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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, 29 May 14
PEABODY ENERGY CHAIRMAN RECEIVES WCA AWARD
The World Coal Association has presented Gregory H. Boyce, Chairman and Chief Executive Officer of Peabody Energy (NYSE: BTU), with the 2014 Chairm ...
Thursday, 29 May 14
HANDY : THE SUPRAS ARE BEING TRADED AROUND 13K FOR SHORTER UPTO 1 YEAR PERIOD
Handy
The week started off with bank holidays in London and very little happening. This trend has continued and we believe it will continue into ...
Wednesday, 28 May 14
THE DRY BULK MARKET REMAINED UNDER PRESSURE - INTERMODAL
COALspot.com: The Dry Bulk market remained under pressure during this past week, with all indices pointing down compared to the previous Friday. Th ...
Tuesday, 27 May 14
PORT OF NEWCASTLE SHIPPED 19.13% LESS COAL THIS PAST WEEK
COALspot.com: In the week ended 07:00 hours 26 May 2014, power plant and semi-soft coking coal shipments from the port of Newcastle in Queensland, ...
Monday, 26 May 14
SUB-BIT FOB INDO COAL SWAP Q1' 15 DELIVERIES CLOSED AT US$ 59.40 PER MT
COALspot.com: Indonesian coal swaps for average Q3’ 2014 lost on day, week and on month according to AsiaClear OTC coal swap's reports re ...
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- Energy Development Corp, Philippines
- Videocon Industries ltd - India
- White Energy Company Limited
- The Treasury - Australian Government
- PetroVietnam Power Coal Import and Supply Company
- Antam Resourcindo - Indonesia
- Jindal Steel & Power Ltd - India
- Manunggal Multi Energi - Indonesia
- ICICI Bank Limited - India
- LBH Netherlands Bv - Netherlands
- ASAPP Information Group - India
- Gujarat Electricity Regulatory Commission - India
- Toyota Tsusho Corporation, Japan
- London Commodity Brokers - England
- Electricity Authority, New Zealand
- Ceylon Electricity Board - Sri Lanka
- Interocean Group of Companies - India
- Thiess Contractors Indonesia
- Carbofer General Trading SA - India
- Sical Logistics Limited - India
- India Bulls Power Limited - India
- The University of Queensland
- Simpson Spence & Young - Indonesia
- Central Java Power - Indonesia
- CIMB Investment Bank - Malaysia
- PTC India Limited - India
- Australian Commodity Traders Exchange
- Cement Manufacturers Association - India
- Siam City Cement - Thailand
- CNBM International Corporation - China
- Salva Resources Pvt Ltd - India
- OPG Power Generation Pvt Ltd - India
- Tamil Nadu electricity Board
- Indo Tambangraya Megah - Indonesia
- Iligan Light & Power Inc, Philippines
- Agrawal Coal Company - India
- Kalimantan Lumbung Energi - Indonesia
- Minerals Council of Australia
- Aditya Birla Group - India
- Asmin Koalindo Tuhup - Indonesia
- Mercator Lines Limited - India
- Borneo Indobara - Indonesia
- Bulk Trading Sa - Switzerland
- Kapuas Tunggal Persada - Indonesia
- Latin American Coal - Colombia
- Heidelberg Cement - Germany
- SMG Consultants - Indonesia
- South Luzon Thermal Energy Corporation
- Marubeni Corporation - India
- Eastern Energy - Thailand
- Xindia Steels Limited - India
- Leighton Contractors Pty Ltd - Australia
- Barasentosa Lestari - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Standard Chartered Bank - UAE
- Thai Mozambique Logistica
- Global Business Power Corporation, Philippines
- Merrill Lynch Commodities Europe
- McConnell Dowell - Australia
- Bhoruka Overseas - Indonesia
- Jaiprakash Power Ventures ltd
- Formosa Plastics Group - Taiwan
- Madhucon Powers Ltd - India
- Oldendorff Carriers - Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- Planning Commission, India
- Chettinad Cement Corporation Ltd - India
- GMR Energy Limited - India
- Essar Steel Hazira Ltd - India
- Romanian Commodities Exchange
- Directorate Of Revenue Intelligence - India
- Price Waterhouse Coopers - Russia
- European Bulk Services B.V. - Netherlands
- San Jose City I Power Corp, Philippines
- Wilmar Investment Holdings
- Global Green Power PLC Corporation, Philippines
- Anglo American - United Kingdom
- IHS Mccloskey Coal Group - USA
- Offshore Bulk Terminal Pte Ltd, Singapore
- Gujarat Sidhee Cement - India
- Cigading International Bulk Terminal - Indonesia
- Banpu Public Company Limited - Thailand
- Samtan Co., Ltd - South Korea
- Timah Investasi Mineral - Indoneisa
- Parry Sugars Refinery, India
- IEA Clean Coal Centre - UK
- Sakthi Sugars Limited - India
- Trasteel International SA, Italy
- Coastal Gujarat Power Limited - India
- Baramulti Group, Indonesia
- Coalindo Energy - Indonesia
- Edison Trading Spa - Italy
