches in diameter, with an annual throughout of 61 bcm/a. The imported gas will mainly supply China’s Northeast, Beijing-Tianjin-Hebei, and the Yangtze River Delta regions, helping meet the increasing clean energy demand, improve the air quality, optimize the energy utilization, diversify the energy imports, and drive the development of relevant industries along the pipeline. The move comes after Gazprom and China National Petroleum Corporation signed the contract for the Russian pipeline gas supply to China. “Russia launches investment projects for gas supply to China”, Pipelines International, 5 June 2014. http://pipelinesinternational. com/news/russia_launches_investment_projects_for_gas_supply_to_china/087550/utm_ source=Newsletter-Update&utm_medium=email&utm_campaign=Pipelines%20International-5_ june_2014&utm_content=news:russia_launches_investment_projects_for_gas_supply_to_china. 4. “Russia’s China Gas Deal-A Political Triumph but at a Cost”, World Review, 12 June, 2014, http://www. worldreview.info/content/russia-s-china-gas-deal-political-triumph-cost.
who is the real winner here Moreover, will the sting of the economic sanctions with the trade between Russia and the EU be damaged, and what are the unknown costs Will this treaty bring important benefits to both sides Is it a real new beginning or largely symbolic Why has this contract impacted so heavily on global LNG prices In this section, we aim to analyse the factors that motivated the parties. First, from the perspective of capacity, the contract involves a partnership between the world’s top energy supplier and the consumer. Russia has the world’s largest natural gas reserves and China is the world’s biggest gas consumer. However considering the distance of the pipeline route, why go to China without Japan, Korea or European direction One reason is that East Siberian gas is too far away from Europe. The gas will be transported along a new pipeline linking Siberian gas fields to China’s main consumption centres near its coast. But, although the deal has political and commercial significance for China, it is far from constituting the cornerstone of a renewed Sino-Russian alliance against the United States, and does not fundamentally alter the dynamics of Asia’s gas market. 5 But one British energy expert warned that the move could drive up prices for European gas consumers who are becoming increasingly dependent on Russia, and now face competition for supplies. Russia will be responsible for building the plants, doing field development and constructing pipelines on its side, and China will be responsible for the pipeline construction within its own borders. (See Figure I) Second argument is reflecting the Eurasia hinterlands; this deal highlights the growing importance of robust Asian markets. It marks an important transition by Russia that shows his pivotal moment determination can use dual poles face either in Western side European energy markets or mirrors turns to the eastward direction in Russian energy 91 CASPIAN REPORT, FALL 2014 Figure 1: Russia–China gas contract 5. Michal Meidan, “Don’t Overestimate the China-Russia Gas Deal”, China & US Focus, 29 May, 2014, http://www.chinausfocus.com/foreign-policy/dont-overestimate-the-china-russia-gas-deal/
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MATTEO VERDA 34 LNG MARKET: TRENDS
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Caspian Report - Issue: 08 - Fall 2014

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