Russia risks being stood up at the altar by China

By bne IntelliNews September 23, 2013

Ben Aris in Moscow -

Russia is suddenly in danger of becoming completely isolated with few friends in the world.

In 2007, Vladimir Putin told the world's diplomatic elite at the Munich Conference on Security Policy that the West was Russia's "natural partner," but Moscow would turn its back if it could not meet Russia half way. It didn't. By 2012, the Russian president expressly abandoned any pretense of trying to be nice to the West and has reoriented its foreign policy toward the east. In an antagonistic keynote speech at the St Petersburg Economic Forum last year, he called on the US to step aside as global leader in favour of the G20.

Initially China welcomed Russia's advances with open arms, as Beijing shares Putin's concerns about America's "uni-polar" view of the world. When Putin last went to China, he took a delegation of some 800 people with him and came back with billions of dollars worth of deals. Following his inauguration earlier this year, new Chinese President Xi Jinping made Russia his first foreign visit and more deals were signed. Trade has soared to $88bn in 2012, making China Russia's biggest trading partner.

A Sino-Russian partnership seems to be a match made in heaven. Kingsmill Bond, strategist at Sberbank has called it "the best synergy on the planet," as Russia has the raw materials and China both the people and the money. The partnership was supposed to be consummated by a gas pipeline from Russia to supply energy to China's power-hungry and underdeveloped northwest territories. The trouble is, the two new friends still can't agree on a price for that gas.

Falling out

Everything is agreed bar how much the gas will cost and the haggling has been going on for years. The Kremlin was hoping to settle the price question during the G20 meeting in St Petersburg on September 5.

A deal calling on Russia to deliver annually 38bn cubic metres (cm/y) of gas to China was signed at the summit, but on the all-important question of price, they only managed to agree that the price should not be linked to the US benchmark Henry Hub, which is trading near historic lows as new techniques have allowed producers in the US to tap shale gas, creating a surge in volumes and driving the price lower at the Louisiana-based hub.

What began as a breathless love affair now seems to be souring. If building gas pipelines is the geopolitical equivalent of marriage, then frustrated by Moscow's unwillingness to commit Beijing has started sleeping around.

Desperate for energy, Xi has been actively courting other energy supplies during his whirlwind tour of Central Asia either side of the St Petersburg conference, littering the region with deals, grants and treaties. The day before the G20 started, Xi was in Turkmenistan to attend the production start at the world's second-largest gasfield, the Galkynysh field. Turkmenistan has also agreed to send at least 25bn cm/y to China from the giant South Yolotan field, which could hold up to 21.2 trillion cm of gas, and increase this to 65bn cm/y in the coming years, according to Turkmen energy officials.

The Russians were clearly miffed. The next day Gazprom announced it was putting on hold the construction of its Power of Siberia gas pipeline, which will link Russian gasfields to China's northwest.

Relations between the US and Russia are currently about as bad as they have ever been since the fall of the Soviet Union, but having all but burned the bridges to the West, Moscow will be left extremely isolated on the international stage if it fails to tie the knot with its new partners in Beijing. Thus the Russo-China gas deal is of huge importance to Kremlin, but is in danger of slipping away.

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