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Putin Sees China as a Gas-Hungry Ally

Author: Meghan L. O'Sullivan, Adjunct Senior Fellow
May 20, 2014
Bloomberg.com

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Russian President Vladimir Putin and Chinese President Xi Jinping are likely to find they have more in common than ever as they meet this week, starting today in Shanghai for a Sino-Russian summit and later in St. Petersburg for an economic forum. Both men are coming under sharp criticism from the West: Putin for his annexation of Crimea and Xi for his forays into the contested waters of the South China Sea. For all the fascinating and potentially consequential strategic conversations that may take place between these two men, the one to look out for will be whether they conclude a much-delayed energy deal to pipe huge amounts of Russian natural gas to China starting in 2018.

The two countries have been discussing such a deal for years, and continued today in Shanghai. To outsiders, the energy marriage of the one of the world's largest producers to one of the world's largest consumers seems obvious and inevitable. But several issues have kept the two sides from consummation. Most tangible has been the issue of price; China has resisted Russian desires to charge prices comparable to those it gets in Europe, arguing that the benchmark for Russian gas should be the lower rate that China pays for gas piped in from Turkmenistan. Russia has objected, not wanting to signal to Europe -- where its long-term contracts are already under pressure -- that it is willing to give anyone a discount. This pricing dispute has been compounded by historical mistrust, suspicion over each other's intentions in Central Asia, and wrangling over the optimal route.

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