Putin's Abject Beijing Failure
Join the discussion below, or Read more at Forbes.com.
#1 Jun 5, 2012
Thank goodness for that, Russia and China have got the obvious ‘deliverables’ from President Putin’s three day visit to Beijing out the way. Syria can act with impunity; Iran will get a free ride against Western inspired sanctions. Worn out lines about ‘sovereign rights of independent states’ will be trotted out, all while Beijing and Moscow can use bilateral relations to counter-balance ‘US influence’. All easy shots; but what Mr. Putin really needs to make his trip a success, are a raft of Sino-Soviet energy deals to gain credit on the Muscovite street. Putin’s problem? He stands no chance of getting them due to long standing pricing disputes.
If this was just the usual case of trade deals adding some economic icing to the diplomatic cake, then fine. The $200bn figure Putin and President Hu Jintao have put out as a 2020 ‘headline figure’ would be more than enough to do the trick. But energy agreements sit at the core of how the Sino-Soviet will or won’t develop across the BRICs – it also underpins Russia’s place in the world. Putin is well aware that since returning to office oil prices have corrected to under $100/b with the Russian stock market and rouble taking a battering. Given Russia still depends on hydrocarbons for two-thirds of its exports, half its federal budget revenue and 20% of GDP, Putin desperately needs to sign Chinese energy contracts if he’s to see the end of his 2018 Presidency.
The form book doesn’t bode well. The only notable Sino-Soviet success to date came in the darkest depths of the financial crisis in 2009 when the East Siberian Pacific Ocean (ESPO) pipeline was signed off, with anticipated 1.6mb/d capacity by 2013. China stumped up $25bn cash in return for a 300,000b/d twenty year supply agreements with Rosneft / Transneft. Given a number of bilateral memoranda of understandings were also inked, it was always expected that gas deals would follow. But China has hedged its global stake remarkably well by drawing on MENA, Caspian and Australian gas supplies to play hard ball with Russia. Beijing is now perfectly placed to put price risk ahead of security of supply with Moscow: unfortunately for Mr. Putin, Gazprom doesn’t get it.
The Russian gas giant is still looking to sell 70bcm of gas at oil-indexed rates to China at $350 to $400 per 1,000 cubic meters, while China is pitching a $200 to $250 price range. Russia has talked up LNG or even GTL prospects in the East to sucker punch Beijing; you’ll also hear the odd (ironic) moan about a lack of domestic price reform in China. None of this is particularly credible; Moscow has basically been outfoxed on its oil-indexation dogma.
Turkmenistan has been pivotal to Beijing’s strategy. 30bcm of Turkmen gas is slated to make its way towards the Chinese mainland by 2015. Further agreements for up to 65bcm are in place from Caspian providers, including Uzbekistan and Kazakhstan. Contracts have typically been brokered (in return for infrastructure loans) at around $5-6/MMBtu benchmarks. That’s before we consider China’s own domestic shale targets of up to 30bcm/y, with the world’s top two LNG producers (Qatar & Australia) looking to sell as much liquefied gas as they possibly can into China at discounted oil-indexed rates. Not to mention LNG upstarts in Canada, America and East Africa looking towards Asia to maximise $1bn a day arbitrage potential between Western and Eastern markets. Liquidity is increasingly so fast in China that cargo swaps are starting to crop in Shanghai as a pre-cursor to a Chinese spot market.
#2 Jun 5, 2012
Given these fundamentals, China is never going to pay oil indexed rates to Moscow; a halfway house (basically between ‘oil’ and ‘coal’ benchmarks) has to be struck. Russia will almost certainly have to blink first. Until it does, Moscow won’t just loose Chinese market share, it will never assume its historic role as swing producer in the gas world, not to mention perfecting its inherent arbitrage potential between Asian nouveau-riche and traditional European consumers.
What’s more, it makes a total mockery of the Shanghai Co-operation Organisation (SCO) convening alongside Mr. Putin in Beijing as a show of ‘Eurasian Unity’. Until Sino-Soviet gas deals are settled, Beijing and Moscow will continue to fight tooth and nail for influence across the Caspian for hydrocarbon export (and re-export) potential. Far from ‘balancing’ US interests, this remains a simple game of divide and rule for Washington – particularly as the State Department can draw India and Europe into the region to further muddy relations. Ramping up US naval capabilities across the Asia-Pacific shouldn’t really come into it.
The louder the Sino-Soviet communique gets on ‘US balancing’ and ‘Syrian sovereignty’, the more it will lack in energy content – irrespective of whether Mr. Putin talks to Hu Jintao and Wen Jiabao or their heir apparent(s), Vice Premier Li Keqiang and Xi Jingping. Many thought once Russia opened up its Arctic reserves, China would strike upstream swap agreements to settle at the upper end of Russian pricing preferences. But China has so far been noticeable by its absence to make Eastern export strategies a runner. Indeed, the potential destruction of BP at AAR’s fickle hands has done nothing to enhance investor confidence in Russia under Putin’s rule – both at ‘state’ and ‘sub-state’(Siberian) levels. If anything, it’s underlined China’s long held contempt for Russia as a rentier economy.
Sino-Soviet economic links will inexorably continue to gather pace through sheer scale, not because of Putin’s politics. Beyond the bluster, that’s the ultimate conclusion of Putin’s China trip: another abject failure to fulfil the true enormity of Sino-Soviet hydrocarbon potential. As in 2009, it’s only another hydrocarbon collapse that will focus Mr. Putin’s ‘Sino centric’ mind to get Russian gas flowing East. When that happens, we’ll have something to worry about – under ‘business as usual’, fear not: Mr. Putin will continue to grab a hydrocarbon defeat from the jaws of victory.
Add your comments below
|Sweet Poison Cupcake expands at Village Gate||Apr 20||The Art of the Co...||1|
|Best of CNY: Help us find the best half-moon co...||Apr 10||Jolyn||4|
|Global vanilla prices squeeze margins for ice c...||Mar '18||Food||1|
|Chicken nuggets and other weird foods which tas...||Mar '18||Jackie||9|
|Dutch oven cooks put on a coal-fired display (Apr '10)||Feb '18||LARGE FARTS||12|
|Kraft's salad dressing fix: Shake up well (Feb '08)||Feb '18||Garlic Lover||55|
|Acton Seniors Centre members enjoyed Town's vol... (Jun '10)||Dec '17||Baker||4|
Find what you want!
Search Cake Forum Now
Copyright © 2018 Topix LLC