Russia, China Strike Gas Deal

Russia and China have agreed on a deal that will send hundreds of billions of dollars of gas to China. The deal includes the construction of pipelines that will move the gas from Russian fields to Chinese cities. Construction will take at least four years.

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China has struck a historic natural gas deal with Russia. It builds new ties between the nations - quite literally - with a new pipeline. Russia will supply $400 billion worth of natural gas over 30 years. NPR's Chris Arnold reports on the deal and how the events playing out in Ukraine may have shaped it.

CHRIS ARNOLD, BYLINE: Oil and gas exports are extremely important to Russia. They pay for about half the central government's entire budget. So, an immediate question is whether this huge deal between Russia and China will make it tougher for Western leaders to hurt Russia with economic sanctions.

THANE GUSTAFSON: In actual fact, the timeframe here is what matters because this gas is not going to flow until the early 2020s. In the meantime, Europe remains central for Russian gas trade.

ARNOLD: Thane Gustafson is an energy analyst with IHS Global Insight. He says this deal involves remote natural gas deposits all the way off in eastern Siberia.

GUSTAFSON: There are two fields involved here. One of them is right next to that big Lake Baikal, biggest lake in the world. And the fields have to be developed from scratch. And this is pretty wild territory. You don't have roads, you don't have any towns. All the equipment has to be brought in. The winters get down to 60, 70 below zero, believe it or not.

ARNOLD: And Russia makes four times as much money selling oil versus natural gas anyway. So, strategically, this is not a short-term game-changer for Russia. But the stand-off with the West is definitely part of the backdrop.

KEN ROGOFF: Oh, I don't think there's any question that Russia is scrambling to strengthen its ties with China.

ARNOLD: That's Harvard economist Ken Rogoff.

ROGOFF: The Russian banks are terrified that they won't be able to use the Western transaction systems. And so they're looking for ways to channel money through China. I think there are a lot of things going on behind the scenes where Russia is preparing itself for more severe sanctions should they come.

ARNOLD: There was some early speculation that the threat of those sanctions from the West had pushed Putin into unfavorable terms on this giant natural gas deal, terms that dramatically favored China. Some key aspects of the deal, though, still aren't public and Rogoff doubts it's a very one-sided win for either country. So does Thane Gustafson. He says it doesn't look like the Russians got stuck with a bad deal.

GUSTAFSON: Everybody was watching for that but the big story here is that both sides have deep reasons for wanting this deal. Both sides gain major long-term benefits from it.

ARNOLD: Gustafson says Chinese negotiators were also being pushed to the table.

GUSTAFSON: On the Chinese side that is really very important to the United States is that the Chinese are getting serious about pollution and about climate change and they're moving very quickly and very genuinely to displace coal and to boost gas in any way they can.

ARNOLD: Since 2002, China's demand for natural gas has exploded - up five-fold - and it's expected to keep growing. So, that's good news for natural gas producing countries, both Russia and the United States. Sure, Russia will have a new pipeline five years down the road but...

ROGOFF: China's going to be so hungry for gas that they'll be taking it in pipeline-form from Russia, but also Central Asia. They'll be taking it as LNG from Australia and the United States. There's practically no limit to how much gas the Chinese are going to want.

ARNOLD: Another thing China wants is global stability. Ken Rogoff says China's been doing quite well as an emerging economy and so it probably doesn't want the global boat rocked too much. He says tighter ties with China, therefore, might actually bring more pressure on Russia to cool down the destabilizing situation in Ukraine. Chris Arnold, NPR News.

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