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11/02/2024 04:16:41 pm

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Russia and China Sign a Second Deal, Intimidates Neighboring Countries

Russia and China Sign a Second Deal

(Photo : Bloomberg.com) Russia and China Sign a Second Deal

On May 21, 2014, Russia turned to China and signed a $400 billion deal between Gazprom and The China National Petroleum Corporation. The agreement is for Russia to supply 38 billion cubic meters of natural gas annually for over 30 years from West Siberia to China. This deal deems beneficial for both countries as China needed a new source of clean energy and Russia had to rely less on their western customers with which their relationship has gone cold.

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As if that first deal was not major enough, both countries have come to another agreement and signed a second contract. Though the agreement is slightly smaller than the initial $400 billion accord, Gordon Kwan, a Hong Kong-based analyst at Nomura Holdings Inc., said the two deals could account for almost 17 percent of China's gas consumption by 2020.

Europe used to get about 30 percent of its gas from Russia but due to the tension between Russia and Ukraine, the former was made to rely less on energy supplies from the latter.

Now that Russia has made this move, not only would it give Moscow a diplomatic boost, but it will also mean that China would replace Germany as Russia's biggest natural gas customer, according to CNPC's website.

Lin Boqiang, director of the Energy Economics Research Center at Xiamen University, said "The initial accord will make Russia rely more on China both economically and politically.",

"China is probably the only country in the world that has both the financial ability and the market capacity to consume Russia's huge energy exports on a sustainable basis over a long period of time," Lin added.

Other natural gas suppliers feel the added pressure due to the second China-Russia agreement, especially in Australia where costs to build new plants are high, said Adrian Wood, a Sydney-based analyst at Macquarie Group Ltd. 

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