Off to China

Russia's President Putin is off to China this week. The usual defence contracts can be expected. More important will be whether landmark oil and gas deals will be signed. We don't think they will. Gazprom, Rosneft and LUKoil are all looking for alternative markets should sanctions over Ukraine continue. Getting oil and gas to China from Russia will not be easy - new pipelines will have to be built - but markets may put a positive spin on any agreements. From what we hear Gazprom is close to agreeing, or at least wants to, a 30 year deal at a fixed price of $380/MCM.  China, it is suggested, will pay upfront for a pipeline in return for fixed pricing - something Gazprom has so far been reluctant to agree to preferring an oil linked pricing formula as it has with Europe. Negotiations have taken 10 years to get this far. The Chinese are consummate negotiators. We shall see.