Tuesday, 25 March 2014

Europe's gas dependance on Russia

Russia Is Slowly Turning The NatGas Tap Off To Europe



24 March, 2014



While Naftogaz (Ukraine's gas pipeline operator) states that all gas transportation from Russia to Europe is running normally, Bloomberg reports that Russian natgas exports to Europe are declining. Shipments are down over 4% from the prior week and also lower to Ukraine. This 'adjustment' follows increased sanctions by the West as Medvedev's notable statement this morning that Ukraine owes Russia $16bn.

NatGas output is tumbling

The good news:







Gazprom today said natgas transit to Europe via Ukraine, supplies for Ukrainian consumption  


But Pay Up...







Ukraine owes Russia $11b after collapse of 2010 deal, Russian Prime Minsiter Dmitry Medvedev says to President Vladimir Putin at Security Council meeting, according to transcript on Kremlin website.
Medvedev adds $3b Ukraine bonds bought in Dec., ~$2b debt to Gazprom for natgas supplies
NOTE: In 2010, Russia agreed to sell natgas at discount in exchange for extending lease to Black Sea naval port of Sevastopol in Crimea to 2042 from 2017


Or Else...







Russian natgas exports to Europe and Turkey, excl. former Soviet Union, declined to 405.3mcm as of March 22,  according to Bloomberg calculations based on preliminary data from Energy Ministry’s CDU-TEK unit.
Avg daily exports to region were ~457mcm in March, lower than yr earlier: calculations based on CDU-TEK data
Shipments March 16-22 were 3.04bcm, 4% decrease vs level in week ended March 15


It is too early to see a trend, but for now, the direction is not hopeful for Europe.
Furthermore, Gazprom has cut its Diesel output by the most in 7 months...





and then... (via NY Times),







Russia is now asking close to $500 for 1,000 cubic meters of gas, the standard unit for gas trade in Europe, which is a price about a third higher than what Russia’s gas company, Gazprom, charges clients elsewhere.
Russia says the increase is justified because it seized control of the Crimean Peninsula, where its Black Sea naval fleet is stationed, ending the need to pay rent for the Sevastopol base. The base rent had been paid in the form of a $100 per 1,000 cubic meter discount on natural gas for Ukraine’s national energy company, Naftogaz.


And if that's not clear enough...


Of course, not every country is as exposed as the chart above shows, however, as Reuters shows belowEU's eastern members depend very heavily on Russia...
Below are details of how some of the ex-Communist EU states are economically exposed to Russia:


BULGARIA

Imports from Russia accounted for 18.5 percent of Bulgaria's total imports last year, worth about $6.6 billion. Russia is Bulgaria's biggest source of imports.
Energy is the main import from Russia. Bulgaria gets about 90 percent of its gas from Russian firm Gazprom. Its only oil refinery, controlled by Russia's LUKOIL, works on Russian crude and its only nuclear power plant, which provides over 40 percent of electricity, operates two 1,000 MW Soviet-built reactors that work on Russian nuclear fuel.


Last year some 700,000 Russians were among Bulgaria's 2.6 million tourists. Tourism revenue makes up about 13 percent of annual gross domestic product.


CZECH REPUBLIC


In 2012, the latest year for which figures are available, 66 percent of Czech imports of natural gas came from Russia.


Exports to Russia in 2013 were worth $5.83 billion, and represented 3.67 percent of total exports. Imports from Russia were worth $7.80 billion.


Russia's largest steelmaker Evraz has a plant in the Czech Republic.


A consortium including Russia's Atomstroyexport is competing in a multi-billion dollar tender to expand the Temelin nuclear power plant. Russian firm TVEL supplies CEZ nuclear power units with fuel.


In 2013, Russians accounted for the second largest group of tourists coming to the Czech Republic with 759,000 people, or 10.4 percent of total tourists.


HUNGARY

Russia is Hungary's largest non-EU trading partner. Exports to Russia last year were worth 2.55 billion euros ($3.5 billion), of total exports worth 81.7 billion euros.


Hungary imports about 80 percent of its gas needs from Russia.


The government has signed an agreement with Russia's Rosatom to expand the Paks nuclear power plant that supplies about 40 percent of Hungary's electricity.
Russia is Hungarian drug maker Richter's biggest market. The company has warned first quarter profit will fall due to the rouble's slide.


