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The Anatomy Of Panic: How A Rumor Mutated Into A Three-Day Chinese Bank Run | Zero Hedge

The Anatomy Of Panic: How A Rumor Mutated Into A Three-Day Chinese Bank Run | Zero Hedge.

Yesterday we showed the end result of what happens in a China, in which bankruptcy and default are suddenly all too real outcomes for the country’s hundreds of millions of depositors, when the risk of losing all of one’s money held in an insolvent bank becomes a tangible possibility in “What A Bank Run In China Looks Like: Hundreds Rush To Banks Following Solvency Rumors.” Today, we look in detail at all the discrete elements that culminated with hundreds of Chinese residents lining up in front of a bank in Yancheng and rushing to withdraw their money only to find their money not available (at least until the regional government was forced to step in with a bail out to avoid an even greater panic).Why is this a useful exercise? Because since we will certainly see many more example of it in the near future, it pays to be prepared. Or least it certainly prevents one from losing all of their money…

This is what happened, and when it happened, it happened quick. From Reuters:

The rumour spread quickly. A small rural lender in eastern China had turned down a customer’s request to withdraw 200,000 yuan ($32,200). Bankers and local officials say it never happened, but true or not the rumour was all it took to spark a run on a bank as the story passed quickly from person to person, among depositors, bystanders and even bank employees.

Savers feared the bank in Yancheng, a city in Sheyang county, had run out of money and soon hundreds of customers had rushed to its doors demanding the withdrawal of their money despite assurances from regulators and the central bank that their money was safe.

 

The panic in a corner of the coastal Jiangsu province north of Shanghai, while isolated, struck a raw nerve and won national airplay, possibly reflecting public anxiety over China’s financial system after the country’s first domestic bond default this month shattered assumptions the government would always step in to prevent institutions from collapsing.

 

Rumours also find especially fertile ground here after the failure last January of some less-regulated rural credit co-operatives.

And since nothing beats a first person account here is just that, courtesy of Jin Wenjun who saw the drama unfold.

He started to notice more people than usual arriving at the Jiangsu Sheyang Rural Commercial Bank next door to his liquor store on Monday afternoon. By evening there were hundreds spilling out into the courtyard in front of the bank in this rural town near a high-tech park surrounded by rice and rape fields.

Bank officials tried to assure the depositors that there was enough money to go around, but the crowd kept growing.

In response, local officials and bank managers kept branches open 24 hours a day and trucked in cash by armoured vehicle to satisfy hundreds of customers, some of whom brought large baskets to carry their cash out of the bank.

Jin found himself at the bank branch just after midnight to withdraw 95,000 yuan for his friend from a village 20 kms (12 miles) away.

“He was uncomfortable. It was late and he couldn’t wait, so he left me his ID card to withdraw his cash,” Jin said.

By Tuesday, the crisis of confidence had engulfed another bank, the nearby Rural Commercial Bank of Huanghai.

“One person passed on the news to 10 people, 10 people passed it to 100, and that turned into something pretty terrifying,” said Miao Dongmei, a customer of the Sheyang bank who owns an infant supply store across the street from the first branch to be hit by the run.

Claiming to be a Yancheng resident, one user of Sina Weibo’s Twitter-like service repeated the story on Monday about the failed 200,000 yuan withdrawal, adding that “rumours are the bank is going bankrupt.”

When later contacted by Reuters online, he said he had heard the rumour from his mother when she came back from town. Huanghai and Jiangsu Sheyang banks declined to comment.

China’s banks are tightly controlled by the state and bank bankruptcies are virtually unheard of, so the crisis has baffled many outsiders.

Yet in Sheyang, fears of a bank collapse resonate.

In recent years, this corner of hard-strapped Jiangsu province has experienced a boom in the number of loan guarantee, or ‘danbao’, companies and rural capital co-operatives.

These often shadowy private financial institutions promised higher returns on deposits than banks, but many have since failed.

Qu Guohua, a spiky haired former migrant worker in his 50s, nearly lost 30,000 yuan in a credit guarantee scheme that went up in flames.

What saved him one day in January 2013 was a tip-off from a friend at a rural co-operative just down the street from the loan guarantee company where he had his money.

He told me the other one was going to go out of business and I better go get my money quick,” he said.

Qu managed to get his cash, but others behind him in line were not so lucky, he said.

That helps explain why lines formed so quickly once the rumours started circulating this week. Luck has it, he deposited the cash in a bank next door: Sheyang Rural Commercial Bank.

Banks are different than credit co-operatives and guarantee companies in that they are regulated by China’s banking watchdog and subject to strict capital requirements.

