©Getty Russian President Vladimir Putin and Chinese President Xi Jinping at the Asia-Pacific Economic Cooperation summit in Beijing
Moscow and Beijing signed an agreement to supply gas from western Siberia to China, in a deal that could eventually see more of Russia’s gas flowing to its vast eastern neighbour than to its traditional European markets.
Assuming crucial details such as price are agreed, the deal would mark another big step in President Vladimir Putin’s efforts to build a closer energy relationship with China to offset increasing isolation from the west.
Chafing under US and EU sanctions imposed over its support for Russian separatists in Ukraine. Russia has long sought to reduce its dependence on Europe as a customer for its gas and diversify its export markets, as well as boost its strategic ties with China. This latest deal goes some way to meeting those goals.
Mr Putin and his Chinese counterpart Xi Jinping signed it on the sidelines of the Apec summit in Beijing just as President Barack Obama arrived in the capital for the meeting.
It would see Gazprom, the Kremlin-controlled energy group, supply China’s state oil company CNPC with 30bn cubic metres of gas per year. That would be on top of the 38bcm/y Russia agreed to sell China in a $400bn agreement signed in May.
The May deal involved gas from yet-to-be-developed fields in the remote tundra of eastern Siberia. However, the latest agreement, which is based on what Moscow refers to as the “western” route, would supply China with gas from fields in western Siberia that is currently piped to Europe.
“Taking into account the increase in gas supplies along the western route, the overall volumes of gas exported to China might exceed supplies to Europe in the medium term,” said Alexei Miller, chief executive of Gazprom.
He said the western route was “becoming a priority project in our gas co-operation”.
Western Siberia is roughly equidistant from Europe and Asia so, once the necessary pipelines are built, gas produced there could be shipped to whichever market offered the most attractive terms.
However, Russian and Chinese officials have been discussing the western route for years, and experts said the new framework agreement was just the latest stage in a long-running negotiation that might not result in a commercial deal.
Also, Russia provided Europe with 160bcm of gas last year, so it is expected to remain the country’s largest export market for gas for years to come.
Keun-Wook Paik, senior research fellow at the Oxford Institute for Energy Studies, said Russia was trying to pre-empt exports of liquefied natural gas from the US, which could start reaching China later this decade.
“President Putin is alarmed that US LNG is targeting the Asian market,” he said. “So before [this] starts arriving in China, Russia needs to carve out a share of the Chinese market in pipeline gas.”
He said China will be the “battleground for the US and Russia as they both pivot to Asia”.
Separately, CNPC would also buy a 10 per cent stake in Russia’s Vankorneft, a subsidiary of Russian state oil producer Rosneft.
An initial map released by Gazprom to Russian media indicates the western gas pipeline would cross the narrow and environmentally sensitive border in China’s far western region of Xinjiang. Earlier negotiations had opened the possibility of a longer route through Kazakhstan or Mongolia.
The Kazakh route would have allowed that country to purchase up to a third of the gas, addressing Chinese concerns about finding a market for all the contracted gas. However, some people in Kazakhstan opposed the idea of becoming dependent for energy on their larger neighbour to the north.
Another route, through landlocked Mongolia, was eagerly sought by Ulan Bator. Russia has in the past supported building pipelines to China through Mongolia but China has blocked the idea.
lucy.hornby@ft.com
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