LITHUANIA


About one fifth of Lithuanian exports go to Russia, though a large part of this is "re-exports," meaning that Lithuanians are importing the goods from a third country and then shipping them on to Russia.

* Lithuania and its industry are almost totally reliant on Russia for energy resources.


POLAND


Russia accounts for 90 percent of Poland's oil imports and more than half of its gas.


Russia is Poland's second largest trade partner, with combined 2013 imports and exports accounting for 8.8 percent of foreign trade, worth $36 billion.


ROMANIA

Romania's exports to Russia totalled 1.3 billion euros ($1.8 billion) in the first 11 months of 2013 or 2.8 percent of overall exports. Romanian imports from Russia were 2.1 billion euros in January-November 2013, representing 4.2 percent of total imports.


Romania is much less dependent on imported gas than other countries in the region. Romanian gas fields provide about 80 percent of domestic needs, and President Traian Basescu said that if Russia cuts gas deliveries, the effects will not be substantial.


SLOVAKIA


Exports to Russia in 2013 were worth 2.55 billion euros ($3.5 billion), or 3.96 percent of total exports. Imports from Russia were worth 6.15 billion euros ($8.5 billion)


Fuel for two nuclear power plants is imported from Russia. Russian firm Rosatom has been in talks to take part in constructing new nuclear power units in Slovakia.
Slovakia is nearly 100 percent reliant on Russian gas, and its budget revenues depend on the tariffs it charges for Russian gas crossing its territory.


SLOVENIA

Slovenia is among the EU countries with the largest surplus in trade with Russia. It exports some 1 billion euros of goods and services to Russia per year, about 4.6 pct of total exports.


For Slovenia's largest listed company, pharmaceutical firm Krka, Russia is the biggest single market. Krka has a factory in Russia and last year sold products worth 300 million euros ($413.5 million) to Russia, a quarter of its total sales.



Petrodollar Alert: Putin Prepares To Announce "Holy Grail" Gas Deal With China



21 March, 2014



If it was the intent of the West to bring Russia and China together - one a natural resource (if "somewhat" corrupt) superpower and the other a fixed capital / labor output (if "somewhat" capital misallocating and credit bubbleicious) powerhouse - in the process marginalizing the dollar and encouraging Ruble and Renminbi bilateral trade, then things are surely "going according to plan."


For now there have been no major developments as a result of the shift in the geopolitical axis that has seen global US influence, away from the Group of 7 (most insolvent nations) of course, decline precipitously in the aftermath of the bungled Syrian intervention attempt and the bloodless Russian annexation of Crimea, but that will soon change. Because while the west is focused on day to day developments in Ukraine, and how to halt Russian expansion through appeasement (hardly a winning tactic as events in the 1930s demonstrated), Russia is once again thinking 3 steps ahead... and quite a few steps east.

While Europe is furiously scrambling to find alternative sources of energy should Gazprom pull the plug on natgas exports to Germany and Europe (the imminent surge in Ukraine gas prices by 40% is probably the best indication of what the outcome would be), Russia is preparing the announcement of the "Holy Grail" energy deal with none other than China, a move which would send geopolitical shockwaves around the world and bind the two nations in a commodity-backed axis. One which, as some especially on these pages, have suggested would lay the groundwork for a new joint, commodity-backed reserve currency that bypasses the dollar, something which Russia implied moments ago when its finance minister Siluanov said that Russia may refrain from foreign borrowing this year. Translated: bypass western purchases of Russian debt, funded by Chinese purchases of US Treasurys, and go straight to the source.

Here is what will likely happen next, as explained by Reuters:


Igor Sechin gathered media in Tokyo the next day to warn Western governments that more sanctions over Moscow's seizure of the Black Sea peninsula from Ukraine would be counter-productive.


The underlying message from the head of Russia's biggest oil company, Rosneft, was clear: If Europe and the United States isolate Russia, Moscow will look East for new business, energy deals, military contracts and political alliances. 


The Holy Grail for Moscow is a natural gas supply deal with China that is apparently now close after years of negotiations. If it can be signed when Putin visits China in May, he will be able to hold it up to show that global power has shifted eastwards and he does not need the West.


More details on the revelation of said "Holy Grail":


State-owned Russian gas firm Gazprom hopes to pump 38 billion cubic meters (bcm) of natural gas per year to China from 2018 via the first pipeline between the world's largest producer of conventional gas to the largest consumer.


