Bloomberg: Gazprom Bid for Second China Deal Seen Challenged by Crude Slump

Russia’s $400 billion gas-supply deal with China in 2014 took almost a decade to pull off. While state-run exporter OAO Gazprom pushes to cement ties, lackluster energy markets suggest a second agreement may be slow to follow.

Crude oil, the main component of Russia’s gas-pricing formula, has tumbled almost 40 percent in six months, weakening Gazprom’s bargaining power. The slump has reduced the funds available for a second Russian pipeline to China.

“The lower oil price has caused too much trouble” for financing two pipeline projects, said Keun-Wook Paik, a senior research fellow at the Oxford Institute for Energy Studies. Russia may seek to prioritize the second pipe, cheaper and quicker to build yet less useful for China, which knows “leverage is on their side,” he said.

Last May, Russian President Vladimir Putin reached his first deal to supply natural gas to China through a new East Siberia link for 30 years, marking a milestone in relations between the world’s largest energy producer and the biggest consumer. The Asian accord followed a deterioration of relations with the U.S. and Europe as the Ukraine crisis deepened. MORE