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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, 08 May 14
INDONESIAN COAL PRICE REFERENCE IN MAY CRASHES THROUGH $74
COALspot.com - The Ministry of Energy & Mineral Resources of Indonesia has revised down again the coal bench mark price by US$ 1.21 / MT to ...
Wednesday, 07 May 14
THE DRY BULK MARKET HAS NOTED ANOTHER WEEKLY POSITIVE GAIN
Chartering (Wet: Softer- / Dry: Stable+)
The Dry Bulk market has noted another weekly positive gain, driven by the Capesize segment, but we ne ...
Wednesday, 07 May 14
SGX ENHANCES ITS COMMODITIES PRODUCT OFFERING
COALspot.com: SGX is building up its bulk commodity product offerings with 9 more derivative contracts over the next 2 months, subject to regula ...
Tuesday, 06 May 14
NEWCASTLE COAL EXPORT SLIPS 7.92% WEEK ON WEEK
COALspot.com: In the week ended 07:00 hours 5 May 2014, power plant and semi-soft coking coal shipments from the port of Newcastle in Queensland ...
Monday, 05 May 14
HUANENG CLEAN ENERGY RESEARCH INSTITUTE HAS CONFIRMED TO SPEAK AT CCF2014
Press Release: Produced by CDMC Events, The 13th Clean Coal Forum 2014 will be held on June 12,13, 2014 in Beijing, China. We are glad to invite ...
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- Singapore Mercantile Exchange
- Madhucon Powers Ltd - India
- Bulk Trading Sa - Switzerland
- Maheswari Brothers Coal Limited - India
- Kumho Petrochemical, South Korea
- Indogreen Group - Indonesia
- Central Electricity Authority - India
- Global Green Power PLC Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Electricity Authority, New Zealand
- Planning Commission, India
- Mercator Lines Limited - India
- Jaiprakash Power Ventures ltd
- Central Java Power - Indonesia
- European Bulk Services B.V. - Netherlands
- GMR Energy Limited - India
- Cigading International Bulk Terminal - Indonesia
- Essar Steel Hazira Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Aboitiz Power Corporation - Philippines
- London Commodity Brokers - England
- Sical Logistics Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Makarim & Taira - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Siam City Cement - Thailand
- Billiton Holdings Pty Ltd - Australia
- LBH Netherlands Bv - Netherlands
- Pendopo Energi Batubara - Indonesia
- Xindia Steels Limited - India
- Bhoruka Overseas - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Mercuria Energy - Indonesia
- Straits Asia Resources Limited - Singapore
- PTC India Limited - India
- Electricity Generating Authority of Thailand
- Coalindo Energy - Indonesia
- Indian Oil Corporation Limited
- Bangladesh Power Developement Board
- Offshore Bulk Terminal Pte Ltd, Singapore
- Simpson Spence & Young - Indonesia
- Wilmar Investment Holdings
- Indonesian Coal Mining Association
- Renaissance Capital - South Africa
- Port Waratah Coal Services - Australia
- Kobexindo Tractors - Indoneisa
- Binh Thuan Hamico - Vietnam
- Sakthi Sugars Limited - India
- Parliament of New Zealand
- Indika Energy - Indonesia
- Tata Chemicals Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Posco Energy - South Korea
- Indian Energy Exchange, India
- Lanco Infratech Ltd - India
- Energy Development Corp, Philippines
- Salva Resources Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Leighton Contractors Pty Ltd - Australia
- Mintek Dendrill Indonesia
- Carbofer General Trading SA - India
- Timah Investasi Mineral - Indoneisa
- Krishnapatnam Port Company Ltd. - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Trasteel International SA, Italy
- TeaM Sual Corporation - Philippines
- Sinarmas Energy and Mining - Indonesia
- Energy Link Ltd, New Zealand
- Price Waterhouse Coopers - Russia
- Petrochimia International Co. Ltd.- Taiwan
- Vizag Seaport Private Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Directorate General of MIneral and Coal - Indonesia
- Commonwealth Bank - Australia
- Altura Mining Limited, Indonesia
- Neyveli Lignite Corporation Ltd, - India
- ASAPP Information Group - India
- Attock Cement Pakistan Limited
- Kapuas Tunggal Persada - Indonesia
- Coal and Oil Company - UAE
- Siam City Cement PLC, Thailand
- Kartika Selabumi Mining - Indonesia
- Metalloyd Limited - United Kingdom
- Gujarat Sidhee Cement - India
- Holcim Trading Pte Ltd - Singapore
- Barasentosa Lestari - Indonesia
- Minerals Council of Australia
- Thai Mozambique Logistica
- Independent Power Producers Association of India
- Cement Manufacturers Association - India
