Pundits have been quick to label last week's mammoth gas deal between Russia and China as "historic."
That may be true. But the fact is there are a number of important elements in the $400 billion agreement that have yet to be decided.
For one, Moscow and Beijing have a fundamentally different view of what the delivery pipeline should look like. China wants two pipelines, while Russia is interested in a single line that China would have to share with South Korea and Japan.
The issue, as with everything else that is still up in the air, revolves around cost and revenues.
The pipeline is going to cost at least $22 billion to build. But if Gazprom has to run two satellite lines just for China, it will cut into already strained profit margins.
Meanwhile, if additional contracts with Korea and Japan require separate pipelines, another set of major capital expenditures would emerge.
Even if the pipelines are funded with pre-payments on deliveries (which amounts to an advanced credit), that would simply lock Gazprom into specifying a fixed price up front for the initial multi-year consignments.
This is a big problem, especially where the price has yet to be finalized... Full Story