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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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- Goldman Sachs - Singapore
- VISA Power Limited - India
- Indika Energy - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indian Energy Exchange, India
- The University of Queensland
- OPG Power Generation Pvt Ltd - India
- The Treasury - Australian Government
- Bayan Resources Tbk. - Indonesia
- Vedanta Resources Plc - India
- Binh Thuan Hamico - Vietnam
- Karbindo Abesyapradhi - Indoneisa
- Madhucon Powers Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Timah Investasi Mineral - Indoneisa
- Kaltim Prima Coal - Indonesia
- Straits Asia Resources Limited - Singapore
- Siam City Cement PLC, Thailand
- GAC Shipping (India) Pvt Ltd
- Kepco SPC Power Corporation, Philippines
- Georgia Ports Authority, United States
- Energy Link Ltd, New Zealand
- Baramulti Group, Indonesia
- Mintek Dendrill Indonesia
- Rio Tinto Coal - Australia
- Bhushan Steel Limited - India
- Pendopo Energi Batubara - Indonesia
- Ministry of Transport, Egypt
- Petrochimia International Co. Ltd.- Taiwan
- Sical Logistics Limited - India
- Energy Development Corp, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Malabar Cements Ltd - India
- Independent Power Producers Association of India
- Metalloyd Limited - United Kingdom
- Mjunction Services Limited - India
- TeaM Sual Corporation - Philippines
- Planning Commission, India
- AsiaOL BioFuels Corp., Philippines
- PNOC Exploration Corporation - Philippines
- Marubeni Corporation - India
- Price Waterhouse Coopers - Russia
- Coal and Oil Company - UAE
- Coastal Gujarat Power Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Attock Cement Pakistan Limited
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Central Java Power - Indonesia
- Simpson Spence & Young - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Manunggal Multi Energi - Indonesia
- Savvy Resources Ltd - HongKong
- Videocon Industries ltd - India
- Gujarat Sidhee Cement - India
- Indo Tambangraya Megah - Indonesia
- Australian Commodity Traders Exchange
- Bharathi Cement Corporation - India
- Larsen & Toubro Limited - India
- Africa Commodities Group - South Africa
- Makarim & Taira - Indonesia
- Banpu Public Company Limited - Thailand
- Kohat Cement Company Ltd. - Pakistan
- ICICI Bank Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Interocean Group of Companies - India
- Wilmar Investment Holdings
- Electricity Generating Authority of Thailand
- Global Business Power Corporation, Philippines
- Ministry of Finance - Indonesia
- PTC India Limited - India
- Semirara Mining Corp, Philippines
- Tamil Nadu electricity Board
- Bukit Baiduri Energy - Indonesia
- Ministry of Mines - Canada
- GN Power Mariveles Coal Plant, Philippines
- IHS Mccloskey Coal Group - USA
- Samtan Co., Ltd - South Korea
- Formosa Plastics Group - Taiwan
- Ambuja Cements Ltd - India
- Uttam Galva Steels Limited - India
- Carbofer General Trading SA - India
- Kobexindo Tractors - Indoneisa
- Essar Steel Hazira Ltd - India
- Vizag Seaport Private Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Cement Manufacturers Association - India
- Krishnapatnam Port Company Ltd. - India
- Rashtriya Ispat Nigam Limited - India
- Jindal Steel & Power Ltd - India
- Parliament of New Zealand
- Pipit Mutiara Jaya. PT, Indonesia
- Commonwealth Bank - Australia
- Sakthi Sugars Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Antam Resourcindo - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Coalindo Energy - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Kumho Petrochemical, South Korea
- The State Trading Corporation of India Ltd
- Power Finance Corporation Ltd., India
- SMC Global Power, Philippines
- IEA Clean Coal Centre - UK
- Kartika Selabumi Mining - Indonesia
- Grasim Industreis Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Kideco Jaya Agung - Indonesia
