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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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Monday, 26 May 14
Q3 14 CFR SOUTH CHINA COAL SWAPS LOST 2.24% MONTH ON MONTH
COALspot.com: API 8 CFR South China Coal swaps for average Q3 14 deliveries lost 2.24 percent month on month and closed at US$ 73.88 per mt as on F ...
Monday, 26 May 14
NEWBUILDING ORDERING ACTIVITY RISES BY 78% IN DWT TONNAGE OVER THE FIRST 4 MONTHS OF THE YEARS, AS OWNERS INVEST$40.5 BN - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Ship owners have plunged into newbuilding orders during the first four months of the year, as overall newbuilding business ended for the first four ...
Sunday, 25 May 14
FREIGHT RATES FROM SOUTH KALIMANTAN TO EAST COAST INDIAN PORTS WERE ASSESSED AT $9.50/MT
COALspot.com: The BDI was closed at 964 points down by 6.13 pct week on week. The Cape Index was lost 172 points or 11.24% week on week and closing ...
Saturday, 24 May 14
DRY BULK MARKET'S RECOVERY IS JUST AROUND THE CORNER SAYS SHIPOWNER - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Despite the weaker than expected market sentiment in the dry bulk market over the course of the past few months, analysts and shipowners alike appe ...
Friday, 23 May 14
U.S. WEEKLY COAL PRODUCTION SLIPS 1.8% WEEK ENDED MAY 17, 2014
COALspot.com – United States the world's second largest coal producer, produced approximately 18.6 million short tons (mmst) of coal in a ...
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- Kalimantan Lumbung Energi - Indonesia
- Ambuja Cements Ltd - India
- LBH Netherlands Bv - Netherlands
- The State Trading Corporation of India Ltd
- Bukit Makmur.PT - Indonesia
- Coalindo Energy - Indonesia
- Central Electricity Authority - India
- Bhatia International Limited - India
- Straits Asia Resources Limited - Singapore
- Bukit Baiduri Energy - Indonesia
- IHS Mccloskey Coal Group - USA
- Price Waterhouse Coopers - Russia
- Global Business Power Corporation, Philippines
- Agrawal Coal Company - India
- Economic Council, Georgia
- Vedanta Resources Plc - India
- Barasentosa Lestari - Indonesia
- Mercator Lines Limited - India
- Merrill Lynch Commodities Europe
- Indian Oil Corporation Limited
- Wilmar Investment Holdings
- Therma Luzon, Inc, Philippines
- Energy Link Ltd, New Zealand
- The Treasury - Australian Government
- Billiton Holdings Pty Ltd - Australia
- Kohat Cement Company Ltd. - Pakistan
- GN Power Mariveles Coal Plant, Philippines
- Bangladesh Power Developement Board
- Carbofer General Trading SA - India
- Directorate General of MIneral and Coal - Indonesia
- Orica Australia Pty. Ltd.
- GVK Power & Infra Limited - India
- Marubeni Corporation - India
- Pendopo Energi Batubara - Indonesia
- Renaissance Capital - South Africa
- Electricity Authority, New Zealand
- Parry Sugars Refinery, India
- Meralco Power Generation, Philippines
- Central Java Power - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Sojitz Corporation - Japan
- Antam Resourcindo - Indonesia
- Parliament of New Zealand
- Asmin Koalindo Tuhup - Indonesia
- Simpson Spence & Young - Indonesia
- Kobexindo Tractors - Indoneisa
- Medco Energi Mining Internasional
- SMC Global Power, Philippines
- Wood Mackenzie - Singapore
- MS Steel International - UAE
- TNB Fuel Sdn Bhd - Malaysia
- Sinarmas Energy and Mining - Indonesia
- White Energy Company Limited
- Offshore Bulk Terminal Pte Ltd, Singapore
- Grasim Industreis Ltd - India
- Siam City Cement PLC, Thailand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Goldman Sachs - Singapore
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Sakthi Sugars Limited - India
- Savvy Resources Ltd - HongKong
- PetroVietnam Power Coal Import and Supply Company
- Aboitiz Power Corporation - Philippines
- Trasteel International SA, Italy
- Kepco SPC Power Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Bhoruka Overseas - Indonesia
- Ministry of Mines - Canada
- McConnell Dowell - Australia
- Kapuas Tunggal Persada - Indonesia
- Aditya Birla Group - India
- Karaikal Port Pvt Ltd - India
- Toyota Tsusho Corporation, Japan
- Tamil Nadu electricity Board
- Global Coal Blending Company Limited - Australia
- Ministry of Finance - Indonesia
- Xindia Steels Limited - India
- Indian Energy Exchange, India
- Krishnapatnam Port Company Ltd. - India
- Videocon Industries ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Interocean Group of Companies - India
- Chamber of Mines of South Africa
- Sarangani Energy Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Independent Power Producers Association of India
- Deloitte Consulting - India
