23 May 2014, 12:43

”Holy Grail” gas deal between Russia and China scares Bruxelles

”Holy Grail” gas deal between Russia and China scares Bruxelles

Besides its obvious economic benefits for both parties involved in it, the 400 billion dollars gas contract between Russia and China is also a threat for the EU, because it strips Bruxelles of its privileges associated with being the only major buyer of Russian gas. Judging by the recent statements made by European officials, the EU got the message loud and clear.

While analyzing the contract's technical aspects, it is easy to notice that Moscow managed to include in it all provisions that the European Union is trying to extricate from Gazprom's contracts in Europe. For instance, the contract is very long-term, while the European Commission is actively trying to force Gazprom to use the Europe's short term or spot market, which is easily manipulated by the European energy companies. The contract also contains take-or-pay provisions. Moreover, the price of gas delivered to China is linked to oil prices, while the European Commission is trying to dissociate gas prices from oil prices. The price of the contract, rumored to be around 350 dollars for one thousand cubic meters of gas is at the lower boundary of Gazprom's export prices for European consumers. The European Commission demands a single price for all importers and a significant discount on Gazprom's deliveries, but it can't realistically expect that Russia will be willing to sell its gas to Europe for a price lower than the price for China.

The contract signed between Gazprom and CNPC is the first in an expected series of contracts. For the first contract, the gas will be supplied from gas fields developed specifically for export to China. However, it is safe to assume that this contract will serve as a blueprint for the next one, the so-called “western route contract” that will allow Russia to export gas from the same fields that are now supplying gas to the European Union. Vladimir Putin, while commenting on the gas contracts, said that in the future they will allow Russia “to divert supplies from west to east and from east to west, if necessary”. The obvious addressee of the message is Bruxelles, who got it right. Sabine Berger, a spokesperson for the European Commission told reporters that the EU expects that the gas deal between Russia and China will not affect Gazprom's deliveries to Europe. “We cannot comment on deals between third countries. But I would like to remind you that Europe has always been a very reliable and attractive market for Russia gas over many years. And therefore we expect our suppliers to remain equally reliable and responsible and honor the contracts which they have concluded,” she added.

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