SIEW 2014: Agreement reached on Russia-China pipeline gas deal

The China-Russia gas supply agreement may be described as grand in scale and historic. But the energy supply agreement is also of great significance for enhancing their strategic cooperation. We must pay attention to the fact that the agreement was timed to coincide with the May 20-21 Summit Conference on Interaction and Confidence Building Measures in Asia, which China hosted in Shanghai.

At the CICA summit, the host country’s President Xi Jinping in his address emphasized that security problems in Asia should eventually be solved by Asians themselves, indicating China’s intention to take the initiative in building a new Asian security order. Among the summit participants were Russian President Vladimir Putin and Iranian President Hassan Rouhani. On May 21, they issued the Shanghai Declaration calling for building an Asian security framework through confidence-building efforts. The CICA summit and the Shanghai Declaration have undoubtedly been designed to counter the recent U.S. foreign policy that seeks to “rebalance” and “pivot” toward Asia to deepen U.S. engagement in Asia.

At a time when Russia is undergoing Western sanctions and other heavy pressures amid the tense Ukraine situation, it is strategically and geopolitically important for Russia to demonstrate its enhanced cooperation with China. Under such situation, the large-scale gas supply contract came out of international politics surrounding China and Russia.

The latest China-Russia agreement is a key step toward actual Russian gas supply to China and enhancing bilateral interdependent relations. However, given that the deal contains gas field development, pipeline construction and other challenges to be tackled in the future while the details are not yet available, we may have to pay attntion to relevant future developments.

We may also have to watch how the China-Russia gas deal would influence China’s gas and energy supply-demand balance, its natural gas/LNG procurement strategy and the Asia-Pacific gas/LNG market supply-demand balance. How Russia would tackle various natural gas/LNG projects for the Asian market including Japan would also be interesting. For Russia that has chosen to enhance strategic relations with China, balancing may grow more important as China’s significance increases more and more. How will Russia implement its strategies for Japan and Asia under such conditions?

How should Japan deal with Russia? We may be required to accurately analyze trends under the liquid international situation.

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By : Institute of Energy Economics, Japan (IEEJ)