[XOVERX]

What does this new Russia-China 30-year, $400B gas sales deal portend for Russia's delivery of gas supplies to Europe, or for US sanctions against Russia with respect to Ukraine?

http://www.huffingtonpost.com/2014/05/21/china-russia-gas-deal-gazprom_n_5364004.html

The agreement calls for Russian government-controlled Gazprom to supply state-owned China National Petroleum Corp. with 38 billion cubic meters of gas annually, Gazprom spokesman Sergey Kupriyanov told The Associated Press. That would represent about a quarter of China's current annual gas consumption of nearly 150 billion cubic meters. Gas is due to begin flowing to China as early as 2018.

* * *

"We will be able to show to Europe that we have other customers," Lukin said.

Alexei Pushkov, a Kremlin ally who is head of the international affairs committee of the Russian parliament's lower house, said on Twitter: "The 30-year gas contract with China is of strategic significance. Obama should give up the policy of isolating Russia: It will not work."

* * *

Russia will invest $55 billion in fulfilling the contract, while China will invest at least $20 billion, Putin told Russian reporters in Shanghai. ... "Without any overstatement, it will be the world's biggest construction project for the next four years," Putin said.

Another interesting aspect of this Russia-China gas deal is that Russia and China intend to handle the transaction without using US dollars.

While this Russia-China gas deal has been in negotiation for about 10 years, it's culmination at this time is critical to Russia, and certainly puts pressure on Europe in the long-term, and short-circuits the US's world's policeman role.

[EdwinSm]

While Europe is dependent on Russia for oil and gas, Russia is dependent on Europe for goods to keep its population contented.

Russian President Vladimir Putin is to create a fund to invest in local production as he seeks to reduce his country's reliance on Western imports.

Mr Putin said in a speech that Russia would cut its dependence on energy exports and pledged to boost major domestic banks and industries.

Analysts said he was trying to persuade the international community that Russia's economy could survive alone.
....
Russia imports a lot of technology, especially in oil and gas exploration, and relies on access to finance in the West, she said.

Russia's economy contracted in the first three months of this year.

The International Monetary Fund predicts that the next quarter's figures will also show economic contraction - meaning the country is in recession.

The IMF cut its 2014 growth forecast for Russia to 0.2% from 1.3% and said it expected the country's economy to grow by only 1% next year.

The fund also forecast that $100bn (£59bn) would leave the country this year.

Russia itself has expressed concerns about investors moving money out of the country amid tensions and sanctions over its intervention in Ukraine.

Its central bank said $64bn had left the country in the first quarter of the year - more than the capital flight registered for the whole of 2013.
....

http://www.bbc.com/news/business-27542992

[Cottager]

What does this new Russia-China 30-year, $400B gas sales deal portend for Russia's delivery of gas supplies to Europe, or for US sanctions against Russia with respect to Ukraine?

It is not clear, whether Gazprom will get profit, probably they will actually lose money, simply because they have to invest in that (chinese) direction $$$loads of $$$.
They agreed to invest 55 bil. $ in infrastructure, chinese - 25 bil. $, but actually they probably need to invest more.
https://translate.google.com/translate? ... edit-text=

But this is how russian business works - steal a case of vodka, sell for half the price, and buy vodka for earned money.
Another translated sentence - about russians' attitude to West. Spite grandmother frostbitten ears (en. - cut off your nose to spite your face/shoot yourself in the foot). Means russians don't like gayish westerners, so they agree to go bankrupt to see westerners living a bit worse. That's how they are positioning themselves as enemies of West, so be it.
Sorry for my not ideal english

P. S. Russia has a lot of problems (there is no heaven on Earth), in relation to this deal (and in general export of hydrocarbons to the East) it is huge distances to transport oil and gas, lack of infrastructure, lack of political will to improve quality of life and income in the Far East.
For example, in US federal taxes are average 18%, highest in Minesota, 30% (correct, if I'm wrong) http://en.wikipedia.org/wiki/Federal_ta ... g_by_state , in Russian Krasnoyarsk Krai federal tax in 2012 was 45%
https://translate.google.com/translate? ... edit-text=
Centralization, meaning transferring lots of money into Moscow to allow it's people live comfortably without need of producing any goods, which can compete in international markets sure not helping those eastern people feel equal and comfortable. So they are migrating into Central Russia, peacefully leaving Far East for numerous chinese. They are even migrating into China, seems better there:
http://pulitzercenter.org/reporting/rus ... -migration

[radon1]

They agreed to invest 55 bil. $ in infrastructure,

Dunno.. This is a fraction of what Russia holds in forex reserves, and a fraction of what Russia used to hold in the US treasuries, the latter money being used to finance "democracy in Ukraine" (resulting in Ukrainians and Russians passing away prematurely) and alike things. Besides, the treasuries pay virtually no interest.

