As price per barrel drops so do Russia’s hopes of signing a second gas deal with China
Moscow (AsiaNews) - While President Vladimir Putin is preparing his upcoming visit to Beijing (2-3 September), the collapse of the ruble pulled down by falling oil prices, the crisis in the Asian markets and the slowdown of the Chinese economy pose the most severe test to date to Moscow’s new policy of "turning to the East", imposed by growing tensions with the West over its annexation of the Crimea and the Ukrainian conflict.
In the first seven months of 2015, China's direct investment in Russia dropped by 20% compared to last year, on the back of the rapid devaluation of the Russian currency. “Direct investments in the real economy are decreasing while the volume of portfolio investments is increasing. We cannot say that investment activity is decreasing, but the investors are taking the economic difficulties into account and choosing new ways to invest in the Russian economy," TASS quoted head of the Europe and Central Asia Department of the Chinese Ministry of Commerce Lin Zhi as saying. In late December 2014, the total Chinese direct investment in Russia was 4 billion dollars, notes TASS.
The Kremlin accelerated cooperation with the People's Republic last year, when the conflict with the EU and USA intensified. According to Lin, the flow of direct investment is blocked by the sharp devaluation of the ruble, which in recent days reached a six month record low on the dollar and euro.
The further drop in oil prices (24 August WTI light crude futures and Brent futures fell to the lowest in six and a half years, respectively, $ 39 and $ 44.24 per barrel) is jeopardizing the energy contracts between Moscow and Beijing. While Gazprom, on August 18, said that negotiations on the second agreement in less than 18 months for the supply of natural gas to China "are showing a positive trend", the Beijing government has downplayed hopes that an agreement in this sense could be signed during Putin’s two days in China.
According to Ling Ji, head of Eurasian Affairs at the Chinese Ministry of Commerce, China and Russia do not aim to finalize the agreement during the visit since the 50% drop in oil prices over the past year is complicating negotiations . While a second agreement would make China the biggest Gazprom customer, the country is facing an excess in industrial production and financial market volatility. "It is not a favorable sign another gas deal" for China, Keun-wook Paik, a researcher at the Oxford Institute for Energy Studies in London he told Bloomberg.
Last year Moscow and Beijing had reached the first big agreement of 400 billion dollars for the supply of gas from fields in eastern Siberia after almost ten years of negotiations, a historic event in the relations between the world’s largest energy exporter and the largest energy importer. In November last year, the Federation and the People's Republic signed a framework agreement for a second thirty-year supply contract, which would involve the construction of a pipeline from western Siberia. This would provide a further 30 trillion cubic meters of gas per year, to be added to 38 billion cubic meters of the first contract, and that would make China Gazprom’s biggest customer.
But since the first agreement was signed, Brent fell below $ 46 a barrel from $ 102.6. "Agreements with the Russians now are risky, because of the sanctions, the devaluation of the ruble and the constant changes in the tax system," said Aleksandr Gabuev, an analyst at the Carnegie Center in Moscow. He believes that maintaining good political relations with Russia is important for China, but President Xi Jinping will not sacrifice the economy to politics. (N.A.)
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07/08/2015
