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3 Oct, 2010 05:10

Energy to the east the new mantra

President Medvedev's visit to China this week put the seal on a number of new energy deals. The negotiations have been drawn out, and there is still more to do. But there' is now a greater sense of urgency.

China is the fastest growing energy consumer in the world and in Russia it neighbours the biggest energy provider. It’s a business match that’s crying out to be made. The deals have been a long time in the making. Finally this week ink was put on the dotted line.

Chris Weafer, Chief Strategist at Uralsib, says that the surprise is that Russia didn’t get any commitment from China on investment in exchange for committing to provide energy.

“What was a surprise was that we didn’t see any reciprocal deals from China. Its quite clear Russia went down there looking to barter energy and materials exports to China, in exchange for some commitment on investment into Russia’s new industries – into infrastructure, into technology etc – and there wasn’t any mention of that whatsoever.”

Gazprom has agreed to supply 30 billion cubic meters of gas annually to China over 30 years, starting from 2015. To make it all happen the gas giant also announced it would start building a new pipeline to China next year.

Diversifying its customers is a significant ambition for Russia. It provides a hedge against a drop in demand from Europe in the event of an economic slowdown.

Jorge Montepeque, Global Director Market Reporting, Platts says the Asian economies are growing because of a change in state economic policies.

“Markets have a way of going in cycles and the reason the growth is so strong in Asia right now, is because they abandon state policies, centralized economy type policies. They abandoned that and they decided to go market oriented.”

But Russia faces stiff competition to the East, more so than in Western Europe as China also borders the nations of Central Asia which have considerable gas reserves. Countries like Tajikistan have got there first with pipeline and supply agreements. Analysts suggest this has provided the final hurry up to the Russian side in their negotiations, for fear of losing out altogether.