Think that investing those amounts of money into a productive project that is going to provide decent return and generate lots of economic activity, ultimately boosting GDP and household income, is in any way worse? Pricing of the NG under the Chinese contract is not fundamentally different from prices that the Russia gets from the EU.

[ROCKMAN]

"Russia is dependent on Europe for goods to keep its population contented." Which also means the EU depends a lot on revenue from sales to Russia. Especially Germany: saw a report that claimed 4,000 German companies did business in Russia. It will be interest to see if Russia and some EU countries begin trading oil in non-US denominated prices as the Chinese intend to do. Given the relative weakness in the ruble these days probably not in Russia's best interest now.

[Cottager]

They agreed to invest 55 bil. $ in infrastructure,

Dunno.. This is a fraction of what Russia holds in forex reserves, and a fraction of what Russia used to hold in the US treasuries, the latter money being used to finance "democracy in Ukraine" (resulting in Ukrainians and Russians passing away prematurely) and alike things. Besides, the treasuries pay virtually no interest.

Think that investing those amounts of money into a productive project that is going to provide decent return and generate lots of economic activity, ultimately boosting GDP and household income, is in any way worse? Pricing of the NG under the Chinese contract is not fundamentally different from prices that the Russia gets from the EU.

I know. It is big fraction of russian foreign reserves
https://translate.google.com/translate? ... t=&act=url

Peak russian reserves were at the end of 2008, around 600 bil. $, this year (see link) from 25.04.2014 to 05/16/2014 (less, than in a month!) they felt from 482.7 bil. to 466.8 bil. So, economically they cannot easy put, say, 100 bil. $ (quarter of reserves) into such project with questionable profitability, only ideologically (shoot themselves in foot).
Again, gas and oil pipelines in mother Russia are very long, and aging. They are consuming profit from oil and gas sales, but not so much worrying about infrastructure. But, as I wrote, people aren't extremely happy to live in Siberia, and leaving it.

[vtsnowedin]

Almost all the goods and services that Russia buys from the EU can be bought from China and paid for with NG. But given the populations of the two countries and the skills of it's leadership the Russians should be careful or they will end up as the new Western most province of China.

[AgentR11]

Almost all the goods and services that Russia buys from the EU can be bought from China and paid for with NG. But given the populations of the two countries and the skills of it's leadership the Russians should be careful or they will end up as the new Western most province of China.

I see this suggested often enough, but... I don't buy it. China is China, as a country, she's older than anything in Europe that could scribble on paper. China does not include Siberia. Siberia is a place to get other people to work, and put stuff on carts, and drive them to you. There was a brief interval, the Golden Horde, when that which was China included much more; it was, really, a disaster. China learned what she is as a nation, the natural borders that mark the land, that which is productive for life, and that which is not. Even to her Western border, things are hard to control from Beijing. They're on the right path now, driving millions of Han West into otherwise sparsely populated zones of non-Han citizens; that will make the West, truly Chinese, but even that change of a modest sized region, is very, very hard.

No, China is not going to have anything to do with incorporating Russia into its national government. Trading partner, sure. And a natural fit really. China makes all the trinkets Russians don't make. Russia produces more oil and gas than Russia has any use for.

The signing of this deal reflects that the Russians finally understand this core principle; China will never be a threat to the territorial integrity of Russia. She's much better off being the shrewd mercantilist trying to get the best, long term deal possible out of Russia.

[Sixstrings]

Just saw this in google news search.

Apparently me and the Moscow Times think alike. So I'll just remind our pro-Russia membership on the forum, if you want to get mad at someone, get mad at people with these views who are right in Moscow.

(or, in a perfect world, how about being okay with free speech and a free marketplace of ideas)

Russia Will Regret Its Gas Deal With China

As Europe cuts its dependence on Russian gas, it represents a fresh triumph of mind over matter. Its demand will be increasingly met by liquified natural gas and newly developed fracking technology. At the same time, engineers continue to make strides in energy saving, energy efficiency and alternative energy sources. The same process also structurally undermines long-term prices in the oil market.

Russia used to have a top-notch scientific establishment and industrial base. In the 1990s, it could have joined the global innovation establishment by opening its economy to foreign investment and fostering its own entrepreneurial culture while assigning a supplementary role to its natural resources, i.e., using petrodollars for investment into education, science and infrastructure.

