Growing economic pressures on Russia could soon raise doubts about its ability to deliver on energy projects and pledges to China following a series of major oil and gas deals.
As Western sanctions over Ukraine squeeze its finances, Moscow has turned increasingly to China in hopes that new energy exports to the east will offset the risks in its main European market.
But the big gains that Russia hopes to reap from its China deals also come at great costs.
With recession looming and the ruble hitting new lows, the finances of Russia's energy giants are being stretched thin.
What seemed like a huge new pool of resources for China a few months ago may now not be such a sure thing.
"Russia country risk has risen considerably, so they should be worried," said Edward Chow, senior fellow in the energy and national security program at the Center for Strategic and International Studies in Washington.
Western financing that was readily available to Russia before the Ukraine crisis is now largely out of reach, while China's lenders appear cautious about funding Moscow's ambitions and debts on their own.
"Despite Moscow's plans to turn east as an alternative, China's banks just do not have the capacity. Instead, the debt threatens to drain the Kremlin of its U.S. $400 billion (2.4 trillion yuan) in foreign currency reserves," The New York Times said on Dec. 3.
Going it alone
Gazprom CEO Alexei Miller conceded last month that the Russian gas monopoly has been unable to obtain an expected U.S. $25-billion (153-billion yuan) prepayment for gas deliveries under a U.S. $400-billion ($2.4-trillion yuan) deal signed with China National Petroleum Corp. (CNPC) in May.
That leaves Gazprom to finance the costs of field development and its Power of Siberia pipeline to eastern China, estimated at U.S. $55 billion (338 billion yuan).
Gazprom plans to sign another contract for a western China supply line from Siberia early next year, but the project could cost at least U.S. $14 billion (86 billion yuan) more.
In the meantime, Gazprom's revenues have been ravaged as the ruble takes a beating with a drop of over 40 percent against the dollar this year.
Last month, Gazprom reported that it lost 119 billion rubles (U.S. $3.6 billion, 22 billion yuan) in the third quarter, largely due to recalculation of foreign currency debt as the ruble collapsed.
In the first nine months of the year, the state-owned company's net profits plunged 91 percent, Interfax said.
While Gazprom exports have dropped nearly 6 percent and domestic sales are down over 27 percent, the company is believed to be in better shape than Russia's state-controlled oil company Rosneft, which signed a $270-billion (1.7-trillion yuan) deal in 2013 to more than double its exports to China over 25 years.
The combined weight of falling oil prices and sanctions have driven Rosneft's share prices down so low that its U.S. $60 billion (368 billion yuan) in debt now exceeds its market value by about U.S. $10 billion (61 billion yuan), Bloomberg News reported on Nov. 28.
It is unclear when or whether Rosneft's troubles will become serious enough to affect production or export commitments.
Concern over finances
Chow said the main concern is for the company's finances.
"If I were a lender or bondholder, I would be worried," he said.
In a statement on Nov. 25, CEO Igor Sechin argued that the plunge in world oil prices so far "is not critical to us."
But he added, "We can reschedule some of [our] capital intensive projects. This will definitely impact overall oil supply."
In the first 11 months of the year, Rosneft's production has averaged over 3.8 million barrels per day, up nearly 25 percent from a year earlier, due largely to its acquisition of the Russian-British joint venture TNK-BP.
In the first 10 months, China's average crude oil imports from Russia rose 27.6 percent to 628,600 barrels per day, according to customs figures cited by Platts energy news.
Tough times ahead
But tougher times may lie ahead for Rosneft, which has been a top target of Western sanctions.
The government rebuffed a request from Sechin in August to ease Rosneft's debt burdens by buying 1.5 trillion rubles (U.S. $41.6 billion, 256 billion yuan) of the company's bonds, using reserves from the oil-fed National Welfare Fund, according to Reuters.
The government has been considering more limited support for specific Rosneft projects from the nation's two sovereign wealth funds, which held a combined U.S. $168.9 billion (1 trillion yuan) as of Dec. 1.
But a growing list of banks, energy companies and hard- pressed ventures have been vying for rainy day funds as recession looms.
