Russia’s Vladimir Putin arrives in China May 20 where he is expected to seal a landmark energy agreement with his counterpart Xi Jingping, a massive deal for natural gas supply, and highlight even further his keenness in advancing a global geo-political shift away from the West. The world’s second- and eighth-largest economies (China, the former, is poised to soon be the world’s biggest) will give their already healthy relationship a big boost via a game-changing commodity pact that will deliver natural gas from the world’s largest producer of conventional gas to its largest consumer.
The plan is for Russia to supply 38 billion cubic meters of natural gas annually to China for the next 30 years, beginning in 2018, with the potential to expand the annual capacity to 61 billion cubic meters. The gas supply contract has been in the making for around ten years with the price tag being the biggest matter of contention since both sides wouldn’t give in to demands from its partner (it’s still unclear what the price will end up being though Russia will likely give in to its ally’s desires).
Why should Putin give in? The timing couldn’t have been better for Moscow’s anti-West renewed strategy. With the Ukraine crisis still at a high point, economic sanctions hitting Russia, and Europe seeking ways to reduce its dependence on Russian energy (and vice-versa) Putin realizes that this is the moment to solidify the good relationship it has with Beijing. Among the common beliefs both sides share is the stance against capitalism and imperialism — even if China has avoided clearly stating its position on the Ukraine issue yet it’s keeping close tabs on how the territorial dispute develops for its personal regional interests, such as Tibet.
The gas supply contract is near completion and is likely to be wrapped up before Putin’s arrival next Tuesday. The country’s top natural gas producer Gazprom, dealing with China National Petroleum Corporation (CNPC) – the state-owned petroleum company – will supply pipeline gas from Russia to China via the eastern route, entering northeast and northwest China. “At present, the negotiations concerning terms and conditions of the supply contract are at their final stage,” said Gazprom May 15.
Russia craves export markets for gas outside Europe and China seeks as many natural gas resources as possible since it relies on imports for nearly a third of its natural gas needs and as it intends to reduce dependence on coal and its growing population demands more food and energy. China used 14.9 billion cubic meters of natural gas in February, up 10.1% year-on-year, according to a report from the country’s National Development and Reform Commission.
Therefore, the bilateral agreement is key for both. That Russia-China’s relations “are at their best” and have played “an irreplaceable role in maintaining world peace and stability,” as President Xi Jingping said last month makes the agreement as an important building block. Russia is also benefiting from the current relations as Chinese companies have been involved in building a bridge from Russia to Crimea and invested in a $27 billion liquid natural gas project with Russia’s second-largest natural gas producer, Novatek.
Both presidents will also sign a series of important bilateral cooperation agreements. As Russia’s trade with China may reach the $100 billion mark by the end of the year, according to presidential foreign policy aide Yuri Ushakov, policy-makers in both countries see it necessary to close as many deals as possible.
Vis-a-vis the United States, which is trying to give its international gas exports from the shale revolution a boost as well (including in Asia), the deal could mean a moment to move forward in closing its own agreements as well. This gives China the upper hand in closing the price negotiations with Russia. Yet as Russia prepares to open large parts of its economy up to Chinese investment for the first time the natural gas deal could prove successful for all — except the West, Ukraine and the geo-political normal that the 21st century was outlining — and act as counterbalance to the U.S.’s dominance as they both desire.