China Has Russia Over a Barrel

Discussion in 'Higher Learning' started by 88m3, May 20, 2014.

  1. 88m3

    88m3 Fast Money & Foreign Objects

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    When Putin arrives in Shanghai to try and ink a new multibillion-dollar energy deal, it'll be the Chinese -- not the Russians -- who will be laughing all the way to the bank.
    Chinese officials are notoriously tough negotiators, especially when they know you're in a pinch. Just ask Gazprom, Russia's natural gas giant, which is on the brink of capitulating to Beijing on a massive energy project, 10 years in the offing. Gazprom and China National Petroleum Corp., one of China's oil giants, are gearing up to sign a 30-year multibillion-dollar deal to send natural gas from Russia to China through a colossal new pipeline network.

    A week before Russian President Vladimir Putin was set to meet his Chinese counterpart, Xi Jinping, in Shanghai on May 20-21, Russia's deputy energy minister described the deal as "98 percent ready." However, a Chinese deputy foreign minister was far cagier, noting in mid-May: "We are still exchanging views with Moscow, and we will try our best to ensure that this contract can be signed and witnessed by the two presidents."

    On the surface, this seems the kind of win-win outcome that Chinese diplomats regularly tout as the solution to nearly every international problem. Russia sits on the world's largest natural gas reserves, much of it buried in the Siberian hinterland north of its border with China. As the world's largest energy consumer, China is an obvious partner for Russia's economy, in which natural resources make up 70 percent of exports and over 50 percent of government revenue.

    But energy trade between Russia and China is surprisingly limited, with only 9 percent of China's oil imports and 1 percent of its gas imports coming from Russia.China is eager to increase and diversify its energy supplies away from overreliance on expensive and volatile sources in Africa and the Middle East that have to pass through precarious sea lanes in the Strait of Hormuz and the South and East China seas. (Beijing really does worry about all the talk among U.S. strategists on how to blockade China's energy supplies in the event of armed conflict.)

    Yet China has been unwilling to pay the premium prices that Russia has traditionally charged in Europe. Now, with Russia's worsening economy and an increasingly competitive Asian energy market, Beijing holds most of the cards -- and time is not on Moscow's side.

    Gazprom has little choice but to make what Chinese industry experts arecalling a "big concession" on price.
    Gazprom has little choice but to make what Chinese industry experts are calling a "big concession" on price.Although outlines of the deal are sketchy and may remain secret even after it is signed, China willreportedly help finance the related infrastructure, which could cost as much as $80 billion. This is reportedly in exchange for a price of $10-11 per cubic foot of gas: a rate below what Gazprom has long considered its break-even point of at least $12 per cubic foot. So it's still a win-win -- but a much bigger win for Beijing.


    Why is Russia more eager to close a deal than China? It's tempting to credit the Ukrainian crisis and the subsequent warming of geopolitical ties between Beijing and Moscow. After all, isn't this all about Russia finally breaking with Europe and pursuing its fortunes in the East?

    Hardly. The real precipitating factor is Russia's economic free-fall, whose roots run far deeper than the protests in Kiev. According to theInternational Monetary Fund, Russia's anemic economy is teetering on recession, projected to achieve only 0.2 percent growth this year, as the country confronts a corrosive mix of rampant corruption, stagnant growth, high inflation, and a shrinking population.

    To dig out of this hole, Russia will need Chinese customers to supplement European consumption. If Putin manages to sign this deal, it will send 38 billion cubic meters of natural gas to China annually -- less than a quarter of what Russia currently sells to Europe, but still a shot in the arm for Russian export earnings. It could also provide an additional boost for the Russian treasury by igniting broader development of untapped energy resources in Russia's Far East. Furthermore, the proposed pipeline would be on a different grid from Russia's gas infrastructure for Europe -- in other words, Russia will not divert Europe-bound gas to China.

    That's not to say there aren't clear benefits for China in doing the deal. Gas imports from Russia would support China's goal of moving away from carbon-intensive fossil fuels like coal and petroleum that are substantially responsible for the orange haze that often blankets the skies above China's megacities. On a bad day, breathing the air in Beijing isequivalent to smoking 21 cigarettes. And beyond the immediate environmental and health concerns, pollution is fast becoming a political issue that threatens the legitimacy of the Chinese Community Party. Gas imports provide a potentially promising path to resolve these economic and political headaches -- and there's substantial room to grow, as gas currently accountsfor only about 5 percent of China's energy needs. Domestic production won't do the trick either: Major efforts to crack the shale gas code in China could eventually diversify gas supply, but serious water, infrastructure, regulatory, and financing challenges make that a long way off.

