May 17, 2022

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The West has three years to cast a shadow over Putin.  “This is what we have to do point by point.”

The West has three years to cast a shadow over Putin. “This is what we have to do point by point.”

Russia and China signed a gas supply contract

Perhaps Vladimir Putin feels that the war in Ukraine can change the mood on the Old Continent, In early February, he signed a 30-year gas contract with China. We do not know the details of the new contract. The media reported that The gas pipeline will be completed in at least three years.

Gazprom, which has a Russian gas export monopoly, agreed to supply the CNPC (China National Petroleum Corporation) to the largest Chinese energy company. About 10 billion cubic meters of gas per year. The pipeline is scheduled to start on Russia’s Sakhalin Island and end in northern Heilongjiang Province.

Some commentators point to this So Russia has to rely on Europe for a while, waiting for China to become an alternative client. The only question is whether this will actually happen.

Big words, small gestures. Russia is betting on the strength of Siberia

Reuters reported that the agreement between Russia and China is the result of, among other things, Beijing’s declaration of climate neutrality that China wants to achieve in 2060. The terms of the contract were “to the satisfaction of both parties”. However, Simon Carday, an analyst at the Center for Oriental Studies, does not fall into the kind words trap.

In an interview with money.pl, he said that when it comes to the sending of gas by the Russians through the pipeline system to China, It is still more of a political project than a purely economic one. In support of this thesis, he cites two long-known gas investment paths for both countries. As befits the imperial designations in the Kremlin, They are proudly called Power of Siberia 1 and Power of Siberia 2.

Only a memorandum to this effect was signed. Therefore, you should put a big question mark on this project. Of course, the Kremlin is trying to twist the facts a little by sending letters, for example, it is already negotiating some arrangements with Mongolia. However, there are no binding agreements signed with China. So far, it is an investment only on paper – assures Karda.

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China will not be a substitute for Europe

Third, the analyst points out that even if we assume that The Russians will build the Siberian Power 2, and the capacity of this gas pipeline will not exceed about 50 billion cubic meters of gas. Meanwhile, in record times before the pandemic, Gazprom sent more than 200 billion cubic meters to Europe. This raw material.

– If the Russian operator says that in the event of a break in supplies to the Old Continent, he will easily redirect this flow to the east, then this should not be believed. Even assuming the possible implementation of the Moscow Declaration in this regard, Replacing EU imports with Chinese without a loss would be materially unrealistic in a reasonable time horizon – Explains the OSW specialist.

Returning to the 30-year contract signed in February of this year – here Karda is also full of doubts. In his opinion, perhaps Beijing wants to make Russia self-reliant again, so that only gas will be transported to the Middle Kingdom.

– When analyzing the past two decades of cooperation between the two countries in the field of energy, it is clear that the political dispute ends when the cameras are turned off. Subsequent difficult negotiations show that China wants to send gas to it without an alternative. So they can negotiate the best price. So behind the smiles there is hard work. This is also the case here. The time horizon set by the Russians – three years – is so far only in the verbal class. Moreover, the capacity of this pipeline is also not expected to be large. Thus, Gazprom is to some extent doomed to European companies in the next decade, says the expert.

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Europe may have a plan to oust Putin. Gas duties gonna work?

Brussels has a plan to cut Putin off the energy-paid euro. He wants to limit the import of this raw material as much as possible, although there is no doubt that contracts will be broken overnight. Especially from Berlin, there is an indication that such a measure would not be acceptable. Germany has strong trade relations with Moscow, and German companies have 50 years of energy cooperation behind With their counterparts near the Urals. So the resistance to quick and drastic decisions is formidable throughout Oder.

Suffice it to say that in 2021, EU countries imported 155 billion cubic meters of gas from Russia. That’s 45 percent. European imports of this raw material are about 40 percent. to wear it. Thus, cutting off this source could cause serious problems for the European economy.

In normal times, such a tariff would violate WTO rules. However, given the Russian aggression, The European Union can invoke the exception of national securitycontained in Article 21 of the General Agreement on Tariffs and Trade. Moreover, Russia has long imposed 30 percent. Gas export tax. So the EU can conclude that its import tariffs simply make up for this, says Daniel Gross.

Duties on gas imported from Russia risky?

Gross notes that the new tariff can be introduced almost overnight and that this option has significant advantages. “It will strike a balance between the need to impose costs on Russia and the need for guarantees,” he addedwhich – which Europeans will not have to search for fuel. This would facilitate the reduction – and ultimately the elimination – of Europe’s energy dependence on Russia.”

There is no doubt, however. The fundamental question is whether companies will not adjust their price lists to accommodate the higher prices and whether Gazprom will not reformulate their pricing policy to meet them. He will have the opportunity to do so.

– Recent time shows that higher prices for raw materials translate into higher margins for the Russian company. So there will be a lot to get out of it. It should also be remembered that the costs of gas extraction in Russia are relatively low. Thus, Gazprom will have room to partially compensate for the rise in gas prices with discounts, explains an analyst at OSW.

What do you do to hit Putin?

Now that we know the scenes of the economic activities of Moscow and Beijing, and we notice new ideas about cutting off gas supplies from Russia appearing in Europe, we must think about What can Europeans realistically do to stop funding the Kremlin’s war machine. Szymon Karda lists four such points.

  • first, We give up the extensions Long-term contracts with Gazprom.
  • Second: state-owned companies They should not receive gases above the minimum volumes written in contracts. The point is that European companies should not pump money into the Kremlin above the absolute minimum.
  • Third, European recipients should give up the so-called short contractsThat is, to quickly buy the required quantities of gas at spot prices. Such a step was taken, for example, by the German company E.ON, which announced that it had stopped buying new quantities of gas from companies associated with Gazprom.
  • Fourth, it should be remembered, for example, that the Spaniards and the French also have long-term contracts for the supply of liquefied natural gas from Russia. And the There should be significant business review in these contracts Part of the EU approach.