"May is in our plans," a Gazprom spokesman said, when asked about the timing of an agreement. A company source said: "It would be logical to expect the deal during Putin's visit to China."


Summarizing what should be and is painfully obvious to all, but apparently to the White House, which keeps prodding at Russia, is the following:


"The worse Russia's relations are with the West, the closer Russia will want to be to China. If China supports you, no one can say you're isolated," said Vasily Kashin, a China expert at the Analysis of Strategies and Technologies (CAST) think thank.


Bingo. And now add bilateral trade denominated in either Rubles or Renminbi (or gold), add Iran, Iraq, India, and soon the Saudis (China's largest foreign source of crude, whose crown prince also happened to meet president Xi Jinping last week to expand trade further) and wave goodbye to the petrodollar.

As reported previoisly, China has already implicitly backed Putin without risking it relations with the West. "Last Saturday China abstained in a U.N. Security Council vote on a draft resolution declaring invalid the referendum in which Crimea went on to back union with Russia. Although China is nervous about referendums in restive regions of other countries which might serve as a precedent for Tibet and Taiwan, it has refused to criticize Moscow. The support of Beijing is vital for Putin. Not only is China a fellow permanent member of the U.N. Security Council with whom Russia thinks alike, it is also the world's second biggest economy and it opposes the spread of Western-style democracy."

This culminated yesterday, when as we reported last night, Putin thanked China for its "understanding over Ukraine." China hasn't exactly kept its feelings about closer relations with Russia under wraps either:


Chinese President Xi Jinping showed how much he values ties with Moscow, and Putin in particular, by making Russia his first foreign visit as China's leader last year and attending the opening of the Winter Olympics in Sochi last month.

Many Western leaders did not go to the Games after criticism of Russia's record on human rights. By contrast, when Putin and Xi discussed Ukraine by telephone on March 4, the Kremlin said their positions were "close".


The punchline: "A strong alliance would suit both countries as a counterbalance to the United States." An alliance that would merely be an extension of current trends in close bilateral relations, including not only infrastructure investment but also military supplies:


However, China overtook Germany as Russia's biggest buyer of crude oil this year thanks to Rosneft securing deals to boost eastward oil supplies via the East Siberia-Pacific Ocean pipeline and another crossing Kazakhstan.

If Russia is isolated by a new round of Western sanctions - those so far affect only a few officials' assets abroad and have not been aimed at companies - Russia and China could also step up cooperation in areas apart from energy. CAST's Kashin said the prospects of Russia delivering Sukhoi SU-35 fighter jets to China, which has been under discussion since 2010, would grow.

China is very interested in investing in infrastructure, energy and commodities in Russia, and a decline in business with the West could force Moscow to drop some of its reservations about Chinese investment in strategic industries. "With Western sanctions, the atmosphere could change quickly in favor of China," said Brian Zimbler Managing Partner of Morgan Lewis international law firm's Moscow office. 

Russia-China trade turnover grew by 8.2 percent in 2013 to $8.1 billion but Russia was still only China's seventh largest export partner in 2013, and was not in the top 10 countries for imported goods. The EU is Russia's biggest trade partner, accounting for almost half of all its trade turnover.

And as if pushing Russia into the warm embrace of the world's most populous nation was not enough, there is also the second most populated country in the world, India.

Putin did take time, however, to thank one other country apart from China for its understanding over Ukraine and Crimea - saying India had shown "restraint and objectivity".

He also called Indian Prime Minister Manmohan Singh to discuss the crisis on Tuesday, suggesting there is room for Russia's ties with traditionally non-aligned India to flourish.

Although India has become the largest export market for U.S. arms, Russia remains a key defense supplier and relations are friendly, even if lacking a strong business and trade dimension, due to a strategic partnership dating to the Soviet era.

Putin's moves to assert Russian control over Crimea were seen very favorably in the Indian establishment, N. Ram, publisher of The Hindu newspaper, told Reuters. "Russia has legitimate interests," he added.


To summarize: while the biggest geopolitical tectonic shift since the cold war accelerates with the inevitable firming of the "Asian axis", the west monetizes its debt, revels in the paper wealth created from an all time high manipulated stock market while at the same time trying to explain why 6.5% unemployment is really indicative of a weak economy, blames the weather for every disappointing economic data point, and every single person is transfixed with finding a missing airplane.

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