But that would have required establishing the rule of law, increasing openness and transparency and getting rid of layers of bureaucracy of all kinds — all of which is anathema to Putin's political system. So Russia became an oil kleptocracy of the worst kind — a dumb oil and gas producer with a huge chip on its shoulder and anger at the rest of the world for not paying it sufficient respect.

By selling its natural gas to China at bargain-basement prices Russia is not mortgaging its future. It is mortgaging the future of Putin's Russia. Because the sooner Russia runs out of oil and gas — or the sooner their prices drop to the 1990s levels — the sooner Russia will get over its current petrodollar inebriation and starts seeking ways to become a prosperous, successful economy living by its brains, not nature's bounty.
http://www.themoscowtimes.com/opinion/article/russia-will-regret-its-gas-deal-with-china/500828.html

I actually disagree with that a bit -- far as I know, Russia isn't peaking anytime soon, and once their behemoth neighbor is let in and Chinese are all over Russia not just funding the pipelines but then buying their farmland too, then China isn't ever going to leave.

Russia is not strong enough to resist Chinese control, the US is *just barely*, and we're the darn lone world superpower. And so, we aren't controlled by the Chinese despite China's massive investment here. Russia is another matter, Russia is the junior partner in that new alliance they just made. Russia may get the Tibet treatment one day.

Russia may never have real democracy now. Unless China ever does. Russia has hitched itself to China, eschewing the West, and it's a mistake that the Soviets never made. We'll see, I hope it works out for them, I don't want to see them bullied and pushed around by Chinese -- but, they did make their choice here, they say cuddly Angela Merkel and Obama were too much for them so okay.

Not sure what they're thinking there, dependence on China, and China having control over them. Was not wise, long term. If Russian leadership cares about the Motherland, they'd be wise to start making up with the Euros and Americans *so that they have a hedge* against total Chinese domination, in the future.

At this point, any more cold war crap with the West only hurts Russia in the future, pushing Russia more into dependence on China. That's not smart.

I'm just saying the truth here, the strategic reality, anyone that thinks strategically can see it too. Just as the USSR always did, and was always wary of China. This is the truth, the Chinese try to bully us around but they can't quite do it *because we're the world superpower* but they still try. Now try being a regional power hitched to China, dependent on them, throwing all your eggs in with them. All over "pride." It's not wise, it's jumping from what you think is a frying pan into a fire (long term), it's foreign policy based on emotion and that's going to end up with Russia dominated by China which is a lot worse than pesky -- but soft and cuddly -- human rightsy democratic Europeans.

Russian leaders ought to wake up and realize they can use an Uncle Sam in their back pocket. This is exactly what Australia does to resist total domination from China.

(lucky for Russia, the West loves a convert, we'll always take you back and no hard feelings. Just don't get all ate up by China in the meantime)

[Paulo1]

re: "I actually disagree with that a bit -- far as I know, Russia isn't peaking anytime soon,"

According to the many experts over at The peak Oil Barrel, Russia is probably at peak right now. It is a complicated mess. The question I have, can this Russian economy ever prosper with leaders that become billionaires while in office? or, the outright channeling of all contracts to Putin insiders and friends? It is pretty rotten over there and there isn't enough gravy left for such blatant theiving to allow a peaceful economy to endure. Look for more unrest and military distractions.

Paulo

[Cottager]

China is not simply another country, it is different civilisation, different ideology and strategy.
People of european culture (including US) mostly using short time strategy (up til 10-20 years, then - who knows), russians more often thinking even about shorter time period (novadays government they are calling "vremenniki", means temporary people, means just sell resources and enjoy life), bus chinese are different, they are planning 50, probably 100 years ahead, there is another sense of time in asian culture.
Chinese maps with russian teritories included:
http://get.whotrades.com/u2/photo61DE/2 ... ginal.jpeg
http://lazare.ru/wp-content/uploads/2014/04/карта-китая.jpg

I don't believe that soon chinese will visit Moscow and ask for new teritories to settle for their numerous population, but they are slowly working this way. There are no significant enough ethnic conflicts in Russia today for disintegration of this country, but there are huge economic inequalities, and this really may lead to situation, when independent countries will appear, and then China will probably come to help. Not this year, probably not in five-ten years, but, as I wrote, they are planning this way.
https://translate.google.com/translate? ... t=&act=url
Russia - the third highest regional inequality
On average, the richest region of the country was in a 5.2 times wealthier the poorest. But this is only an average.
Another clearest example of regional disparities - Russia, income in the richest region is 25 times higher than the poorest. The gap is more only in Venezuela and Thailand.

