ISN: Russia’s Energy Shift to the East: Should Europe Be Worried?

Should the West worry about Russia’s growing oil and gas exports to the Asia-Pacific region? Michael Bradshaw doesn’t think so. While Vladimir Putin may want to shift his energy business from Europe to China, Gazprom needs Western revenues to build the desired pipeline infrastructure.

The 30-year gas deal between Russia’s Gazprom and China’s National Petroleum Corporation (CNCP), signed last May, for the supply of 38 billion cubic meters (bcm) of pipeline gas from 2018 onwards, marks the culmination of a decade of negotiations. Last year it was announced that everything was agreed but the price. No doubt the West’s reaction to events in Ukraine focused minds in Moscow to make sure the deal was done.

Although the financial details of the agreement are unknown, the price is thought to be in the range of $350-$380 per thousand cubic metres -- about the average price that Gazprom charges to its European customers. At the time, Gazprom stated that the contract contains a “price formula linked to oil prices” and a “’take-or-pay' clause,'" which suggests an agreement akin to those that dominate Gazprom’s exports to Europe.
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