    The major difference is that unlike Moscow, Beijing has options. With the shale gas revolution in full swing, the Asia-Pacific region is fast becoming a buyers' market, as new producers from all over the world scramble to get in on the action. Gazprom will have to move quickly to lock in the infrastructure and financing commitments necessary for the Siberian pipeline project. Otherwise it risks being beaten to the Asian market by alternative suppliers in Central and Southeast Asia (which already havepipeline infrastructure to China) or by suppliers from North America, Australia, and East Africa that are working furiously to build gas liquefaction and export facilities that can deliver (literally) boatloads of gas to Asia. China is increasingly prepared to be on the receiving end of this boom, with nine existing import terminals and another five on the way. Seaborne cargoes from the United States could start arriving as early as 2015. If Russia doesn't bend far enough on price, China could look elsewhere to meet its needs.

    Even if Putin succeeds in signing up the Chinese to purchase Russian gas, there will be few reasons to pop the champagne in Moscow. This deal isn't an escape hatch for a country whose relations in the West are quickly souring. Instead, it's a virtual necessity in Russia's desperate attempt to shore up its wobbly economy.

    Photo by SERGEI ILNITSKY/AFP/Getty Images
    China Has Russia Over a Barrel
     
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  2. James Hurley

    James Hurley Just get on my bike and go.

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    dont worry the Russian stans will be in here explaining this one away...
     
  3. Broletariat

    Broletariat I be winkin' through the scope

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    western propaganda, russia and china are partners, the dollar is failing
     
  4. 305DeadCounty

    305DeadCounty ChicoLindo Champion

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    reports saying the deal fell thru :mjlol:

    putin is the nas of international politics, devoted fan base but stays taking L's :ufdup:
     
  5. 88m3

    88m3 Fast Money & Foreign Objects

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    Oh I'm sure I'll hear some good ones

    :popcorn:
     
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  6. tru_m.a.c

    tru_m.a.c IC veteran Staff Member Hall of Fame Supporter

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    lol they're def not Russian stans, just anti American trolls
     
  7. Futuristic Eskimo

    Futuristic Eskimo All Star

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    Be an emerging economy and have almost no growth brehs

    :mjlol:

    Edit:

    :damn:
     
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  8. 88m3

    88m3 Fast Money & Foreign Objects

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    but but but the BRICS rule the world!

    :sas1:
     
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  9. newworldafro

    newworldafro DeeperThanRapBiggerThanHH

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    [​IMG]
     
    Last edited: May 20, 2014
  10. Real

    Real Location: Under Your Skin

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    :mjlol:
     
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  11. Broletariat

    Broletariat I be winkin' through the scope

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    :mjlol:
     
  12. Piff Perkins

    Piff Perkins Superstar

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    Russia is cutting out the middle man by directly negotiating the deal, and thus saving money. Even a "bad" deal is good in this light, since Putin will be eating off the top. Similar to 50 Cent's aggressive outmaneuvering of the major label industry by releasing Animal Ambition OUT JUNE 3RD PRE-ORDER FROM ITUNES NOW independently. Just as the album could sell 5,000 records in the first week and out-gross multiple Hollywood blockbuster films, Putin can sell his gas at "cheap" rates and still make billions.
     
  13. nineteeneightysix

    nineteeneightysix Banned

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    Putin FCUKED up invading Ukraine...He crossed the line...

    Maybe he knows something we don't, but I don't see what he gained by increasing Ukraine's instability and making enemies in the West...

    Now he can't go back, because he will look weak...So, he is stuck with a bad decision for the rest of hid presidency...

    He either has to cop a plea, or continue falling deep into a hell hole...
     
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  14. Broletariat

    Broletariat I be winkin' through the scope

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    :heh: but in this actual industry space, China is coming with that aggressive competitive content and Russia is coming up short. China seems content with the harsh realities of this actual industry space. China is like Steve Stoute, Russia is [​IMG] . Like flabby fif, Russia's growth for a supposedly "emerging" country is worrying, and despite their natural wealth it doesn't seem to be doing what they ACTUALLY thought it would.
     
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  15. newworldafro

    newworldafro DeeperThanRapBiggerThanHH

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    I get no satisfaction about being correct about this, b/se if this goes through, and these BRIC countries (up to 80 associated countries now) decide they don't won't to use the dollar for oil/natural gas, prices/inflation are going to affect me to .......but truth is truth........ not fearmongering, this is sharemongering

    [​IMG]

    [​IMG]


    Korea, India And Japan, Not Just China, Are Looking To Russia For Energy

    Korea, India And Japan, Not Just China, Are Looking To Russia For Energy
    By Meagan Clark
    on May 19 2014 11:57 AM

    When Russian President Vladimir Putin visits Beijing on Tuesday, he’s expected to sign a multibillion-dollar deal with China to build a natural gas pipeline after more than a decade of negotiations and over U.S. objections that China is undermining Western sanctions against Russia stemming from the Ukraine crisis.

    It may be the first of many such energy deals in the region as Putin looks to the East to bypass the sanctions. Already the sanctions have led some American oil and gas executives to skip an upcoming economic conference in Russia. The deal between Russia’s state gas company, Gazprom, and China’s state oil and gas company, CNPC, allows Russia to diversify its customer base, which is heavily dependent on sales to Europe.

