China is the world’s
largest energy consumer and Russia is the world’s largest energy
supplier. In the past, both countries have entered into a number of
deals that have proved advantageous to both sides—considering their
relationship in terms of being the largest consumer and producer of
energy, respectively, and the fact that they share a border.
With China’s rapid economic
growth in recent years being largely fueled by oil from the
middle-eastern nations, China has been eager to diversify its energy
sources, both in terms of geography and commodity.
Getting its gas
supplies from Russia, with which its shares its border, would definitely
bode well for China.
The current Gazprom
(OGZPY)-China National Petroleum Corporation (or CNPC) deal is as
important for Russia as it is for China. Europe has been the primary gas
consumer market for Russia. Having strained its relations with Europe
in the recent months over its tensions with Ukraine, Russia is now
eyeing the east where it intends to send a third of its gas exports by
2035.
If the European Union (or EU)
stops purchasing gas from Russia, China would prove to be a bigger
consumer of gas than the whole of the EU.
The deal will help the Russian
gas giant Gazprom diversify its revenue sources. In 2013, gas sales to
Europe and Turkey accounted for 32% of Gazprom’s total revenue. Europe
continues to look for alternative sources to meet its energy needs,
while the shale boom in the U.S. is changing the dynamics of the global
energy market. Consequently, it’s become important for Gazprom to cut
its dependence on Europe. China, Japan, and India could be crucial
markets for the company as it looks to diversify.
Exchange-traded funds (or ETFs)
like the Market Vectors Russia ETF (RSX) which has 8.63% of its holdings
in Gazprom, and the WisdomTree Emerging Markets Equity Income Fund
(DEM) which is invested 5.65% in Gazprom, seek to take advantage of the
company’s growth trajectory.
Read more: Can Russia, India, and China unite to shift geopolitical gravity? - Yahoo Finance
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