- Sindya Power Generating Company Private Ltd
- PNOC Exploration Corporation - Philippines
- Semirara Mining Corp, Philippines
- Posco Energy - South Korea
- Indika Energy - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Parliament of New Zealand
- Attock Cement Pakistan Limited
- Krishnapatnam Port Company Ltd. - India
- AsiaOL BioFuels Corp., Philippines
- Eastern Coal Council - USA
- Pendopo Energi Batubara - Indonesia
- Sree Jayajothi Cements Limited - India
- Mercuria Energy - Indonesia
- SN Aboitiz Power Inc, Philippines
- Georgia Ports Authority, United States
- Riau Bara Harum - Indonesia
- Port Waratah Coal Services - Australia
- Vijayanagar Sugar Pvt Ltd - India
- Rio Tinto Coal - Australia
- Indonesian Coal Mining Association
- Maharashtra Electricity Regulatory Commission - India
- Ambuja Cements Ltd - India
- Savvy Resources Ltd - HongKong
- Bukit Baiduri Energy - Indonesia
- Intertek Mineral Services - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Tata Chemicals Ltd - India
- Kumho Petrochemical, South Korea
- Rashtriya Ispat Nigam Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Electricity Generating Authority of Thailand
- The State Trading Corporation of India Ltd
- Larsen & Toubro Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Central Electricity Authority - India
- Gujarat Mineral Development Corp Ltd - India
- Independent Power Producers Association of India
- Sarangani Energy Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Globalindo Alam Lestari - Indonesia
- Bhushan Steel Limited - India
- Maheswari Brothers Coal Limited - India
- Malabar Cements Ltd - India
- Goldman Sachs - Singapore
- Bharathi Cement Corporation - India
- TeaM Sual Corporation - Philippines
- PowerSource Philippines DevCo
- Indogreen Group - Indonesia
- Mjunction Services Limited - India
- Lanco Infratech Ltd - India
- Africa Commodities Group - South Africa
- Bukit Makmur.PT - Indonesia
- Aboitiz Power Corporation - Philippines
- Neyveli Lignite Corporation Ltd, - India
- Kaltim Prima Coal - Indonesia
- Coal and Oil Company - UAE
- Commonwealth Bank - Australia
- Power Finance Corporation Ltd., India
- Vedanta Resources Plc - India
- Makarim & Taira - Indonesia
- GVK Power & Infra Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Karaikal Port Pvt Ltd - India
- Renaissance Capital - South Africa
- Dalmia Cement Bharat India
- Kepco SPC Power Corporation, Philippines
- Economic Council, Georgia
- Indian Energy Exchange, India
- Sojitz Corporation - Japan
- Petron Corporation, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Straits Asia Resources Limited - Singapore
- VISA Power Limited - India
- Medco Energi Mining Internasional
- MS Steel International - UAE
- Bangladesh Power Developement Board
- Bank of Tokyo Mitsubishi UFJ Ltd
- Energy Link Ltd, New Zealand
- New Zealand Coal & Carbon
- Orica Australia Pty. Ltd.
- Kideco Jaya Agung - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Siam City Cement PLC, Thailand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Singapore Mercantile Exchange
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Wood Mackenzie - Singapore
- Directorate General of MIneral and Coal - Indonesia
- Ind-Barath Power Infra Limited - India
- Indian Oil Corporation Limited
- Sinarmas Energy and Mining - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Mintek Dendrill Indonesia
- Deloitte Consulting - India
- Chamber of Mines of South Africa
- Kartika Selabumi Mining - Indonesia
- SMC Global Power, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bhatia International Limited - India
- Binh Thuan Hamico - Vietnam
- Vizag Seaport Private Limited - India
- Australian Coal Association
- Petrochimia International Co. Ltd.- Taiwan
- Ministry of Finance - Indonesia
- Star Paper Mills Limited - India
- Ministry of Transport, Egypt
- Uttam Galva Steels Limited - India
- Orica Mining Services - Indonesia
- Bayan Resources Tbk. - Indonesia
- GAC Shipping (India) Pvt Ltd
- Therma Luzon, Inc, Philippines
- Global Coal Blending Company Limited - Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Meenaskhi Energy Private Limited - India
- Semirara Mining and Power Corporation, Philippines
- Grasim Industreis Ltd - India
- Meralco Power Generation, Philippines
- International Coal Ventures Pvt Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Billiton Holdings Pty Ltd - Australia
- Metalloyd Limited - United Kingdom
- Ministry of Mines - Canada
- Altura Mining Limited, Indonesia
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