BAD CASE OF GAS FOR US PETRO-DOLLAR HEGEMONY

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Posted on 21st May 2014 by Administrator in Economy |Politics |Social Issues

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Russia And China Finally Sign Historic $400 Billion “Holy Grail” Gas Deal

Tyler Durden's picture

There was some trepidation yesterday when after the first day of Putin’s visit to China the two countries did not announce the completion of the long-awaited “holy grail” gas dead, and fears that it may get scuttled over price negotiations. It wasn’t: moments ago Russia’s Gazprom and China’s CNPC announced, that after a decade of negotiations, the two nations signed a 30 year gas contract amounting to around $400 billion. And with the west doing all it can to alienate Russia and to force it into China’s embrace, this is merely the beginning of what will be a far closer commercial (and political) relationship between China and Russia.

So far there have been no public pricing details on the deal which accrording to Gazprom CEO Aleksey Miller is a “commercial secret”, and which is believed to involve Russia supplying 38 billion cubic metres of gas per year to China via a new eastern pipeline linking the countries.

According to Itar-Tass, the compromise between Russian gas export monopoly Gazprom and Chinese National Petroleum Corporation (CNPC) on Russian gas price is estimated at $75 billion, citing the Deputy Head of the National Energy Security Fund Alexei Grivach. The differences on the price for 38 and 60 billion cubic meters supplies a year were $1.5 billion and $2.5 billion, he added, so the subject of the negotiations is quite a significant one.

Gazprom expected a base price of $400 for 1,000 cubic meters, an expert of the Eurasian Development Research Center of the Chinese State Council said in April, whereas the CNPC’s proposal was $350-360 for 1,000 cubic meters.

RIA has more details:

According to Miller, only at 4 am local time it became clear “that all the principal issues have been solved.”

 

Russia and China have foreseen providing “preferential tax regimes,” Miller told journalists, without giving details.

 

Russia earlier suggested nullifying the extraction tax for gas fields delivering fuel to China, while Chinese officials expressed their readiness to cancel import taxes on gas from Russia, Rosneft CEO Igor Sechin said Tuesday.

 

Gazprom’s stocks rose 0.9 percent following reports that the long-awaited gas supply contract was signed. Russian stocks increased Tuesday amid positive aftermath of the first day of President Vladimir Putin’s visit to Shanghai.

 

In March 2013, Gazprom and CNPC signed a memorandum of understanding on the planned gas supplies to China along the eastern route via the Power of Siberia pipeline. The signing of the contract has been delayed several times as the two sides failed to reach an agreement citing a pricing issue as the main stumbling block. President Putin’s current visit to China became the final stage of the negotiating process.

 

The Gazprom CEO said earlier the company could receive advance payment from China for the gas, which could start flowing as early as 2018. The planned project has an estimated capacity to pump up to 38 billion cubic meters annually, which could later increase to 60 billion cubic meters.

Then this from from RT:

A memorandum of understanding was signed in the presence of Russian President Vladimir Putin and President of China Xi Jinping on the second day of Putin’s two-day state visit to Shanghai. The price China will pay for Russian gas remains a “commercial secret” according to Gazprom CEO Aleksey Miller. Gas will be delivered to China’s via the eastern ‘Power of Siberia’ pipeline.

 

RT producers were informed of the landmark energy deal prior to its signing after a conversation with Miller.

 

Under the long-term deal, Gazprom will begin providing China’s growing economy with 38 billion cubic meters of natural gas per year for the next 30 years, beginning in 2018. The details of the deal were discussed for more than 10 years, with Moscow and Beijing negotiating over gas prices and the pipeline route, as well as possible Chinese stakes in Russian projects.

 

Just ahead of Putin’s visit to Shanghai, Russian Prime Minister Dmitry Medvedev gave reassurance that the agreed price would be fair.

 

“One side always wants to sell for a higher price, while the other wants to buy for a lower price,” Medvedev said. “I believe that in the long run, the price will be fair and totally comparable to the price of European supplies.”

 

A major breakthrough in negotiations came on Sunday as Gazprom chief Aleksey Miller sat down with his CNPC counterpart, Zhou Jiping, in Beijing to discuss final details, including price formulas.

 

Although Europe is still Russia’s largest energy market – buying more than 160 billion cubic meters of Russian natural gas in 2013 – Moscow will use every opportunity to diversify gas deliveries and boost its presence in Asian markets.

 

“I wouldn’t look for politics behind this, but I have no doubt that supplying energy to the Asia Pacific Region holds out a great promise in the future,” Medvedev said.

