China-Russia Gas Deal Win for Arctic

The $400 billion, 30-year China-Russia gas deal signed in Shanghai on May 21 has sparked a lot of excitement about hydrocarbons in the Russian Arctic and sub-Arctic. Under the agreement, which had been in the works for a decade, Gazprom will supply China National Petroleum Corporation (CNPC) with 38 billion cubic meters of gas annually beginning in 2018. 

The deal fulfills Russia’s goal, as outlined in its Energy Strategy to 2030 (in English), to increase exports to Asia. By 2030, the strategy envisions that eastern-bound exports of oil will constitute 22-25 percent (as opposed to the current 6 percent), and gas 19-20 percent as opposed to the current 0 per cent.

Much of this gas will be delivered through a new pipeline that Gazprom is constructing from the Siberian gas fields of Kovykta (Irkutsk) and Chayanda (Yakutsk) to the Chinese border. A couple of other pipelines will also need to be built, as this handy map from the Washington Post illustrates.

At the end of the day, it looks like China – and Asia – are the winners. Russia has to settle for accepting a relatively low price for its gas – the same price that Europe pays on average. North America will have to settle for the crumbs if they ever manage to build the pipelines and LNG export terminals necessary to export their overflowing resources east across the Pacific.
In the near term, the Arctic environment may also be a winner. With the attention of China and other investors now on East Siberia and the Russian Far East, the Gazprom-CNPC gas deal could see some Arctic offshore projects put on hold. Then again, one should never underestimate the ability of China to juggle multiple projects at once – by all means necessary.

(maritime-executive.comEdited by Topco)