And then - Earlier, in 2001-2002, the ratio of tax revenue to be distributed between the federal treasury and budget regions was approximately 50/50 by 2006 in the entity remained little more than 30% of the taxes collected. As a result, only a small number of regions managed to stay "afloat" and another to fund other, less fortunate neighbors. But this situation they are clearly not satisfied.
Strange system of taxes, doesn't it? Chinese are waiting.

[efarmer]

China getting a fixed price for NG for 30 years is simply brilliant for the Chinese side of the deal, but I imagine it leaves Russia selling below the market prices for decades. The post WWII emergence of the US as world cop and empire via military leverage over energy supply routes and regions is unsustainable and so we need to segway anyhow. Germany and other lignite rich but methane and liquid petroleum poor regions will have an overwhelming stimulus to innovate, and undoubtedly will, simply because they have to and have the brains and national discipline to do so once they are so challenged. There is much ballyhoo about fracking and the longevity associated with it's production and I suppose LNG going to Europe from America, or not, will be a huge non-verbal answer to this in the near term. I trust we won't offer them ethanol made from corn fed by natural gas converted to ammonium so as to fertilize the fields.

[AgentR11]

Russia is another matter, Russia is the junior partner in that new alliance they just made. Russia may get the Tibet treatment one day.

So desperate to stoke up ancient insecurities.

Tibet is China. An eyeball on the map, even without political boundaries marked, tells you so. There is nothing "China" about that which is North of Mongolia.

Fortunately for the oligarchs of Russia, they are no longer moved by such insecurities. China wants oil and gas, metals and grain. China does not need, nor want, more territory to govern.

Rbut, they did make their choice here, they say cuddly Angela Merkel and Obama were too much for them so okay.

I didn't know "cuddly" meant, hand over all your valuables and we'll give our fiat currency.. but won't let you spend it. Merkel is an awesome leader of Germany; I do not think she will allow their relationship with Russia to fail, but Obama doesn't care, and will make it as difficult as possible for the Russians to remain engaged with Europe. I believe this to be a catastrophically bad policy choice.

Was not wise, long term.

They could either die as a state by accepting the West's conquest of the Crimea by diplomacy; or they could pivot their economic focus to China. There were no other choices available.

If Russian leadership cares about the Motherland, they'd be wise to start making up with the Euros and Americans

Not possible as long as the West lusts after control of the Black Sea by means of Crimea. There is no surviving that loss. Now, I think Russia's done well in limiting the harm; the existing sanctions are annoying, but do not halt meaningful trade with Europe. They've left the Americans with the belief that they would have taken Eastern Ukraine if it weren't for the threat of sanctions; and the West is largely not talking about the Crimea anymore. But.. the trust in trade currency has been broken, and not just broken with a piddly state like Iran or North Korea; but with a nuclear power able to end the world. That's just plain bad policy.

At this point, any more cold war crap with the West only hurts Russia in the future, pushing Russia more into dependence on China. That's not smart.

China does not want control of the Black Sea. NATO does.

All over "pride." It's not wise,

Its not over "pride". Its over survival. NATO/EU came within a hairsbreadth of wrecking Russia as a viable power. You so readily dismiss the position we chose to put them in; maybe it was a worthy gamble, I dunno; but we shouldn't wander around pretending that Russia could have withstood the loss. It was a lethal wound by slight of hand. Narrowly dodged.

Russian leaders ought to wake up and realize they can use an Uncle Sam in their back pocket. This is exactly what Australia does to resist total domination from China.

The US is not trying to exclude Australia from port facilities and natural resources that the Ozzies require for survival. That's exactly what we did attempt with Russia. I suppose it would have been an awesome victory if successful, and it nearly was successful. The event of US Cruisers making port in Sevastopol would have been a triumph of a nearly 70 year long conflict with the USSR/Russia. That's the future Russia evaded. Would have been great payback I suppose for all those years of Soviet activity in "support" of Cuba. So perhaps, the sin of "pride" does belong to a party in this conflict... but it may not be Putin's sin.

[vtsnowedin]

There are about 140 million people in Russia and over a billion in China. And on the other hand Russia has some of the worlds largest deposits of everything from asbestos to zinc. When the resource wars begin what better target could China find?
http://www.azomining.com/Article.aspx?ArticleID=44

[radon1]

Peak russian reserves were at the end of 2008, around 600 bil. $, this year (see link) from 25.04.2014 to 05/16/2014 (less, than in a month!) they felt from 482.7 bil. to 466.8 bil. So, economically they cannot easy put, say, 100 bil. $ (quarter of reserves) into such project with questionable profitability, only ideologically (shoot themselves in foot).

