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Russia, China Delay “Holy Grail” Gas Pipeline Sequel As China’s Economy Swoons

Russia, China Delay “Holy Grail” Gas Pipeline Sequel As China’s Economy Swoons thumbnail

Last month in “PetroYuan Proliferation: Russia, China To Settle ‘Holy Grail’ Pipeline Sales In Renminbi,” we outlined how Moscow was set to deliver some 68 bcm/y in natural gas to China via the Power of Siberia line and the “Western Route”, or the “Altai” line. Here’s a quick recap:

In May, Chinese President Xi Jinping visited Moscow, where Gazprom Chief Executive Alexei Miller and China National Petroleum Corp Vice President Wang Dongjin signed a gas export deal which paves the way for 30 bcm/y to China via a new “Western Route.” Last year, the two countries ratified a “Holy Grail” gas deal for the delivery of up to 38 bcm/y over 30 years via an “Eastern Route.” Also known as the “Power of Siberia” pipeline, the Eastern route was billed as the largest fuel network in the world with a total contract value of around $400 billion. Once the two pipelines are operational, China will become the largest consumer of Russian natural gas.


Because Russia and China are set to settle gas (not to mention crude) sales in yuan, we argued that the consummation of the pipeline deals serves as further evidence of de-dollarization and the collapse of petrodollar mercantilism, the system that’s served to underwrite decades of dollar dominance.

And while data released since then shows that for the first time, Russia has surpassed Saudi Arabia as the largest supplier of oil to China (further supporting the idea that the petrodollar is rapidly losing ground to the “petroyuan”), it appears that China’s economic slowdown will delay the implementation of the Atlai deal – indefinitely. Here’s more from Vedomosti (Google translated):

Signing a contract with China for the supply of gas through the pipeline “Altai” (or “Power of Siberia – 2”) is delayed indefinitely, told “Vedomosti” two federal officials. The growth of the Chinese economy is slowing down, China is revising the energy balance, they explain.


Growth in demand for gas in China is slowing, while due to the fall in oil prices, China is becoming more accessible LNG, for example in Australia, says analyst “Sberbank CIB» Valery Nesterov.According to BP, when in 2012-2013. Gas consumption in China has grown by 12-13%, while in 2014 the increase was 8.5% and reached 185.5 billion cubic meters. m. In the first half of 2015 the growth was only 2%, says Nesterov, in this situation, “Gazprom” will not be able to get a high price of gas, “Altai”.


“Gazprom” CNPC offers a high price, explaining its high cost of construction of the “Altai”. China is ready to build a gas pipeline is cheaper and offers announced an open tender to his company can participate and construction costs become transparent, “- explains the President of the Russian-Chinese analytical center Sergei Sanakoyev,” Gazprom “refused, China is in no hurry.

The representative of “Gazprom” declined to comment.


China offered to supply material resources, equipment and manpower, he said in May, deputy chairman of “Gazprom” Vitaly Markelov. The need to attract them to our territory is not, was not and will not be assured in late June, Deputy CEO Alexander Medvedev.

The daily goes on to suggest that the deal may need to be negotiated at the highest level – that is, between Putin and Xi Jinping:

By the first contract “Gazprom” and CNPC agree themselves and could not (the negotiations were 10 years old), the document was signed only after the talks Russian President Vladimir Putin and Chinese President Xi Jinping, reminds one of the interlocutors “Vedomosti”. Most likely, and the second contract will also require political intervention, he said. 

And here’s more color from the Taiwan-based, pro-China China Times:

Despite strengthening political ties and military cooperation, the impasse on the gas deal suggests that the economic relationship between China and Russia is cooling, Duowei said.


On Wednesday, Chinese commerce ministry spokesperson Shen Danyang revealed that China’s foreign direct investment in Russia dropped 25% in the first half of 2015 year on year. Earlier this month, China’s General Administration of Customs released statistics that also suggested that trade between the two countries fell by 30.2% in the first six months of the year.


Additionally, the Moscow Times reported Thursday that weakened domestic and internal demand has seriously affected Gazprom’s natural gas production, which fell by a record 19% year on year in June and 12.9% over the first six months of 2015, while export volume also dropped by 8%. In recent years, Gazprom has accounted for nearly 20% of Moscow’s fiscal revenue and represented nearly 10% of Russia’s GDP.

How much of this represents a “cooling” of economic ties between Moscow and Beijing and how much is simply a consequence of falling Chinese demand (a pervasive problem at the heart of the global commodities downturn) remains to be seen, but it’s in both countries’ best interest to strengthen their energy partnership, especially in the face of mouting tensions with the West, which is why we wouldn’t be surprised to see the Altai line project back on track in relatively short order.

Zero Hedge

12 Comments on "Russia, China Delay “Holy Grail” Gas Pipeline Sequel As China’s Economy Swoons"

  1. zoidberg on Fri, 24th Jul 2015 5:32 pm 

    Blinded by their own rhetoric. Russia and China are uncertain allies and more of a danger to each other than the US. Sounds like the gold bugs always trying to convince everyone every drop is a manipulation down and every upturn is a sign of unending strength.

    Be prepared to be surprised.

  2. Rodster on Fri, 24th Jul 2015 7:36 pm 

    “Russia and China are uncertain allies and more of a danger to each other than the US.”

