Dicker: China and Russia Will Strike a Natural Gas Deal
NEW YORK (TheStreet) -- Vladimir Putin is in China today and the vast majority of analysts believe he is there to finally ink a blockbuster natural gas deal, one that the Russians and Chinese have been dancing around for almost 10 years.
This time it will happen because the deal is coming at a most opportune time for both. Both the Russians and the Chinese will have to make some concessions to get the pact signed.
For the Russians, a new outlet for natural gas to the eastern portion of China will lessen Gazproms reliance on Europe as a ready market for supply. In light of continuing unrest in Ukraine and the adversarial stance that Europe and Russia are taking over the political outcome, it can only help the Russian position and weaken the Europeans if their gas is no longer reliant on European markets.
For the Chinese, dangerous and publicly protested smog readings in the big eastern cities have pointed out the unsustainability of Chinese reliance on coal. China needs a ready source for cleaner natural gas and Russia is waiting to provide it for them.Two hurdles remain: The Chinese are likely to be a hard negotiator on price, with hopes of getting a sub-European Union price locked in for a 30-year contract of $350 per thousand cubic meters. There is also a pipeline to be extended through Siberia to provide gas likely costing more than $20 billion that the Russians will want financed or paid for by the Chinese. But these are stumbling blocks that wont prevent a deal from being struck this time -- and a spectacular deal it is expected to be: More than 38 billion cubic meters of gas a year with an option to increase to 60 billion cubic meters. To put that in perspective, the entire Russian supply to the EU in 2013 was 150 billion cubic meters in total. Obviously, a new market for half of Europes natural gas supply will put amazing pressure on the EU natural gas markets -- and change the politics of East and West. I talk more about this blockbuster deal with TheStreet's Joe Deaux in the video above. At the time of publication the author had no position in any of the stocks mentioned. Follow @dan_dicker This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
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