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Saturday, 07 June 14
EVERYTHING CHANGES, AND NOTHING ABIDES - HERACLITUS
 A couple of weeks ago, and while everyone was focusing on the struggling freight market, Russia and China made history by signing a three-decade long gas deal. Gazprom, the world’s largest extractor of natural gas, in which the Russian government holds a majority stake, has agreed to provide China with up to 38 billion cubic meters of natural gas a year starting probably in 2018. This represents more than China’s total pipeline imports throughout 2013 and 1/5 of Russia’s yearly exports. The deal, which is estimated at $400 billion, is the biggest gas contract in Russia’s history and one of the biggest energy deals to ever be reached worldwide and came after a decade of negotiations between the two countries.
The “why now?” was quickly explained as Russia’s effort to retaliate US and EU policy. Amidst sanctions from the US and Europe and the threat of further economic isolation from the West, Russia’s move was seen as an effort to expedite the process of diversifying its gas export markets, as energy represents roughly one third of the country’s GDP. The truth lies somewhere in the middle. The reality is that Gazprom and China National Petroleum Corporation (CNPC) had already agreed to most of the basic terms of the deal back in September 2013, way before tensions in Ukraine mounted. Did Russia push for resolution of those points that were holding up the deal from materializing? The answer would be yes as it probably wanted to send the West a message that sanctions can’t harm its economy that much.
The “what is the significance?” touches upon a few aspects, a couple of which are fairly interesting to look at, even at this early stage of the agreement. The impact on the natural gas market is the first and most obvious one. Once the Russian pipeline becomes active the supply could reach to over 61 billion cbm a year, almost 40% of what Russia exports to the E.U. and therefore a good hedge if Europe diverts its energy sources away from Russian gas. Would China’s appetite be satisfied though?
The Chinese demand for gas is expected to keep growing. Only last year Chinese gas imports via pipe-lines increased by more than 20% and despite the fact that the country is still very much dependant on coal, it is estimated that by 2017, gas will amount for roughly 10% of the domestic energy mix. As gas satisfies around 30% of global energy needs, one can understand the vast opportunities that lie in the Chinese market, should the country reaches these levels going forward. With demand set to grow, this also means that pipeline supplies can only keep satisfying a certain portion of it, rendering LNG imports equally necessary. Therefore the real question here is not whether LNG will still be in the picture for China but at what cost.
The Chinese will pay Russia more or less the price they currently pay for gas from the Turkmenistan pipeline. The cost of importing LNG in China is estimated to be 30% more than that. With China increasing its pipeline imports there will be pressure on the price of LNG in the Asia region, which by next year is set to become the 2nd biggest gas market worldwide. With the Chinese being charged considerably less for Russian natural gas and potentially in the future Russian LNG as well, other LNG heavy importers like Japan and S. Korea will add on to the need for discounts on the LNG price in Asian countries, which are already paying more than what the rest of the world does. China’s preference to natural gas could lead to a point where future or even current LNG projects across Australia, Canada and the U.S.A, partly scheduled to serve the country’s LNG needs, won’t be as lucrative, or in some cases even economically viable, as they were before this deal. After all, the high price of LNG in the region was the reason why so many pricey investments were inked in the first place, with predictions up until recently insisting that China’s demand would continue to primarily be met by LNG.
Another interesting aspect of the deal is that it will be paid in local currencies rather than US Dollars, as Russia is trying to protect itself from possible additional sanctions that will impede monetizing of the deal. At the same time, the Chinese government, being already the biggest holder of US debt, is trying to further distance itself from the US currency that has been losing value following the FED’s pro-longed low interest rate policy. Although per se the impact on the reserve currency doesn’t appear to be great, the reality is that this point of the deal represents another hit on the greenback dominance.
As a matter of fact, for the past few years, the BRICs – Brazil, Russia, India and China - have been taking meaningful steps away from the US currency, continuously challenging its reserve currency status by “snubbing” it in their mutual trading and this is the case here as well. No, the Dollar cannot be that easily dropped, but steps like that are undeniable hits on the market’s confidence on the currency and most importantly steps that become the ground for further similar agreements of even bigger impact on the currency.
The control of energy supply has always been a powerful weapon on the hands of anyone who had access to a sizeable portion of it and a weapon responsible for big changes in the global chessboard once fired. It usually takes time for change to happen, global trade patterns to shift and geopolitics to make a big scale impact but one thing is certain; change is unavoidable and it usually comes gradually rather than in one big bang.
- Eva Tzima -
Analysts:
Mr. George Lazaridis
Ms. Eva Tzima
Disclaimer and legal disclosure: For any further queries please do not hesitate to contact our Research & Valuations Department. The information contained in this report has been obtained from various sources, as reported in the market. Intermodal Shipbrokers Co. believes such information to be factual and reliable without making guarantees regarding its accuracy or completeness. Whilst every care has been taken in the production of the above review, no liability can be accepted for any loss or damage incurred in any way whatsoever by any person who may seek to rely on the information and views contained in this material. This report is being produced for the internal use of the intended recipients only and no re-producing is allowed, without the prior written authorization of Intermodal Shipbrokers Co.