- Indonesian Coal Mining Association
- Port Waratah Coal Services - Australia
- Lanco Infratech Ltd - India
- Bhoruka Overseas - Indonesia
- Ind-Barath Power Infra Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Barasentosa Lestari - Indonesia
- European Bulk Services B.V. - Netherlands
- Global Green Power PLC Corporation, Philippines
- Thai Mozambique Logistica
- CNBM International Corporation - China
- Karaikal Port Pvt Ltd - India
- Standard Chartered Bank - UAE
- Economic Council, Georgia
- Wood Mackenzie - Singapore
- Bahari Cakrawala Sebuku - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Leighton Contractors Pty Ltd - Australia
- Salva Resources Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Merrill Lynch Commodities Europe
- Indian Oil Corporation Limited
- TNB Fuel Sdn Bhd - Malaysia
- Orica Mining Services - Indonesia
- Directorate Of Revenue Intelligence - India
- Alfred C Toepfer International GmbH - Germany
- Altura Mining Limited, Indonesia
- Posco Energy - South Korea
- Singapore Mercantile Exchange
- Toyota Tsusho Corporation, Japan
- Chettinad Cement Corporation Ltd - India
- Edison Trading Spa - Italy
- SMG Consultants - Indonesia
- Sindya Power Generating Company Private Ltd
- LBH Netherlands Bv - Netherlands
- Meenaskhi Energy Private Limited - India
- Dalmia Cement Bharat India
- Borneo Indobara - Indonesia
- Aboitiz Power Corporation - Philippines
- Parry Sugars Refinery, India
- MS Steel International - UAE
- Trasteel International SA, Italy
- Sarangani Energy Corporation, Philippines
- Australian Coal Association
- Eastern Coal Council - USA
- Jaiprakash Power Ventures ltd
- Anglo American - United Kingdom
- Meralco Power Generation, Philippines
- Sojitz Corporation - Japan
- Renaissance Capital - South Africa
- Bangladesh Power Developement Board
- Xindia Steels Limited - India
- Maheswari Brothers Coal Limited - India
- India Bulls Power Limited - India
- Latin American Coal - Colombia
- Cigading International Bulk Terminal - Indonesia
- Eastern Energy - Thailand
- Star Paper Mills Limited - India
- CIMB Investment Bank - Malaysia
- Sree Jayajothi Cements Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sinarmas Energy and Mining - Indonesia
- San Jose City I Power Corp, Philippines
- Therma Luzon, Inc, Philippines
- Oldendorff Carriers - Singapore
- Holcim Trading Pte Ltd - Singapore
- Orica Australia Pty. Ltd.
- Medco Energi Mining Internasional
- Global Coal Blending Company Limited - Australia
- Intertek Mineral Services - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Gujarat Electricity Regulatory Commission - India
- Siam City Cement - Thailand
- Agrawal Coal Company - India
- Mercuria Energy - Indonesia
- Aditya Birla Group - India
- Indogreen Group - Indonesia
- Mercator Lines Limited - India
- Bulk Trading Sa - Switzerland
- Riau Bara Harum - Indonesia
- Bhatia International Limited - India
- Globalindo Alam Lestari - Indonesia
- GVK Power & Infra Limited - India
- White Energy Company Limited
- Maharashtra Electricity Regulatory Commission - India
- PowerSource Philippines DevCo
- Bukit Asam (Persero) Tbk - Indonesia
- Thiess Contractors Indonesia
- Iligan Light & Power Inc, Philippines
- International Coal Ventures Pvt Ltd - India
- Bukit Makmur.PT - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- McConnell Dowell - Australia
- Minerals Council of Australia
- ASAPP Information Group - India
- Central Electricity Authority - India
- South Luzon Thermal Energy Corporation
- Petron Corporation, Philippines
- GMR Energy Limited - India
- Romanian Commodities Exchange
- Kapuas Tunggal Persada - Indonesia
- Electricity Authority, New Zealand
- Heidelberg Cement - Germany
- Tata Chemicals Ltd - India
- Chamber of Mines of South Africa
- London Commodity Brokers - England
- Deloitte Consulting - India
- New Zealand Coal & Carbon
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