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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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Tuesday, 20 May 14
NEWCASTLE'S COAL EXPORT VOLUME UP 39.11 PERCENT WEEK ON WEEK
COALspot.com: In the week ended 07:00 hours 19 May 2014, power plant and semi-soft coking coal shipments from the port of Newcastle in Queensland, ...
Tuesday, 20 May 14
DRY BULK MARKET TO IMPROVE OVER THE COURSE OF 2014, BUT OVERSUPPLY STILL AN ISSUE SAYS BIMCO'S CHIEF SHIPPING ANALYST
As a gruelling first quarter edges closer to the end, dry bulk ship owners are looking at an improved second quarter demand, which, coupled with sl ...
Tuesday, 20 May 14
DRY BULK MARKET IS BOUND FOR A RECOVERY CLAIMS PARAGON SHIPPING'S HEAD MICHAEL BODOUROGLOU
The dry bulk market is bound for a recovery in the coming weeks, as the market will be better balanced, said Mr. Michael Bodouroglou, Chairman and ...
Monday, 19 May 14
INDO COAL SWAPS FOR AVERAGE Q3' 2014 DELIVERY LOST ON WEEK AND ON MONTH
COALspot.com: Indonesian coal swaps for average Q3’ 2014 lost on week and on month according to AsiaClear OTC coal swap's reports release ...
Monday, 19 May 14
API 8 CFR SOUTH CHINA COAL LOST 2.49% MONTH ON MONTH
COALspot.com: API 8 CFR South China Coal swaps for average Q3 14 deliveries lost 2.49 percent month on month and closed at US$ 74.35 per mt as on F ...
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- Karbindo Abesyapradhi - Indoneisa
- ICICI Bank Limited - India
- Barasentosa Lestari - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Oldendorff Carriers - Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- Energy Development Corp, Philippines
- AsiaOL BioFuels Corp., Philippines
- LBH Netherlands Bv - Netherlands
- Rashtriya Ispat Nigam Limited - India
- India Bulls Power Limited - India
- Africa Commodities Group - South Africa
- Agrawal Coal Company - India
- Sinarmas Energy and Mining - Indonesia
- Formosa Plastics Group - Taiwan
- Petrochimia International Co. Ltd.- Taiwan
- Indo Tambangraya Megah - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Bulk Trading Sa - Switzerland
- Global Business Power Corporation, Philippines
- Straits Asia Resources Limited - Singapore
- Georgia Ports Authority, United States
- Thiess Contractors Indonesia
- Grasim Industreis Ltd - India
- Ambuja Cements Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Meralco Power Generation, Philippines
- Chamber of Mines of South Africa
- Therma Luzon, Inc, Philippines
- New Zealand Coal & Carbon
- Tamil Nadu electricity Board
- Heidelberg Cement - Germany
- Eastern Coal Council - USA
- Australian Coal Association
- SMG Consultants - Indonesia
- Vizag Seaport Private Limited - India
- Metalloyd Limited - United Kingdom
- Singapore Mercantile Exchange
- Borneo Indobara - Indonesia
- Salva Resources Pvt Ltd - India
- Binh Thuan Hamico - Vietnam
- Banpu Public Company Limited - Thailand
- Electricity Generating Authority of Thailand
- Intertek Mineral Services - Indonesia
- IHS Mccloskey Coal Group - USA
- PTC India Limited - India
- Attock Cement Pakistan Limited
- Parliament of New Zealand
- Uttam Galva Steels Limited - India
- Iligan Light & Power Inc, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Marubeni Corporation - India
- Central Java Power - Indonesia
- Larsen & Toubro Limited - India
- Ceylon Electricity Board - Sri Lanka
- Gujarat Mineral Development Corp Ltd - India
- Ministry of Finance - Indonesia
- Independent Power Producers Association of India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Port Waratah Coal Services - Australia
- Bahari Cakrawala Sebuku - Indonesia
- Toyota Tsusho Corporation, Japan
- Jorong Barutama Greston.PT - Indonesia
- GMR Energy Limited - India
- Simpson Spence & Young - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Latin American Coal - Colombia
- Bharathi Cement Corporation - India
- PNOC Exploration Corporation - Philippines
- Pendopo Energi Batubara - Indonesia
- Indogreen Group - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- GN Power Mariveles Coal Plant, Philippines
- Indian Oil Corporation Limited
- Bhatia International Limited - India
- Videocon Industries ltd - India
- Ind-Barath Power Infra Limited - India
- The Treasury - Australian Government
- South Luzon Thermal Energy Corporation
- Kobexindo Tractors - Indoneisa
- Semirara Mining Corp, Philippines
- Lanco Infratech Ltd - India
- Sindya Power Generating Company Private Ltd
- TeaM Sual Corporation - Philippines
- Wilmar Investment Holdings
- Australian Commodity Traders Exchange
- Eastern Energy - Thailand