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Wednesday, 02 July 14
THE PANAMAX MARKET CONTINUED TO BLEED FOR ANOTHER WEEK - INTERMODAL
COALspot.com: The Dry Bulk market succumbed to mounting pressure this past week, while the Capesize market proved unable to “save the day&rdq ...
Wednesday, 02 July 14
HANDY BULKERS PROVE TO BE THE MOST SOUGHT AFTER VESSELS OVER THE PAST WEEK - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The Handy dry bulker proved to be the most sought after ship by ship owners active in the second hand market, which saw a slight decline in terms o ...
Wednesday, 02 July 14
SHIPPING: MARKET INSIGHT - GEORGE DERMATIS
After 6 months, 57 ministerial meetings and 67 political agreements, the journey of the Greek Presidency in the EU reached its end yesterday; only ...
Tuesday, 01 July 14
INDIAN POWER PLANT COAL STOCKPILES VERY LOW
COALspot.com: According to today's Weekly Dry Bulk Report published by Commodore Research, Indian power plant coal stockpiles have now fallen t ...
Monday, 30 June 14
SUB-BIT FOB INDONESIA COAL PRICES ARE STILL STRUGGLING TO RECOVER
COALspot.com: Indonesian coal swaps for average Q3’ 2014 lost on week and on month according to AsiaClear OTC coal swap's reports release ...
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- Semirara Mining and Power Corporation, Philippines
- MS Steel International - UAE
- Indonesian Coal Mining Association
- European Bulk Services B.V. - Netherlands
- TNB Fuel Sdn Bhd - Malaysia
- Price Waterhouse Coopers - Russia
- Singapore Mercantile Exchange
- Thiess Contractors Indonesia
- Electricity Authority, New Zealand
- Malabar Cements Ltd - India
- Directorate Of Revenue Intelligence - India
- PetroVietnam Power Coal Import and Supply Company
- Central Java Power - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Independent Power Producers Association of India
- Meralco Power Generation, Philippines
- Madhucon Powers Ltd - India
- India Bulls Power Limited - India
- Sinarmas Energy and Mining - Indonesia
- Kumho Petrochemical, South Korea
- Baramulti Group, Indonesia
- Parliament of New Zealand
- CIMB Investment Bank - Malaysia
- Intertek Mineral Services - Indonesia
- Mercator Lines Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Cigading International Bulk Terminal - Indonesia
- Eastern Energy - Thailand
- Borneo Indobara - Indonesia
- Vizag Seaport Private Limited - India
- Orica Mining Services - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Gujarat Electricity Regulatory Commission - India
- Samtan Co., Ltd - South Korea
- Parry Sugars Refinery, India
- Maharashtra Electricity Regulatory Commission - India
- Coalindo Energy - Indonesia
- Manunggal Multi Energi - Indonesia
- Sojitz Corporation - Japan
- SMC Global Power, Philippines
- Standard Chartered Bank - UAE
- Attock Cement Pakistan Limited
- SN Aboitiz Power Inc, Philippines
- TeaM Sual Corporation - Philippines
- San Jose City I Power Corp, Philippines
- Bulk Trading Sa - Switzerland
- GVK Power & Infra Limited - India
- Latin American Coal - Colombia
- The University of Queensland
- Wood Mackenzie - Singapore
- Toyota Tsusho Corporation, Japan
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- SMG Consultants - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Essar Steel Hazira Ltd - India
- Bayan Resources Tbk. - Indonesia
- Power Finance Corporation Ltd., India
- ICICI Bank Limited - India
- Ind-Barath Power Infra Limited - India
- Rashtriya Ispat Nigam Limited - India
- Kepco SPC Power Corporation, Philippines
- Jaiprakash Power Ventures ltd
- Wilmar Investment Holdings
- Renaissance Capital - South Africa
- Carbofer General Trading SA - India
- Kohat Cement Company Ltd. - Pakistan
- Kideco Jaya Agung - Indonesia
- Jindal Steel & Power Ltd - India
- Kobexindo Tractors - Indoneisa
- Straits Asia Resources Limited - Singapore
- Karaikal Port Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Cement Manufacturers Association - India
- Sarangani Energy Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Riau Bara Harum - Indonesia
- Global Green Power PLC Corporation, Philippines
- Maheswari Brothers Coal Limited - India
- Bhatia International Limited - India
- Interocean Group of Companies - India
- Indo Tambangraya Megah - Indonesia
- Merrill Lynch Commodities Europe
- Star Paper Mills Limited - India
- Iligan Light & Power Inc, Philippines
- Trasteel International SA, Italy
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- IHS Mccloskey Coal Group - USA
- Sindya Power Generating Company Private Ltd
