Expert’s Take on China’s Purchase of Russian Gas

May 22, 2014 Updated: May 22, 2014

China signed a 30-year deal Wednesday to buy Russian natural gas worth $400 billion in a financial and diplomatic boost to diplomatically isolated President Vladimir Putin.

The agreement calls for Russia’s government-controlled Gazprom to supply state-owned China National Petroleum Corp. with 38 billion cubic meters of gas annually, Gazprom spokesman Sergey Kupriyanov told The Associated Press. Gazprom CEO Alexei Miller told Russian news agencies the contract was worth a total of $400 billion.

CNPC announced it had signed a deal but it gave no details.


Epoch Times: Please explain the deal metrics in the context of the natural gas market.

Brad Schaeffer: Thirty billion cubic meters of gas per year for 30 years is a good chunk of natural gas. In the options market, this means 10,000 contracts a year for 30 years or approximately 300,000 contracts in total. A decent size trade in natural gas is 360 contracts, so it’s huge.

Epoch Times: So this fits the picture of China’s ever increasing needs for energy?

Mr. Schaeffer: China’s energy needs are always growing. They are on a global quest for energy and will simply circumvent the USA whenever they can. They have no environmental queasiness and thus will happily take the oil across the sea in tankers, which would otherwise have gone through the Keystone XL to the USA.

And they will do business with anyone who has what they need. A democratic nation like the United States or Russian statists as well as African dictators.

Epoch Times: What about geopolitical implications?

Mr. Schaeffer: This will strengthen ties between two traditional enemies of the United States. It will also serve to show that Russia has other customers besides Europe for its energy and this means that they are more insulated from Western sanctions. As such Putin as the de facto czar has more breathing room to do what he wants.

This is to reassert Russia’s dominance in the region. It is who they are, their brief flirt with democracy notwithstanding.

Mr. Schaeffer is a natural gas options broker at Marex Spectron North America with 18 years of industry experience.

The interview has been edited for brevity and clarity.

Associated Press contributed to this report.