- Tata Chemicals Ltd - India
- Vedanta Resources Plc - India
- Price Waterhouse Coopers - Russia
- Maheswari Brothers Coal Limited - India
- Bangladesh Power Developement Board
- Sree Jayajothi Cements Limited - India
- Ministry of Mines - Canada
- Goldman Sachs - Singapore
- Edison Trading Spa - Italy
- ASAPP Information Group - India
- Directorate General of MIneral and Coal - Indonesia
- VISA Power Limited - India
- Carbofer General Trading SA - India
- Bhushan Steel Limited - India
- IEA Clean Coal Centre - UK
- Xindia Steels Limited - India
- MS Steel International - UAE
- Rio Tinto Coal - Australia
- Samtan Co., Ltd - South Korea
- Coalindo Energy - Indonesia
- Power Finance Corporation Ltd., India
- Holcim Trading Pte Ltd - Singapore
- Cement Manufacturers Association - India
- Minerals Council of Australia
- GVK Power & Infra Limited - India
- Economic Council, Georgia
- Indika Energy - Indonesia
- Planning Commission, India
- Medco Energi Mining Internasional
- Commonwealth Bank - Australia
- Sarangani Energy Corporation, Philippines
- Parry Sugars Refinery, India
- Mercator Lines Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Essar Steel Hazira Ltd - India
- Indonesian Coal Mining Association
- Romanian Commodities Exchange
- Global Green Power PLC Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- London Commodity Brokers - England
- Maharashtra Electricity Regulatory Commission - India
- Manunggal Multi Energi - Indonesia
- GAC Shipping (India) Pvt Ltd
- Aboitiz Power Corporation - Philippines
- Altura Mining Limited, Indonesia
- Leighton Contractors Pty Ltd - Australia
- McConnell Dowell - Australia
- Kohat Cement Company Ltd. - Pakistan
- Global Coal Blending Company Limited - Australia
- Coastal Gujarat Power Limited - India
- Globalindo Alam Lestari - Indonesia
- Siam City Cement PLC, Thailand
- Merrill Lynch Commodities Europe
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- European Bulk Services B.V. - Netherlands
- Bayan Resources Tbk. - Indonesia
- Antam Resourcindo - Indonesia
- Bukit Baiduri Energy - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Savvy Resources Ltd - HongKong
- Sakthi Sugars Limited - India
- Baramulti Group, Indonesia
- Semirara Mining and Power Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Interocean Group of Companies - India
- Directorate Of Revenue Intelligence - India
- Madhucon Powers Ltd - India
- Bhoruka Overseas - Indonesia
- Bukit Makmur.PT - Indonesia
- Deloitte Consulting - India
- Kartika Selabumi Mining - Indonesia
- Mjunction Services Limited - India
- CNBM International Corporation - China
- Malabar Cements Ltd - India
- Krishnapatnam Port Company Ltd. - India
- CIMB Investment Bank - Malaysia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ministry of Transport, Egypt
- Orica Mining Services - Indonesia
- SN Aboitiz Power Inc, Philippines
- Aditya Birla Group - India
- Kaltim Prima Coal - Indonesia
- Sical Logistics Limited - India
- Jindal Steel & Power Ltd - India
- White Energy Company Limited
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indian Energy Exchange, India
- Coal and Oil Company - UAE
- Electricity Authority, New Zealand
- PetroVietnam Power Coal Import and Supply Company
- OPG Power Generation Pvt Ltd - India
- International Coal Ventures Pvt Ltd - India
- Karaikal Port Pvt Ltd - India
- SMC Global Power, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Siam City Cement - Thailand
- Chettinad Cement Corporation Ltd - India
- The State Trading Corporation of India Ltd
- Thai Mozambique Logistica
- Trasteel International SA, Italy
- Dalmia Cement Bharat India
- Wood Mackenzie - Singapore
- Orica Australia Pty. Ltd.
- Kepco SPC Power Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Jaiprakash Power Ventures ltd
- Gujarat Sidhee Cement - India
- Sojitz Corporation - Japan
- Energy Link Ltd, New Zealand
- Riau Bara Harum - Indonesia
- Petron Corporation, Philippines
- The University of Queensland
- Kideco Jaya Agung - Indonesia
- Meenaskhi Energy Private Limited - India
- Standard Chartered Bank - UAE
- Central Electricity Authority - India
- Kumho Petrochemical, South Korea
- Timah Investasi Mineral - Indoneisa
- Alfred C Toepfer International GmbH - Germany
- Star Paper Mills Limited - India
- Mintek Dendrill Indonesia
- Makarim & Taira - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Anglo American - United Kingdom
- Kapuas Tunggal Persada - Indonesia
- Posco Energy - South Korea
- PowerSource Philippines DevCo
- Renaissance Capital - South Africa
- Mercuria Energy - Indonesia
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