Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

As The Cold War Returns, Russia Turns East

Politics / Russia May 21, 2014 - 10:15 AM GMT

By: Money_Morning

Politics

Tonight I am a guest again on Chinese national TV. I’ll be appearing live via satellite from Ft. Lauderdale, Florida, and we’ll be discussing the crisis in Ukraine.

This time, however, we’ll be talking directly about energy.

With a new Cold War mentality returning to Europe, China is now about to take center stage in Moscow’s export strategy. The Kremlin has turned its attention to the East.


As Russian President Vladimir Putin digs in his heels for a long-term showdown with the West, natural gas has become his primary tool. Today, Europe is the single largest regional buyer of Russian gas, and about 25% of it travels across Ukraine.

But heading into the Conference on Interaction and Confidence Building Measures in Asia (CICA) that kicked off today in Shanghai, the situation is about to change.

And what happens over the next few weeks could dramatically change investment expectations worldwide. Let me explain…

A History of Frosty Relations

The ongoing conflict in Ukraine is once again causing concerns over gas deliveries to Europe and the continuing position in the market of Gazprom, Russia’s natural gas behemoth.

But at least this time around, it is happening during a better time of year for end users.

The last dispute happened in January, 2009 during one of the coldest winter snaps in years. A pricing disagreement erupted between Russian and Ukraine which resulted in Gazprom cutting its deliveries. Unfortunately, that meant the pass-through volume across Ukraine to Europe ended as well.

In the intervening years, the European Union has since somewhat diversified the continent’s sourcing for its gas needs. Today, there is more liquefied natural gas (LNG) arriving at terminals in the Netherlands, Spain, and Italy from places like North Africa and Qatar.

And with the two legs of Nord Stream up and operating, even the supply from Russia has changed direction. This gas pipeline directly connects Russia with northern Germany across the Baltic Sea floor. It had been considered a politically secure transit route, since a former German Chancellor heads up the corporation running it.

Of course, that was before the annexation of Crimea, unrest in Eastern Ukraine, and the paralysis in Kiev changed the entire picture.

Putin’s Favorite New Customer

Now, Moscow is considering trade with China as a geopolitical response to its rising acrimony with the West. By moving his exports east, Putin is looking to secure two objectives.

The first is moving Gazprom revenues, essential to Russia’s central budget, from a politically insecure European direction to a more amenable Chinese one.

The second is to outflank the U.S. intentions to use LNG exports as a weapon in lessening Moscow’s influence over both the European and Asian markets.

To be sure, a Chinese initiative is hardly new. Discussions between Moscow and Beijing on gas trade have been ongoing for more than a decade. The impediment throughout has always been the price.

That hasn’t changed. In fact, price is still the problem, since a possible opportunity for an historical accord came and went yesterday during the meetings in Shanghai without a breakthrough. But the expectations these days are higher than at any point since the negotiations began ten years ago.

However, the dynamics of the situations have changed dramatically. The Chinese domestic market is demanding additional gas, both to support a rising internal need and to begin the essential process of weaning its economy from reliance on poor-quality coal.

This is how the all-important pricing issue is shaping up. China at the moment pays about $10 per 1,000 cubic feet for gas imported from Turkmenistan on an existing export pipeline system from Central Asia.

The exact price of such deals is always a matter of national interest and never divulged in this part of the world. But we do know that Russian exports to Europe are averaging about $8.80 per 1,000 cubic feet. The standard of measurement in most other places is via cubic meters. The price to Europe is running some $308.50 per 1,000 cubic meters; 1 cubic meter is a little over 35 cubic feet.

Nobody ever makes these things easy!

Anyway, the price is calculated and revised based on the price of a basket of crude oil and oil product prices. As the price of oil increases (as it is doing now), the price of gas increases right along with it.

There are also other considerations in a Gazprom contract. One is that the accord must be longterm (usually 20 years), while the other is what is called a take-or-pay provision. This requires that an end user accept a certain minimum percentage of a monthly contract volume (usually 75-80%) or pay as if it had.

Inside a Potential $40 Billion Gas Deal

As I have noted before, LNG traffic has been a primary competitor to this approach. That’s because regular LNG deliveries allow for the development of a local spot market where the LNG is received.

Unlike pipeline contracts, spot markets are quick transfers (usually completed within 72 hours) and are ad hoc rather than recurring purchases. The prices realized in spot markets are almost always lower than pipeline prices. Great for the user. Not so hot for companies like Gazprom.

The exception to this rule, at least for now, may be Asia. There, initial LNG from the U.S. would come in at closer to $15 per 1,000 cubic feet, while allotments from the Chevron Corp. (NYSE:CVX) Gorgon project in northwestern Australia or from the Exxon Mobil Corp. (NYSE:XOM) operations on Papua New Guinea may undercut that a bit.

The point is this. LNG as a weapon in Washington’s arsenal to curb Russian expansionary interests plays out much better in Europe than it does in Asia. Such a policy imbalance means the movement of gas east for Moscow is becoming a primary alternative.

According to sources, the agreement on the table in Shanghai is gargantuan – believed to be $40 billion over 30 years, delivering some 38 billion cubic meters (1.34 trillion cubic feet) of gas annually over a proposed $22 billion pipeline. That would translate into around $9.50 per 1,000 cubic feet. Of course, Beijing knows full well what Moscow’s policy situation is and is looking to cut that cost.

Either way, a deal could be announced any time.

When it’s announced, it is going to alter the energy landscape… and the geopolitical picture right along with it.

Source : http://oilandenergyinvestor.com/2014/05/cold-war-returns-russia-turns-east/

Money Morning/The Money Map Report

©2014 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in