The government itself may tap at least 500 billion rubles (U.S. $9.3 billion, 57 billion yuan) from the Reserve Fund to cover budget gaps next year, a Finance Ministry official said on Dec. 2.
The sanctions pinch can be expected to push Russia into seeking more support from China, but it is unclear how much Beijing will want to be exposed to the financial risks.
"For China, the question is whether there is an explicit or implicit sovereign guarantee behind these loans for future supply deals," said Chow, who sees the issue more as a financial question rather than an energy security risk for China.
"After all, the rest of the market now has cheaper and more plentiful supply available," he said.
'Standing in line'
On Dec. 4, Sberbank CEO German Gref said Russia's largest lender has been seeking support from both Chinese banks and sovereign wealth funds with poor results.
Gref said he had traveled to most major Asian capitals in recent months in search of financing, the Moscow Times reported, citing the Prime business news agency.
"I want to say that there is not a long list of those willing to stand in line to invest in our country. It is us who are standing in line for money, most of all from sovereign funds," Gref said.
China has also appeared cool to a Russian proposal for trade settlement in domestic currencies rather than dollars, which was discussed in Beijing during meetings between Presidents Xi Jinping and Vladimir Putin in November, according to a Russian statement.
Moscow presented the idea as a plan that "will strengthen the yuan as a reserve regional currency," Putin spokesman Dmitry Peskov said, as reported by Itar-Tass.
But with the slide in the ruble, the exchange might only be trading a more stable currency for a weakening one.
The advantage for Russia would be mainly political, but probably counterproductive, demonstrating it can do business without dollars.
"At talks with the Russian partners, we touched on this issue in principle, but the details have not been discussed yet," CNPC director of foreign relations Zhang Xin told Interfax.
"That can be taken up only after the governments of our countries determine the main directions of policy in this issue," Zhang said.
Ruble still falling
The Central Bank of Russia has been spending heavily to keep the ruble from falling even faster.
Since January, central bank hard currency reserves have dropped by over U.S. $93 billion (577 billion yuan), or 18 percent, to U.S. $416.2 billion (2.5 trillion yuan) as of Dec. 5.
The amount of cash readily available to defend the ruble is actually lower because the central bank figures include gold and drawing rights at the International Monetary Fund.
Since the conflict in Ukraine and imposition of sanctions, Russia has responded with an assortment of political moves that appear to run against to its own interests, raising doubts about what it will do next.
In September, for example, Gazprom retaliated against European customers for supplying gas to Ukraine through "reverse flow" of their pipelines by reducing Russian exports to contract minimums, Interfax reported on Nov. 18.
"Even Finland and Turkey, which cannot physically re-export gas to Ukraine, were affected. Meanwhile, reverse supplies to Ukraine are only increasing," the Russian news agency said in unusual criticism.
The result has been lost revenue for Russia and damage to its reputation as a reliable energy supplier.
China 'watching closely'
While China has been silent about such moves, they can hardly instill confidence as Russia presses for more export agreements and bigger prepayments in energy deals.
"Based on my recent visits to China, I would say the Chinese are watching very closely. It surprised me how much attention they are giving the Ukraine crisis," Chow said.
Another potential concern for China is the abrupt cancellation of major Russian energy projects.
On Dec. 1 during a visit to Turkey, Putin announced that Russia had shelved construction of its U.S. $19-billion (116-billion yuan) South Stream gas pipeline to Europe, citing resistance in Bulgaria, a transit country.
Russia's decision follows years of insistence that it would proceed with the project to bypass Ukraine, despite noncompliance with European Union competition law that requires access for alternative suppliers.
Gazprom has already invested over U.S. $4.6 billion (28 billion yuan) in the project over the past three years, Interfax said.
In November, Gazprom also backed away from ambitious plans to export liquefied natural gas (LNG) to China and other Asian markets with a new plant in Vladivostok after the United States banned sales of LNG technology to Russia.
Miller suggested Gazprom might export more gas to China with an additional pipeline from the Far East as an alternative, but no plan for the option has surfaced so far.