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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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Thursday, 26 June 14
COAL DIVESTMENT CAMPAIGNS COME WITH RISKY UNINTENDED CONSEQUENCES - WCA
Last week I presented to the Expert Group on investments in coal and petroleum companies, the body set up to advise the Norwegian Government on whe ...
Wednesday, 25 June 14
INDONESIAN COAL EXPORTS ON RISE; EARNINGS FALL ON LOWER SELLING PRICES
COALspot.com: Indonesia, one of the world's largest coal producer and the global largest multi grade coal exporter shipped around $1.84* ...
Wednesday, 25 June 14
THE PANAMAX MARKET REACHED FRESH LOWS FOR THE YEAR, SAYS INTERMODAL
COALspot.com: The Dry Bulk market closed off the week noting a slight decrease, but this image of stability is merely representative of freight rat ...
Wednesday, 25 June 14
SHIPPING: MARKET INSIGHT - YANNIS OLZIERSKY
During his recent visit in London, China's Premier, Li Keqiang, announced that China's economy, the world's second largest after the US ...
Tuesday, 24 June 14
INDONESIAN COAL MINER TARGETS RP 313 BILLION IPO
COALspot.com: Indonesian coal miner PT Mitrabara Adiperdana is aiming to raise up to Rp 313 billion to Rp 368 billion (approximately $26.133 millio ...
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- Sakthi Sugars Limited - India
- Cement Manufacturers Association - India
- Petron Corporation, Philippines
- Indonesian Coal Mining Association
- San Jose City I Power Corp, Philippines
- Ministry of Mines - Canada
- Barasentosa Lestari - Indonesia
- Edison Trading Spa - Italy
- Power Finance Corporation Ltd., India
- Ministry of Finance - Indonesia
- Manunggal Multi Energi - Indonesia
- Planning Commission, India
- Lanco Infratech Ltd - India
- IEA Clean Coal Centre - UK
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Salva Resources Pvt Ltd - India
- South Luzon Thermal Energy Corporation
- Petrochimia International Co. Ltd.- Taiwan
- Maharashtra Electricity Regulatory Commission - India
- Tamil Nadu electricity Board
- SMC Global Power, Philippines
- Global Coal Blending Company Limited - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Directorate General of MIneral and Coal - Indonesia
- Samtan Co., Ltd - South Korea
- Indian Energy Exchange, India
- Savvy Resources Ltd - HongKong
- Carbofer General Trading SA - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- SMG Consultants - Indonesia
- Rio Tinto Coal - Australia
- Electricity Authority, New Zealand
- Sojitz Corporation - Japan
- Miang Besar Coal Terminal - Indonesia
- Energy Link Ltd, New Zealand
- Bhushan Steel Limited - India
- Romanian Commodities Exchange
- Karbindo Abesyapradhi - Indoneisa
- CNBM International Corporation - China
- Vijayanagar Sugar Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Kartika Selabumi Mining - Indonesia
- Commonwealth Bank - Australia
- GVK Power & Infra Limited - India
- Eastern Energy - Thailand
- Jindal Steel & Power Ltd - India
- GAC Shipping (India) Pvt Ltd
- Merrill Lynch Commodities Europe
- Kohat Cement Company Ltd. - Pakistan
- Thiess Contractors Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Madhucon Powers Ltd - India
- Marubeni Corporation - India
- Meralco Power Generation, Philippines
- Chettinad Cement Corporation Ltd - India
- Siam City Cement - Thailand
- Binh Thuan Hamico - Vietnam
- Coalindo Energy - Indonesia
- Maheswari Brothers Coal Limited - India
- Vedanta Resources Plc - India
- European Bulk Services B.V. - Netherlands
- Altura Mining Limited, Indonesia
- Bukit Makmur.PT - Indonesia
- Anglo American - United Kingdom
- Deloitte Consulting - India
- Agrawal Coal Company - India
- Ceylon Electricity Board - Sri Lanka
- Kumho Petrochemical, South Korea
- Alfred C Toepfer International GmbH - Germany
- PowerSource Philippines DevCo
- Indo Tambangraya Megah - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Sical Logistics Limited - India
- Jaiprakash Power Ventures ltd
- Kalimantan Lumbung Energi - Indonesia
- Oldendorff Carriers - Singapore
- GMR Energy Limited - India
- Mintek Dendrill Indonesia
- Thai Mozambique Logistica
- Indian Oil Corporation Limited
- Kobexindo Tractors - Indoneisa
- Independent Power Producers Association of India
- New Zealand Coal & Carbon
- Posco Energy - South Korea
- Port Waratah Coal Services - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Riau Bara Harum - Indonesia
- Singapore Mercantile Exchange
- Australian Coal Association