    What’s the saying, ‘thy enemy of my enemy is my friend’? All parties you listed are a danger to each other. But they are all working towards one goal and that is, a one world Govt.

  3. Makati1 on Fri, 24th Jul 2015 10:02 pm 

    Rodster, yes, they are, but I think that the crumbling EU is proof that it will never happen. And I am not sure that Russia and China want a one world government. Especially if it is dominated by the US.

    BTW: “…A deal for Russia to supply natural gas to China via the Power of Siberia-2, … has been delayed indefinitely, reports Duowei News, a US-based Chinese political news outlet.”

    Notice the real source of the ‘news’? A US based outlet. And the Moscow Times was just sold by a Western owner to a Russian oligarch. Why haven’t I seen similar ‘facts’, regarding the pipelines, in other news sources? Usually something that important shows up in a lot of sources, if it is true.

    Only time will tell.

  4. zoidberg on Fri, 24th Jul 2015 10:19 pm 

    Kinda sorta. The US wants unquestioned authority Russia is slipping and just wants a seat at the head table and China wants to be first among equals. So they all see the benefits of central global authority but can’t agree how to design it. Ultimately I think they’ll resort to war to do so and im thinking Russia and China are eying an American alliance to cement their dominance.

    Europe will burn one way or another.

  5. Makati1 on Fri, 24th Jul 2015 11:29 pm 

    Another thought…

    “In the end, whatever Washington may do, it will certainly reflect a fear of the increasing strategic depth Russia and China are developing economically, a reality now becoming visible across Eurasia. At Ufa, Putin told Xi on the record: “Combining efforts, no doubt we [Russia and China] will overcome all the problems before us.”

    Read “efforts” as new Silk Roads, that Eurasian Economic Union, the growing BRICS block, the expanding Shanghai Cooperation Organization, those China-based banks, and all the rest of what adds up to the beginning of a new integration of significant parts of the Eurasian land mass. As for Washington, fly like an eagle? Try instead: scream like a banshee.”

    We shall see.

  6. Jimmy on Sat, 25th Jul 2015 1:02 am 

    China and Russia are natural allies. As oil by sea is replaced with NatGas by pipe we shall see the heartland as described by Mackinder repalce the oceanic empires. From Berlin to Moscow to Tehran to Beijing. The largest land mass will come together under a subcontinental economic empire

  7. Makati1 on Sat, 25th Jul 2015 3:27 am 

    Jimmy, you see a clear picture. Ships and planes are not necessary if everything is connected by land. The world island (Europe, Asia & Africa) contains 6 billion people and most of the worlds resources. That leaves the Americas and all of the islands out of the loop.

  8. Davy on Sat, 25th Jul 2015 6:03 am 

    Too bad Mak your Asia agenda has exploded in your face. You now have to resort to should of’s and could of’s. The facts are playing out simple and harsh. China’s required growth for social stability is imploding. Russia is a basket case with oil prices that will likely never recover because of a global demand destruction. Both are going down. Have you read the latest on Crimea and the 18BIL tar baby? The descent of the Chinese economy will seal the fate of the end of globalism. Your super heroes are now going down with the rest of the west Makster. You are grasping hilariously like a child at a fantasy that won’t be.

  9. GregT on Sat, 25th Jul 2015 7:31 am 

    “how unlike NATO’s and the Pentagon’s irresponsible name calling, accusations, threats and sanctions to dominate the Eurasian landmass for their ‘New Great Game’; the Russian federation and others such as China have been busy readying themselves for the inevitable threat they see coming from the west.”

    “Instead of joining a coalition of nations extending from the Atlantic to the Pacific covering the Eurasia landmass with real opportunities in trade and prosperity, countries of the EU are still subservient to their American masters, even willing to fight for them. The ‘New Great Game’ is only a dream of the Elite. As far as Russia and China are concerned, the game is over and a new one has started, which is picking the minds of German business and the British Joint Intelligence Committee.”

  10. joe on Sat, 25th Jul 2015 7:51 am 

    Clearly China is totally manipulating it’s market, but hasn’t America been doing that with the FED for years? The US is a corporate socialist Republic which has been manipulating markets for decades in its own favour. There is a massive imbalance. Basically the US has been importing finished goods from China and has been exporting food, and raw/unfinished goods, the final added value is in a low cost economy and the profit (so the theory goes) goes to US companies with lots of tax breaks. It worked great for 10 years, then disaster. Credit crunch. Growth is what determines profitability, companies can’t avoid debt so they need quick turnover as the shelf life of an average new hi tech product is measured in months. Companies like Google can disappear overnight if they don’t innovate. China is manufacturing economy it functions more slowly than America. As long a US demand is high then China will continue to add value to US goods. The problem is that US demand is not high, its nominal growth is causing a lagging faith in the mythical ‘recovery’. Low growth means low return and low risk. It’s what’s stopping higher FED rates and looser lending rules.

  11. Speculawyer on Sat, 25th Jul 2015 2:12 pm 

    Build the damn pipeline. China needs to burn more natural gas and less coal.

  12. zoidberg on Sat, 25th Jul 2015 10:21 pm 

    Everyone of Russias neighbors has a reason to want some of its territory. The US does not. No one wants Chinese bankers anymore than American bankers sitting atop their economies. In fact given ameriancs relative remoteness they may be preferable to many if a choice has to be made.

    Relative declining American power makes them a better ally to Eurasian powers….

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