 

In October 2009, Gazprom and CNPC inked a framework agreement for the Altai project which envisions building a pipeline to supply natural gas from fields in Siberia via the western part of the Russia-China border.

 

In March 2013, Gazprom and CNPC signed a memorandum of understanding on Russian gas supplies to China along the so-called eastern ‘Power of Siberia’ route. When both pipelines are activated, Russia can supply Asia with 68 billion cubic meters of gas annually.

Last year, China consumed about 170 billion cubic meters of natural gas and is expected to consume 420 billion cubic meters per year by 2020.

Regardless of what the final price ended up being, and whether or not China got the upper hand in the negotiations, the final outcome is there and it is real: as a result of his disastrous foreign policy in the past two months, Barack Obama finally pushed Russia into China’s hands, culminating with a deal that was ten years in the making and was never certain, until the Ukraine crisis.

And yes, this was all predictable from day one. Here is what we said precisely two months ago:

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.

* * *

 

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.

To conclude with the traditional geopolitical balance of power summary: Putin wins (again), Obama loses (again), and the monument to the dollar’s status as world’s reserve currency gets yet another tarnishing blow.

16 Comments
  1. Hope@ZeroKelvin says:

    This is BAAADDD.

    The USD as the world’s reserve currency rests on 3 things:

    1) The full faith and credit of the US government. Ya buddy, let me know how that’s workin’ out for ya’.

    2) The use of the USD for OIL transactions. Uh Oh, we have another CRACK of DOOM here. We probably took out Saddam because he wanted to trade his oil in something other than USD and we’re going after Iran for the same deal. All that blather about WMD and nukes is just COVER. Now we’re dealing with 2 NUCLEAR powers who also hold a substantial amount of US DEBT.

    3) The rest of the world agrees that since the US economy is so robust and that our country is so stable, that the world can depend on the USD to be the bedrock against which all the world’s currencies are backstopped. I can’t believed I just typed that without a seizure.

    Oh, and we have a printing press.

    While China and Russia are drilling like madmen and seeking control of the SINGLE MOST IMPORTANT SUBSTANCE ON PLANET EARTH IN MAINTAINING GLOBAL CIVILIZATION – that would be OIL – our Preezy is out blocking traffic and playing catch with LIttle Leaguers.

    article-2633258-6PhI5WHJsHSK2-758_634x414.jpg

    And playing with his little windmills and solar panels, of course.

    Sheesh.

    21st May 2014 at 9:21 am

  2. card802 says:

    I smell war.

    There is no way our leaders will sit by quietly and allow those communist bastards to change OUR way of life.
    They will rally the youth to lock and load, fly off and die, to protect our freedoms. We are screwed.

    “China is stockpiling oil for its strategic petroleum reserve at a record pace, intervening on a scale large enough to send a powerful pulse through the world crude market.

    The move comes as tensions mount in the South China Sea, and the West prepares possible oil sanctions against Russia over the crisis in Eastern Ukraine. Analysts believe China is quietly building up buffers against a possible spike in oil prices or disruptions in supply.

    The International Energy Agency (IEA) said in its latest monthly report that China imported 6.81m barrels a day in April, an all-time high. This is raising eyebrows since China’s economy has been slowing for months, with slump conditions in the steel industry and a sharp downturn in new construction.

    The agency estimates that 1.4m b/d was funnelled into China’s fast-expanding network of storage facilities, deeming it “an unprecedented build”. Shipments were heavily concentrated at Chinese ports nearest the new reserve basins at Tianjin and Huangdao. “We think this is a big deal,” said one official.

    China accounts for 40pc of all growth in world oil demand, so any serious boost to its strategic reserves tightens the global supply almost instantly and pushes up the spot price.”

    21st May 2014 at 10:35 am

  3. Balzytch says:

    “There is no way our leaders will sit by quietly and allow those communist bastards to change OUR way of life.”

    Card, the communist bastards are in Congress and the White House. The Russians and Chinese are capitalists, quasi-state-run capitalists, but more so than the criminals running our country.

    Obama will be responsible for not only losing our AAA credit rating, but losing the petrodollar and the dollar as reserve currency, something unheard of, and not thought possible before he took office. But Obama’s goal all along has been to destroy this country, turn it into a socialist/communist state-run dictatorship, make everyone dependent on the government, wipe out independence and small businesses. Obama’s succeeded beyond his wildest dreams. Nobody would have thought we could have been wiped out so quickly, but Obama’s run up the debt by $8 trillion and increased welfare spending by 45%. The future of this country is bleak, and when we have to convert dollars to Yuan just to buy oil, we’ll be paying $8-$10 a gallon, which will eviscerate our economy from top to bottom.