- Africa Commodities Group - South Africa
- ASAPP Information Group - India
- Commonwealth Bank - Australia
- Miang Besar Coal Terminal - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- London Commodity Brokers - England
- Australian Coal Association
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bukit Asam (Persero) Tbk - Indonesia
- TeaM Sual Corporation - Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Georgia Ports Authority, United States
- Sree Jayajothi Cements Limited - India
- Kaltim Prima Coal - Indonesia
- Australian Commodity Traders Exchange
- Sindya Power Generating Company Private Ltd
- Timah Investasi Mineral - Indoneisa
- International Coal Ventures Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Dalmia Cement Bharat India
- PTC India Limited - India
- AsiaOL BioFuels Corp., Philippines
- Posco Energy - South Korea
- Maheswari Brothers Coal Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Metalloyd Limited - United Kingdom
- PNOC Exploration Corporation - Philippines
- Singapore Mercantile Exchange
- South Luzon Thermal Energy Corporation
- Eastern Coal Council - USA
- Ceylon Electricity Board - Sri Lanka
- Mintek Dendrill Indonesia
- Mjunction Services Limited - India
- Coastal Gujarat Power Limited - India
- Indonesian Coal Mining Association
- Indika Energy - Indonesia
- Star Paper Mills Limited - India
- Bhushan Steel Limited - India
- Siam City Cement - Thailand
- Manunggal Multi Energi - Indonesia
- Intertek Mineral Services - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Ind-Barath Power Infra Limited - India
- Bharathi Cement Corporation - India
- Orica Mining Services - Indonesia
- Binh Thuan Hamico - Vietnam
- European Bulk Services B.V. - Netherlands
- Ministry of Transport, Egypt
- Salva Resources Pvt Ltd - India
- Attock Cement Pakistan Limited
- Standard Chartered Bank - UAE
- New Zealand Coal & Carbon
- Formosa Plastics Group - Taiwan
- Uttam Galva Steels Limited - India
- Global Green Power PLC Corporation, Philippines
- Mercuria Energy - Indonesia
- Cement Manufacturers Association - India
- Altura Mining Limited, Indonesia
- Vizag Seaport Private Limited - India
- Malabar Cements Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Kartika Selabumi Mining - Indonesia
- Thiess Contractors Indonesia
- Electricity Generating Authority of Thailand
- Bayan Resources Tbk. - Indonesia
- Larsen & Toubro Limited - India
- Meenaskhi Energy Private Limited - India
- Anglo American - United Kingdom
- Edison Trading Spa - Italy
- Semirara Mining Corp, Philippines
- Indo Tambangraya Megah - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- IEA Clean Coal Centre - UK
- PowerSource Philippines DevCo
- Karbindo Abesyapradhi - Indoneisa
- Chettinad Cement Corporation Ltd - India
- Petron Corporation, Philippines
- CIMB Investment Bank - Malaysia
- ICICI Bank Limited - India
- Gujarat Sidhee Cement - India
- Tata Chemicals Ltd - India
- VISA Power Limited - India
- Coal and Oil Company - UAE
- Energy Development Corp, Philippines
- Rio Tinto Coal - Australia
- SMG Consultants - Indonesia
- Madhucon Powers Ltd - India
- Heidelberg Cement - Germany
- Sical Logistics Limited - India
- CNBM International Corporation - China
- Cigading International Bulk Terminal - Indonesia
- The University of Queensland
- Power Finance Corporation Ltd., India
- Jindal Steel & Power Ltd - India
- Thai Mozambique Logistica
- Makarim & Taira - Indonesia
- Bulk Trading Sa - Switzerland
- GAC Shipping (India) Pvt Ltd
- Riau Bara Harum - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Oldendorff Carriers - Singapore
- Kumho Petrochemical, South Korea
- San Jose City I Power Corp, Philippines
- Lanco Infratech Ltd - India
- Directorate Of Revenue Intelligence - India
- Eastern Energy - Thailand
- Baramulti Group, Indonesia
- Banpu Public Company Limited - Thailand
- Holcim Trading Pte Ltd - Singapore
- Gujarat Electricity Regulatory Commission - India
- Leighton Contractors Pty Ltd - Australia
- Maharashtra Electricity Regulatory Commission - India
- GMR Energy Limited - India
- Port Waratah Coal Services - Australia
- Latin American Coal - Colombia
- Alfred C Toepfer International GmbH - Germany
- Jaiprakash Power Ventures ltd
- Iligan Light & Power Inc, Philippines
- Essar Steel Hazira Ltd - India
- OPG Power Generation Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
- India Bulls Power Limited - India
- Minerals Council of Australia
- Planning Commission, India
- Romanian Commodities Exchange
- Indogreen Group - Indonesia
- Samtan Co., Ltd - South Korea
- Borneo Indobara - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
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