After years of haggling, a long term deal for Russia to sell natural gas to China was finally announced during President Putin's recent state visit to China, involving up to 38 billion cubic meters per year over a 30 year period starting in 2018, at a total estimated sales value of 400 billion dollars. To complete this transaction, Russia will need to invest 55 billion dollars in pipelines to the border with China, which in turn will need to make pipeline investments on its side.
Russia exports annually about 200 billion cubic meters of natural gas, three-fourths of which to customers in Western Europe. The country has been eager to lessen its dependence on Western markets, not the least now that regional relations are less than warm after Putin's Crimean and Ucrainean escapades.
There are reasons to believe that this may not be such a sweet long term deal for Russia as may first meet the eye. Here is why.
Start with the caveat "up to 38 billion cubic meters". Then let us have a look at how important or not this whole deal may be to China.
The natural gas involved is presumably destined for production of electricity, as China is in desperate need to reduce air pollution from coal-fired generating plants. China's current annual electricity consumption is around 5.5 trillion kWh, and by 2018 it is likely to have reached 7.5 trillion kWh.
38 billion m3 of natural gas is sufficient to produce some 200 billion kWh of electricity, which by 2018 will most likely represent less than 3% of China's total consumption.
In other words, we are looking at a big deal for Russia but an inconsequential one for China. This kind of inbalance is often a recipe for trouble down the line. Guess for whom?
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