Yeah. It is much better to hold reserves. Forever. Being the reserves, they are extremely helpful with their ... being the reserves.

[ROCKMAN]

Actually the price China pays for the Russian NG is neither fixed nor is the adjustment known so all the armchair economic analysis is a waste of time. The $400 billion is just a made up number. And if it were a valid number it would still be misrepresentative if they didn't declare the time adjustment: $400 billion in 2014 $'s or 2044 $'s? All long term NG contracts, including LNG, have adjustable benchmarked pricing structures. Some simple and some very convoluted.

From the WSJ: "Gazprom CEO Alexei Miller told Russian media the two sides had signed a contract valued at $400 billion over 30 years. Mr. Miller said the price of gas under the deal is a commercial secret. Gazprom said that the deal included a pricing formula linked to crude oil and that it carried mutually beneficial terms."

[Keith_McClary]

Apparently me and the Moscow Times think alike. So I'll just remind our pro-Russia membership on the forum, if you want to get mad at someone, get mad at people with these views who are right in Moscow.

Actually, an opinion piece by Alexei Bayer, a native Muscovite, lives in New York. Sort of like a Miami Cuban?

(or, in a perfect world, how about being okay with free speech and a free marketplace of ideas)

As for "free speech and a free marketplace of ideas", would the NYT publish an opinion piece that conflicts with the official USA propaganda line on Ukraine?

[AgentR11]

There are about 140 million people in Russia and over a billion in China. And on the other hand Russia has some of the worlds largest deposits of everything from asbestos to zinc. When the resource wars begin what better target could China find?

You don't do something expensive like waging war, when printing paper and trading trinkets is sufficient. Especially not when the target of your warfare could annihilate your nation with the push of a button.

Heck, the damage Russia could do to China just detonating nukes on its own territory would likely exceed the value gained from conquest.

So please, explain to me why China would wage war across hideously brutal terrain, against a nuclear power, to capture access to resources which the previous owners were happy to drive through said hideous terrain via pipeline/rail/etc in exchange for plastic plates and cheap cell phones?

[vtsnowedin]

There are about 140 million people in Russia and over a billion in China. And on the other hand Russia has some of the worlds largest deposits of everything from asbestos to zinc. When the resource wars begin what better target could China find?

You don't do something expensive like waging war, when printing paper and trading trinkets is sufficient. Especially not when the target of your warfare could annihilate your nation with the push of a button.

Heck, the damage Russia could do to China just detonating nukes on its own territory would likely exceed the value gained from conquest.

So please, explain to me why China would wage war across hideously brutal terrain, against a nuclear power, to capture access to resources which the previous owners were happy to drive through said hideous terrain via pipeline/rail/etc in exchange for plastic plates and cheap cell phones?

The Chinese are aware of the dangers of seizing Russian assets and will undoubtedly try to acquire them as cheaply and safely as they can. But the need is so great that no method can be fully discounted especially if other potential recipients get aggressive. I expect spying, political meddling, subterfuge, bribery, propaganda etc. to be fully employed leaving a nuclear confrontation as a last last resort.

[Graeme]

Gaps to be filled in jumbo Sino-Russian gas deal

Absent from the announcement on May 21 was any reference to the possibility of joint development of the fields that would supply gas to northeast China. Upstream gas production is typically the most lucrative part of the energy supply chain.

Also left up in the air are details about payment terms.

“The [press] releases are silent on other deal covenants ... which may yet emerge over time,” said Barclays in a research report. “China had been keen on upstream exploration and production in Russia ... while Gazprom may be keen on pre-payment or credit, given generally elevated risk to its access to global credit markets posed by the Ukranian crisis, and also to partly fund the US$55 billion that Gazprom expects to spend on projects to feed this contract,” Barclays said.

These cover gas field development costs, construction costs of the proposed pipeline from the field to the Sino-Russian border and gas processing facilities.

Russian President Vladimir Putin last week said Russia will invest US$55 billion and China roughly US$20 billion in order to realise the contract. It is not known whether the US$20 billion to be spent by the Chinese side includes any upstream field development spending in addition to expenditure for building the Chinese side of the pipeline system.

According to Gavin Thompson, head of Asia gas research at London-based consultancy Wood Mackenzie, development of one of the fields that would supply northeast China called Chayandinskoye will be “difficult with complex geology relative to West Siberia [that supplies Europe].”

scmp