- Formosa Plastics Group - Taiwan
- TNB Fuel Sdn Bhd - Malaysia
- Standard Chartered Bank - UAE
- Timah Investasi Mineral - Indoneisa
- Borneo Indobara - Indonesia
- Attock Cement Pakistan Limited
- Parry Sugars Refinery, India
- Chamber of Mines of South Africa
- VISA Power Limited - India
- LBH Netherlands Bv - Netherlands
- Videocon Industries ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Toyota Tsusho Corporation, Japan
- Wood Mackenzie - Singapore
- White Energy Company Limited
- Goldman Sachs - Singapore
- Therma Luzon, Inc, Philippines
- SN Aboitiz Power Inc, Philippines
- Electricity Generating Authority of Thailand
- Sindya Power Generating Company Private Ltd
- Orica Mining Services - Indonesia
- Ministry of Transport, Egypt
- Makarim & Taira - Indonesia
- Central Java Power - Indonesia
- Xindia Steels Limited - India
- Interocean Group of Companies - India
- AsiaOL BioFuels Corp., Philippines
- The State Trading Corporation of India Ltd
- Straits Asia Resources Limited - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Star Paper Mills Limited - India
- Kepco SPC Power Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- Indika Energy - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Africa Commodities Group - South Africa
- Siam City Cement PLC, Thailand
- Ambuja Cements Ltd - India
- Ind-Barath Power Infra Limited - India
- Uttam Galva Steels Limited - India
- Indogreen Group - Indonesia
- Coastal Gujarat Power Limited - India
- PNOC Exploration Corporation - Philippines
- Grasim Industreis Ltd - India
- Bukit Baiduri Energy - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Metalloyd Limited - United Kingdom
- PTC India Limited - India
- London Commodity Brokers - England
- Georgia Ports Authority, United States
- Mjunction Services Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Energy Development Corp, Philippines
- IHS Mccloskey Coal Group - USA
- Gujarat Sidhee Cement - India
- Cigading International Bulk Terminal - Indonesia
- Economic Council, Georgia
- Pendopo Energi Batubara - Indonesia
- Malabar Cements Ltd - India
- McConnell Dowell - Australia
- Gujarat Mineral Development Corp Ltd - India
- The Treasury - Australian Government
- Sarangani Energy Corporation, Philippines
- The University of Queensland
- Rashtriya Ispat Nigam Limited - India
- Larsen & Toubro Limited - India
- ICICI Bank Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Sree Jayajothi Cements Limited - India
- Bangladesh Power Developement Board
- CIMB Investment Bank - Malaysia
- Latin American Coal - Colombia
- International Coal Ventures Pvt Ltd - India
- Medco Energi Mining Internasional
- Coal and Oil Company - UAE
- Heidelberg Cement - Germany
- Global Business Power Corporation, Philippines
- Semirara Mining Corp, Philippines
- Intertek Mineral Services - Indonesia
- Australian Commodity Traders Exchange
- Banpu Public Company Limited - Thailand
- Bayan Resources Tbk. - Indonesia
- Baramulti Group, Indonesia
- Semirara Mining and Power Corporation, Philippines
- Essar Steel Hazira Ltd - India
- Tata Chemicals Ltd - India
- Simpson Spence & Young - Indonesia
- TeaM Sual Corporation - Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Minerals Council of Australia
- Parliament of New Zealand
- Directorate Of Revenue Intelligence - India
- Mercator Lines Limited - India
- Sinarmas Energy and Mining - Indonesia
- Vizag Seaport Private Limited - India
- Central Electricity Authority - India
- MS Steel International - UAE
- Karaikal Port Pvt Ltd - India
- Aditya Birla Group - India
- Trasteel International SA, Italy
- Globalindo Alam Lestari - Indonesia
- Dalmia Cement Bharat India
- Renaissance Capital - South Africa
- Antam Resourcindo - Indonesia
- Bharathi Cement Corporation - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Iligan Light & Power Inc, Philippines
- Orica Australia Pty. Ltd.
- Global Green Power PLC Corporation, Philippines
- Wilmar Investment Holdings
- Kaltim Prima Coal - Indonesia
- ASAPP Information Group - India
- Price Waterhouse Coopers - Russia
- Bhatia International Limited - India
- Mercuria Energy - Indonesia
- India Bulls Power Limited - India
- Eastern Coal Council - USA
- Billiton Holdings Pty Ltd - Australia
- Kideco Jaya Agung - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Aboitiz Power Corporation - Philippines
- Leighton Contractors Pty Ltd - Australia
- Bulk Trading Sa - Switzerland
- Meenaskhi Energy Private Limited - India
- Bhoruka Overseas - Indonesia
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