There have been Chinese whispers about it for a decade.  But now it’s said to be signed, what do we really know about the USD 400 billion gas deal struck between Russia and China?  Saxo Bank’s Head of Commodity Strategy, Ole Hansen, says not very much.  He says it’s difficult to price something over 35 years, when no-one knows the price at which oil will trade in a year’s time.

Although the Gazprom share price rose by two percent following announcement of the deal, Hansen notes that there hasn’t really been any major reaction across European energy markets.  Gas prices in Europe have been on the slide for the last month and are at their lowest levels in almost four years.  In the UK they’ve fallen to USD 7.5 per therm.  The one week price change on the UK Natural Gas Futures was -0.6 percent. 

So who is the real winner in this deal?  Ole Hansen says China wins in the long term because it reduces the reliance on coal-burning plants.  He also notes that at current demand, the agreement will cover 25 percent of China’s natural gas demand.

But in the short term, Russia also wins.  For Putin this is a diplomatic victory, proving that he doesn’t have to rely on Europe for gas customers.