Gas deal a symbolic victory for Moscow

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Eleonore Dermy and Martine Pauwels Moscow

The $400 billion (R4.1 trillion) gas deal Russia signed with China last week was a symbolic victory for Moscow, which is locked in a dispute with the West over Ukraine, but the scale of the deal is not as massive as it seems at first blush, according to analysts.

The volumes to be shipped east will not cut Russia’s dependence on selling gas to the West, nor would they lead to shortages in Europe.

Under the 30-year deal signed on Wednesday, Russia’s Gazprom will begin supplying the China National Petroleum Corporation (CNPC) with up to 38 billion cubic metres of gas a year from 2018, with the deal said to be worth $400bn overall.

Russia’s President Vladimir Putin and Gazprom chief executive Alexei Miller did not lose any time in hailing the agreement, the largest in the state-controlled gas firm’s history.

However, analysts at Capital Economics said “the importance of the deal is largely symbolic”.

The London-based outfit said “the benefits to the Russian economy from the $400bn deal… are likely to be smaller than most seem to think”.

First the sum will be spread out over 30 years, adding $13bn a year to exports that reached $593bn last year. “Although this is significant, it is hardly a game changer,” Capital Economics said.

Analysts also pointed out that the amount of gas to be delivered to China, up to 38 billion cubic metres a year, was still far behind the 160 billion cubic metres Gazprom shipped to Europe last year.

Although by signing the deal in the midst of the Ukraine crisis Moscow was seeking to signal a shift in “focus away from Europe and towards Asia… in short, for now Europe will remain by far the most important market for Russia’s energy,” Capital Economics noted.

The deal was signed as Europe is locked in a confrontation with Russia over Ukraine, where Brussels believes Moscow has supported separatists and worked to destabilise the Western-leading transitional government in Kiev by hiking gas prices and threatening to cut off supplies.

Europe, which depends on Russian gas for about a quarter of its consumption, has been concerned about another possible disruption to supplies that transit Ukraine, as happened in 2006 and 2009 when Moscow and Kiev argued over prices. EU nations have again begun to consider how they could reduce their dependence on Russian gas.

“It is more a symbolic gesture Russia sent to Europe, to say that it has other options” to sell its gas, said Guy Maisonnier, an economist at alternative energy research firm IFP EN in Paris.

However, the volumes of gas Russia would be selling to China did not pose a risk of shortages to Europe, analysts pointed out.

“That won’t affect Europe’s energy supply security: there is so much gas in Russia that it can very well supply not only Europe, but China and other countries as well,” said Samuele Furfari, who teaches on the geopolitics of energy supply and distribution at the Free University of Brussels.

Moreover to ensure its energy security China insisted that its supplies will come from largely undeveloped fields in eastern Siberia, while European supplies come from fields further west. – Sapa-AFP


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