    As HZK said, we fought the Iraq war because Sadam was going to dump the dollar. We lost that war, and China won the Iraq war, as they got 60% of Iraq oil concessions now. China, not the US is the number one consumer of Saudi oil, and Obama and Kerry have pissed off the Saudis so bad, they may dump the petrodollar as well.

    And what do we have to offer the world? Debt, Obesity, wars, tyranny and fascism, NSA spying on every person on the planet, overthrow of sovereign governments, drone strikes by Obama killing innocent children. We’ve become the evil empire, and the rest of the world doesn’t want anything to do with us anymore, for good reason. And we’re lead by an incompetent imbecile clown, elected because of his skin color. Truly a new low for the history of human civilization.

    21st May 2014 at 11:22 am

  4. Balzytch says:

    I rest my case as to who the real communists are; Obama and the liberal progressive democrats.

    Dem Congressman: ‘We’ve Proved That Communism Works’
    http://dailycaller.com/2014/05/21/dem-congressman-weve-proved-that-communism-works/

    ussa-ussa-communist-socialism-political-poster-1267198229.jpg

    21st May 2014 at 11:25 am

  5. Eddie says:

    I guess this explains the headlong capital flight out of the rouble?

    Not.

    21st May 2014 at 11:55 am

  6. Balzytch says:

    Russia: worthless Obama sanctions, now they hate us
    China: worthless Obama accusations, Obama weakness, now they hate us
    Saudi Arabia: weakness on Iran, China better customer, now Saudi buys Chinese arms (google it) not US, China building oil depots in Saudi, infrastructure. Game over for USSA.
    Venezuela: Thanks to Obama and Kerry, they hate us
    Brazil: thanks to Obama and NSA spying, they hate us
    India: signing oil and trade agreements with Russia and China, thanks to NSA and Obama, they hate us.
    Europe: Thanks to NSA and Obama, they look askance at us

    Amazing how much damage abroad Obama has done in a few short years, simply mind-boggling.

    6a00d83451d6a669e20153906f20be970b-500wi

    21st May 2014 at 12:04 pm

  7. bb says:

    Balzytch ,why you have to be the way you are .Try a humor.

    21st May 2014 at 12:50 pm

  8. card802 says:

    Balzytch, I was being sarcastic.

    You know, whipping up the public and the troops to “Go fight those commie bastards” Cause they hate our freedom, defend our interest, defend our way of life, wave the flag for our liberties…. and all that.

    Go die for politicians, again. Destroy lives, destroy cities, destroy peace, for power and transfer of wealth.

    21st May 2014 at 12:51 pm

  9. bb says:

    No body will do a Damn thing as long as America maintains it’s military power . No body wants the wrath of American military destroying their nation.Even Russia will back down for now . They will wait until we are weak both financially and in terms of our military strength.Then they will drop the dollar.

    21st May 2014 at 1:15 pm

  10. BamBam says:

    Hope, I don’t remember all the details, but Saddam had an oil-for-food program denominated in euros since 2000.

    21st May 2014 at 1:43 pm

  11. TPC says:

    @bb – They won’t attack us militarily, as you pointed out its suicide.

    Economically, we are already under attack though.

    21st May 2014 at 2:37 pm

  12. Zarathustra says:

    HZK, Glad to see you came around on the issue of Iranian nukes :)

    21st May 2014 at 3:00 pm

  13. card802 says:

    We may have the biggest baddest military in the world, that is soon paid in worthless paper.

    Ya think they will fight for paper while their families struggle at home? Doubt it.

    21st May 2014 at 3:36 pm

  14. spinolator says:

    Fuck Russia and China! We don’t need foreign oil! Forward!

    21st May 2014 at 4:04 pm

  15. Econman says:

    If I was the little league hitter, I’d try to smash a line drive right into the prez’s balls or head. That would be something to tell my kids or grand kids.

    I knocked the president out with a liner right up the middle! Boo ya!

    23rd May 2014 at 12:45 am

  16. Econman says:

    Oh no. bb is back, flying in as Doctor Moron in his ReTardis time machine. Admin should have a separate comment section just for all the stupid shit bb has said. Then again, that’d take more bandwidth than Netflix.

    23rd May 2014 at 12:52 am

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