- Global Coal Blending Company Limited - Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- CNBM International Corporation - China
- Bahari Cakrawala Sebuku - Indonesia
- Deloitte Consulting - India
- Miang Besar Coal Terminal - Indonesia
- Wood Mackenzie - Singapore
- Chamber of Mines of South Africa
- Gujarat Mineral Development Corp Ltd - India
- Borneo Indobara - Indonesia
- Heidelberg Cement - Germany
- Malabar Cements Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Australian Commodity Traders Exchange
- Petron Corporation, Philippines
- Mjunction Services Limited - India
- Semirara Mining and Power Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- Ministry of Transport, Egypt
- Bukit Baiduri Energy - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- PetroVietnam Power Coal Import and Supply Company
- Ambuja Cements Ltd - India
- Interocean Group of Companies - India
- Semirara Mining Corp, Philippines
- Karaikal Port Pvt Ltd - India
- Standard Chartered Bank - UAE
- Kideco Jaya Agung - Indonesia
- Meralco Power Generation, Philippines
- Merrill Lynch Commodities Europe
- Meenaskhi Energy Private Limited - India
- Therma Luzon, Inc, Philippines
- International Coal Ventures Pvt Ltd - India
- Oldendorff Carriers - Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- Globalindo Alam Lestari - Indonesia
- Jindal Steel & Power Ltd - India
- Coastal Gujarat Power Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Uttam Galva Steels Limited - India
- White Energy Company Limited
- IEA Clean Coal Centre - UK
- SMC Global Power, Philippines
- India Bulls Power Limited - India
- Ministry of Finance - Indonesia
- McConnell Dowell - Australia
- Economic Council, Georgia
- SMG Consultants - Indonesia
- Edison Trading Spa - Italy
- Agrawal Coal Company - India
- Antam Resourcindo - Indonesia
- Sree Jayajothi Cements Limited - India
- Aditya Birla Group - India
- Samtan Co., Ltd - South Korea
- Goldman Sachs - Singapore
- Sojitz Corporation - Japan
- Tamil Nadu electricity Board
- CIMB Investment Bank - Malaysia
- Grasim Industreis Ltd - India
- Thiess Contractors Indonesia
- IHS Mccloskey Coal Group - USA
- Iligan Light & Power Inc, Philippines
- Medco Energi Mining Internasional
- Vedanta Resources Plc - India
- PowerSource Philippines DevCo
- The University of Queensland
- Parry Sugars Refinery, India
- Power Finance Corporation Ltd., India
- VISA Power Limited - India
- The State Trading Corporation of India Ltd
- Alfred C Toepfer International GmbH - Germany
- Ind-Barath Power Infra Limited - India
- Baramulti Group, Indonesia
- Romanian Commodities Exchange
- Banpu Public Company Limited - Thailand
- Star Paper Mills Limited - India
- Larsen & Toubro Limited - India
- Rashtriya Ispat Nigam Limited - India
- Videocon Industries ltd - India
- ICICI Bank Limited - India
- New Zealand Coal & Carbon
- Kepco SPC Power Corporation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- SN Aboitiz Power Inc, Philippines
- Anglo American - United Kingdom
- Eastern Energy - Thailand
- Eastern Coal Council - USA
- Global Business Power Corporation, Philippines
- Bharathi Cement Corporation - India
- Directorate Of Revenue Intelligence - India
- San Jose City I Power Corp, Philippines
- Kaltim Prima Coal - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Gujarat Electricity Regulatory Commission - India
- GVK Power & Infra Limited - India
- Savvy Resources Ltd - HongKong
- South Luzon Thermal Energy Corporation
- Sarangani Energy Corporation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Orica Mining Services - Indonesia
- Marubeni Corporation - India
- Bayan Resources Tbk. - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Australian Coal Association
- MS Steel International - UAE
- Bukit Makmur.PT - Indonesia
- Chettinad Cement Corporation Ltd - India
- Indo Tambangraya Megah - Indonesia
- Ministry of Mines - Canada
- Riau Bara Harum - Indonesia
- Bhatia International Limited - India
- Kohat Cement Company Ltd. - Pakistan
- PNOC Exploration Corporation - Philippines
- Georgia Ports Authority, United States
- Kalimantan Lumbung Energi - Indonesia
- Bhushan Steel Limited - India
- Dalmia Cement Bharat India
- GAC Shipping (India) Pvt Ltd
- Rio Tinto Coal - Australia
- Africa Commodities Group - South Africa
- The Treasury - Australian Government
- Manunggal Multi Energi - Indonesia
- Orica Australia Pty. Ltd.
- Toyota Tsusho Corporation, Japan
- Latin American Coal - Colombia
- Bank of Tokyo Mitsubishi UFJ Ltd
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