Russia's prospects of alliance with China. Gas export is the opportunity?

Russia's Gazprom had signed a $400 billion gas deal with China. The project requires the construction of a 4,000 kilometres long pipeline running through the south of Siberian Federal District and the Far Eastern Federal District to Khabarovsk. See the map here.

From Wikipedia: Russia and China deal, 21 May 2014

The history at work 

Both Europe and America are rather intimidated by the prospects of Russo-Chinese alliance, a strong geographical alternative to the western integration. However, Russia’s offensive in the west and its general disillusionment with the alleged freedom of manoeuvre in a western state system do not suffice to overweight the regional geographical dynamics. I am recalling the article, published by P. Zeihan for Stratfor in 2008. The re-examination of analysis shows that the points made in 2008 continue to determine the dynamics of 2014-2015, regardless of the Ukrainian crisis.

Nevertheless, this project is a very costly gamble for a country on the brink of economic collapse. Although Gazprom officially declared that the project would cost $20 billion, the rough cost calculations by different analysts estimate up to $80 billion, according to Interfax. Russia's projects have a long history of budget overruns, so one is likely to see the same dynamic in case of the Power of Siberia.

Moreover, China is not so willing to ease the financial burden of Russia. So far, there is no indication of China's desire to lend money for Russia's gas project. Gazprom definitely requires a lot of investment to undertake this much of a grand construction work in such a short period of time. All that is left to do to Russia is to provide a "comprehensive assistance to Gazprom and CNPC in the designing, building and operating the pipeline project, according to Medvedev.

What about state loans?

 All that is known for now is that Gazprom had negotiated with the Bank of China in the hope of acquiring a decent funding, but half a month later, there is still no progress reported. One of the reasons for China's reluctance is certainly the strong Western grip on the anti-Russian sanctions regime. In September, Vedomosti reported that China did not provide the pre-payment for the gas project, and Russia tries to present it to the public as a minor disagreement. Whereas, one of the Sberbank Investment analysts argues that Gazprom needs the state support to proceed with the project. Furthermore, Nezavisimaya Gazeta suggests that China might have not yet agreed with Russia about the export price, because the signed agreement does not state the price, and overall is quite generic.

Another reason is simply a matter of geography. China certainly needs the oil and gas, but Russia is not the only supplier available to China.  As Zeihan noted, China is just as close, both geographically and infrastructure-wise, to Central Asian suppliers as it is to Russia. Hence, in the long term, China has several alternatives, even if the Russian pipeline fails to deliver according to China's expectations. Indeed, the Chinese Vice-Premier found the time to visit Turkmenistan and discuss the plans for strengthening energy ties. Hence, Russia is certainly placed in a tight spot, due to severe competition in the Asian energy export. On the other hand, China may either pressure Gazprom to cut the export prices or look for a better deal elsewhere.

Anything that changed?

China plays its own game, and it will continue doing so regardless of Russia's love or hatred for the West. Russia has been struggling at finalising a deal with China for over a decade. Hence, Russia's decisiveness now is a clear indicator of significant dependency on gas export, which makes out of Russia a vulnerable negotiator, that is more willing to concede on its terms and agree with China's conditions. So far, China has not sided with Russia politically or economically, may be to avoid the punishment for breaking the sanctions regime. Hence, there is no substance to the argument that the gas deal is likely to produce a significant shift in the power balance. Instead, the matter of concern should still be the growth of China's influence in the region.