Russia and China Expand Their Gas Deal: Key Implications

On February 4 2022 China’s President Xi Jinping and Russia’s President Vladimir Putin signed a series of new oil and gas contracts including an additional 10 bcma gas pipeline deal. This comment reviews how the new gas deal between Russia and China fits into their strategies, highlights the key implications of expanded gas cooperation between Russia and China and addresses some of the open questions in the deal. The main outcome of the agreement is a diversification of foreign trade options for both countries: The conflict in Ukraine has created a new reality in which Europe is going to reduce its energy dependence on Russia as soon as possible. Russia must therefore accelerate its Pivot East. From China’s perspective, the additional 10 bcma gas comes at an opportune time, as the country faces rising gas demand and highly volatile global LNG prices, but these incremental flows are still unlikely to diminish China’s appetite for imported LNG, nor should they be taken as a sign that an additional pipeline deal is imminent. Following the Russian invasion of Ukraine, Russia’s growing international isolation could lead it to offer China an attractively-termed deal on an additional pipeline, and Beijing will likely be inclined to accept it, but the raft of uncertainties surrounding China’s future demand in light of ongoing price volatility as well as its willingness to conclude another large agreement with Russia now may prompt it to hold off on an additional commitment just yet.

By: Vitaly Yermakov , Michal Meidan