- Asmin Koalindo Tuhup - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Gujarat Mineral Development Corp Ltd - India
- Meenaskhi Energy Private Limited - India
- Aboitiz Power Corporation - Philippines
- Barasentosa Lestari - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Chamber of Mines of South Africa
- Kapuas Tunggal Persada - Indonesia
- Oldendorff Carriers - Singapore
- Africa Commodities Group - South Africa
- Petrochimia International Co. Ltd.- Taiwan
- Tamil Nadu electricity Board
- Xindia Steels Limited - India
- PTC India Limited - India
- Uttam Galva Steels Limited - India
- Holcim Trading Pte Ltd - Singapore
- Metalloyd Limited - United Kingdom
- Global Coal Blending Company Limited - Australia
- Ministry of Transport, Egypt
- Globalindo Alam Lestari - Indonesia
- Salva Resources Pvt Ltd - India
- Chettinad Cement Corporation Ltd - India
- The State Trading Corporation of India Ltd
- Minerals Council of Australia
- IEA Clean Coal Centre - UK
- Bangladesh Power Developement Board
- Alfred C Toepfer International GmbH - Germany
- Central Electricity Authority - India
- Antam Resourcindo - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Port Waratah Coal Services - Australia
- Edison Trading Spa - Italy
- Economic Council, Georgia
- Thai Mozambique Logistica
- Planning Commission, India
- LBH Netherlands Bv - Netherlands
- Siam City Cement PLC, Thailand
- Energy Link Ltd, New Zealand
- Coal and Oil Company - UAE
- Indian Energy Exchange, India
- Bharathi Cement Corporation - India
- McConnell Dowell - Australia
- PNOC Exploration Corporation - Philippines
- Savvy Resources Ltd - HongKong
- Ministry of Mines - Canada
- Commonwealth Bank - Australia
- Makarim & Taira - Indonesia
- Electricity Generating Authority of Thailand
- Vijayanagar Sugar Pvt Ltd - India
- Timah Investasi Mineral - Indoneisa
- Medco Energi Mining Internasional
- GAC Shipping (India) Pvt Ltd
- CNBM International Corporation - China
- Binh Thuan Hamico - Vietnam
- Tata Chemicals Ltd - India
- Sakthi Sugars Limited - India
- OPG Power Generation Pvt Ltd - India
- Banpu Public Company Limited - Thailand
- Videocon Industries ltd - India
- White Energy Company Limited
- AsiaOL BioFuels Corp., Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kaltim Prima Coal - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Pendopo Energi Batubara - Indonesia
- Bhushan Steel Limited - India
- Australian Commodity Traders Exchange
- Global Business Power Corporation, Philippines
- New Zealand Coal & Carbon
- Romanian Commodities Exchange
- Eastern Coal Council - USA
- Grasim Industreis Ltd - India
- Therma Luzon, Inc, Philippines
- Kartika Selabumi Mining - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Australian Coal Association
- Goldman Sachs - Singapore
- Mercuria Energy - Indonesia
- Mjunction Services Limited - India
- Lanco Infratech Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- ASAPP Information Group - India
- Sical Logistics Limited - India
- Heidelberg Cement - Germany
- Semirara Mining Corp, Philippines
- Rio Tinto Coal - Australia
- London Commodity Brokers - England
- Indogreen Group - Indonesia
- VISA Power Limited - India
- Vedanta Resources Plc - India
- Georgia Ports Authority, United States
- Petron Corporation, Philippines
- Ambuja Cements Ltd - India
- Aditya Birla Group - India
- Indika Energy - Indonesia
- Agrawal Coal Company - India
- Orica Australia Pty. Ltd.
- Energy Development Corp, Philippines
- Indian Oil Corporation Limited
- Gujarat Sidhee Cement - India
- Siam City Cement - Thailand
- Mintek Dendrill Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Anglo American - United Kingdom
- Deloitte Consulting - India
- PowerSource Philippines DevCo
- Leighton Contractors Pty Ltd - Australia
- Bukit Baiduri Energy - Indonesia
- Dalmia Cement Bharat India
- Sree Jayajothi Cements Limited - India
- The Treasury - Australian Government
- South Luzon Thermal Energy Corporation
- Krishnapatnam Port Company Ltd. - India
- Neyveli Lignite Corporation Ltd, - India
- Bhoruka Overseas - Indonesia
- Ministry of Finance - Indonesia
- Coastal Gujarat Power Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Marubeni Corporation - India
- Bukit Makmur.PT - Indonesia
- GMR Energy Limited - India
- Billiton Holdings Pty Ltd - Australia
- Larsen & Toubro Limited - India
- Formosa Plastics Group - Taiwan
- International Coal Ventures Pvt Ltd - India
- Altura Mining Limited, Indonesia
- Posco Energy - South Korea
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