A Singapore press holdings portal

World

Sunday, May 25, 2014

World

China gas deal a symbolic victory for Russia, but won't leave Europe dry

AFP | Sunday, May 25, 2014

MOSCOW - The $400 billion gas deal Russia signed with China was a symbolic victory for Moscow as it 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 won't cut Russia's dependence on selling gas to the West, nor would they lead to shortages in Europe.

Under the 30-year deal signed Wednesday Russia's Gazprom will begin supplying China's CNPC with up to 38 billion cubic metres of gas per year from 2018, with the agreement said to be worth some $400 billion (300 billion euros) overall.

Russian President Vladimir Putin and Gazprom chief Alexei Miller didn't lose any time in hailing the agreement which is the largest in the state-controlled gas company'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 $400 billion deal ... are likely to be smaller than most seem to think." First the sum will be spread out over 30 years, making it an additional $13 billion in exports that reached $593 billion last year.

"Although this is significant, it is hardly a game changer," said Capital Economics.

Analysts also pointed out that the amount of gas to be delivered to China, up to 38 billion cubic metres per year, is still far behind the 160 billion cubic meters it 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," said Capital Economics.

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 upon 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.

No comments yet.
Be the first to post comment.