    Aware that it could lose market share in Europe -- within 10 years, North American natural gas could ship to Europe -- Russia has been looking to Asian and East Asian markets, where demand for energy imports is rapidly growing.

    “Japanese, Indian and Korean companies are increasing their interest and involvement in Russia’s energy sector,” Kyle Davis, an energy expert at international law firm Goltsblat BLP, said. “Strategically it makes sense, whether things are going well with the West or not.

    In late April, Russia's parliament voted to forgive North Korea 90 percent of its debt to Russia, which dated back to the Soviet era when the two nations were allies during the Cold War. Instead, it voted to invest $1 billion in the world’s most-secretive country for health care, education and energy projects. The planned energy project is a major natural gas pipeline through North Korea.

    Russia plans to build a gas pipeline and accompanying railroad from its offshore Sakhalin Island fields, north of Japan, through North Korea to South Korea.

    “Obviously, the greatest variable in this project is the North Korean risk, which must be handled effectively,” Chris Faulkner, CEO of Texas-based Breitling Energy and adviser to the Energy China Forum’s Asia Shale Gas Committee, said. “North Korea is not trustworthy enough to entrust with an energy supply line, and inter-Korean relations are not healthy enough at present to carry out this project.”

    ExxonMobil operates one of the Sakhalin fields with a 30 percent stake, partnering with companies from Japan (30 percent stake), India (20 percent) and two Russian companies (20 percent combined). Subsidiaries of Gazprom, Netherlands-based Royal Dutch Shell, Japanese corporate group Mitsui and Japanese auto manufacturer Mitsubishi operate the other field. The project is expected to supply South Korea with 10 billion cubic meters of gas each year. It's expected to make North Korea into a sort of Ukraine, and it's expected to make South Korea akin to Europe with its present dependence on Russian gas.

    South Korea relies on imports to meet about 97 percent of its energy needs, making it the world’s second-largest natural gas importer behind Japan.

    "Seems to me Putin is using the Korean project to put pressure on the Chinese to make up their mind," Gal Luft, co-director of the Institute for the Analysis of Global Security and senior adviser to the U.S. Energy Security Council, said. "For him the big prize is China and this week's visit is crucial."

    Russia and India have been negotiating to build a $30 billion oil pipeline, which would be the world's most expensive due to its proposed route through rugged terrain. The so-called Silk Road pipeline would link Russia’s Altai Mountain region to the Xinjiang province of China and northern India. Russia exports 70 percent of its oil, compared to 30 percent of its gas production, and its oil revenues are nearly seven times its gas revenues, the U.S. Energy Information Administration (EIA) said.

    India is the third-largest oil importer in the world after the U.S. and China, as it relies on imports from the Middle East, and it's projected to become the world’s largest oil importer by 2020, according to the EIA. China and India’s economies have been among the world’s fastest-growing for the past two decades, and like China, India’s energy consumption has more than doubled since 1990. Unsurprisingly, India is aiming to secure additional energy imports and to diversify its energy supply.

    As the Asian Development Bank pointed out in an October 2013 report, energy pricing in India is a core hindrance to foreign investment, as oil prices are government-controlled and do not fully reflect the procurement prices.

    Nonetheless, Russia has not called off the project, which it began planning around the same time that China and Russia began discussing a gas pipeline. Indian Prime Minister Manmohan Singh and Putin issued a joint statement from Moscow on Oct. 21, 2013, that confirmed that the two nations are collaborating “to study the possibility of direct ground transportation of hydrocarbons.”

    The statement reaffirmed a joint commitment made in 2010. A year earlier, foreign ministers from Russia, India and China agreed to enhance energy cooperation among the two countries, and at the end of last year, India’s biggest oil and gas company, Oil and Natural Gas Corp. (ONGC), confirmed its interest in the pipeline from Russia, calling it “appropriate.”


    Talks about the pipeline's construction are expected to conclude by the middle of this year, with a completion date of 2020-2022, according to the Center for Research on Globalization, a Montreal-based nonprofit.

    Still, China remains Russia’s most promising customer, with oil and gas consumption expected to increase by nearly 90 percent in 2011-2020, while India’s consumption is expected to rise by about 50 percent, according to The Economist’s Intelligence Unit.

    “Until a China pipeline is built, Russia has few export markets for gas outside of Europe, leaving it vulnerable to sanctions and competition from U.S. exports of shale gas, and Putin knows this,” Faulkner said.




    Just heard through the grapevine, that they actually did sign the deal, but I won't jump to conclusions, I'll give it a few hours......keep equating the MSM to real news brehs.......is this even on CNN, MSNBC, FOX????.................just want to showcase the foolishness some of yall spit .... [​IMG]
     
    Last edited: May 20, 2014
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