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Pipelines and Dragons and Bears Oh My
Eyeing China, Russia Risks its European Energy Market

When people count up the weapons at Vladimir Putin’s disposal, one of the biggest on the list is Russia’s natural gas. But how willing is he to use that weapon? A disruption of the flow of gas west would cost Russia dearly. The FT reports:

By cutting off gas to Ukraine in 2006 and 2009 amid pricing disputes, Gazprom has hardly endeared itself to Kiev, or to European customers further west—which experienced disruptions to Russian supplies through the massive transit pipelines that run across Ukraine. […]

[Russia] knows a third shut-off could finally shred Gazprom’s reputation as a reliable supplier—and inject new vigour into EU attempts to reduce its dependence on Russian gas. That would hit the Russian state, which has 51 per cent of Gazprom’s shares and relies on energy sales for half of state revenues, and shareholders, many of them foreign, who own the rest.

That’s why Gazprom has been so insistent in recent weeks that it will remain a reliable energy supplier for Europe. But Russia is still in a much stronger position than Europe, for the simple reason that it has better alternatives. In response to the invasion of Crimea, Europe’s policymakers have clamored for new sources of natural gas and have lobbied their American counterparts to expedite exports of U.S. liquefied natural gas. Unfortunately for Europe, there are a number of reasons why that solution is a shaky one at best.

Russia, meanwhile, is lining up a massive new contract with the world’s biggest energy consumer, China. There are rumors that, after more than a decade of price negotiations and political wrangling, Moscow and Beijing could be signing a natural gas deal as early as next month. That deal would give Putin a lot more options as he decides how to use his energy advantage in the confrontation with Europe.

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  • El Gringo

    The Sino-Russian relationship isn’t exactly unicorns and rainbows, either, and the Chinese aren’t stupid. If Russia is willing to shut off gas to play politics in Europe, why would they hesitate to do the same to China?

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