On Wednesday, officials’ painstaking efforts to drive that message home were in full swing.

Bank managers stacked piles of yuan behind teller windows in full sight of customers to try to reassure them that they had plenty of cash on hand. Local officials used leaflets, radio and television to try to calm nerves.

Near one of the troubled banks, a branch of the China Commercial Bank – one of China’s ‘Big Four’ state-owned banks – was running a ticker message on an electronic board over the entrance stating: “Sheyang Rural Commercial Bank is a legal financial organisation approved by the state, just like us”.

While small groups of depositors still gathered at several bank branches in and around this part of Yancheng, some arriving by motorbike, others by three-wheeled motor vehicles common in the Chinese countryside, there were signs that the banks’ efforts were bearing fruit.

Jin said he did not panic when the rumours were spreading and on Wednesday, like many others, he made a deposit.

Others, like Qu, are holding their nerve. On a visit to see his hospitalised daughter, he decided to nip into a local bank where he still has about 10,000 yuan – just for a look.

“I’m not nervous about my money in the bank. It’s protected by national law.

* * *

The same international law that “protected” the Cyprus banking system?

In the meantime, perhaps one should ask: why is it that people everywhere around the globe are so jittery, be it Chinese bank depositors, or E*trade baby high frequency “investors” in US stocks?Is it because everyone sense that fundamentally the system is more broke and insolvent than ever?

* * *

In short, the US has a stock market, which everyone knows is fake and manipulated, but as long as it keeps going higher, it is “safe” to put even more cash into epically overvalued equities. And since everyone is confident they can pull their money before everyone else does, the downswings are sharp and violent (and usually require the Plunge Protection Team to get involved and halt them), and in many ways a complete one-sided panic.

Just like in China. Only in China, instead of being stuck behind their computers, people actually have to go out on the street and withdraw their physical cash before everyone else does.

The problem, of course, is that once the lies and the illusions end, and they will, there will not be enough physical claims to satisfy everyone, be it due to a deposit or equity flight. Because in a fractional reserve system already stretched to the max and leveraged to record levels, one thing is certain: once the upward momentum dies, only devastation and guaranteed 90%+ losses for most, await.

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Editor in Asia Leaves Bloomberg News Citing Censorship | A Lightning War for Liberty

Editor in Asia Leaves Bloomberg News Citing Censorship | A Lightning War for Liberty.

Posted on March 25, 2014

Last November, I highlighted how Bloomberg News seemed to be censoring stories about corruption in China in order to preserve sales of its extremely expensive Bloomberg LP terminals in the region. The article was titled: How Bloomberg “News” Censors the News.

It appears the drama has continued into 2014, with the New York Times reporting that Ben Richardson, an editor in Asia at Bloomberg News, announced that he had resigned in protest. From the NY Times:

Ben Richardson, an editor at large in Asia at Bloomberg News, announced his resignation on Monday, citing the company’s handling of an investigative report in China late last year.

He is the third reporter or editor to leave the organization since several news organizations reported last November that Bloomberg had declined to publish an investigative article that explored financial ties between one of the wealthiest men in China and the families of top Chinese leaders.

“I left Bloomberg because of the way the story was mishandled, and because of how the company made misleading statements in the global press” afterward, he said in an email to the media news site Romenesko. He also wrote that Bloomberg employees faced legal action if they spoke out publicly.

That’s some “free press” we’ve got going here.

Last week Peter T. Grauer, the chairman of Bloomberg L.P., said in Hong Kong that the company should have reconsidered articles outside of business news, because they jeopardized the huge sales potential for Bloomberg’s financial data terminals in the Chinese market. He did not specify any articles in particular. Mr. Grauer’s comments “illustrate the frame of mind of senior management from the business side,” Mr. Richardson said in his email.

With media outlets like these, who needs propaganda…

Full article here.

In Liberty,
Michael Krieger

China's Yuan Drops Most In A Week As Property Developers Tumble | Zero Hedge

China’s Yuan Drops Most In A Week As Property Developers Tumble | Zero Hedge.

When we left China last night, it was all shits and giggles that bad news is great news and a Chinese stimulus plan will be here any minute to save the day. Having realized the sad fact that is not going to happen (as we explained here most recently) and the specter of banks runs looming, this evening’s session has seen property developer stocks tumble – retracing all of last night’s losses – the Yuan plunges by the most in a week back above 6.2150. Copper is holding in for now at the magic $300 level but corporate bond prices are falling once again (worst run in 4 months).

The Yuan is dumping at its fastest rate in a week…erasing all the hope-strewn gains from yesterday

Property Developers are taking it on the chin…

 

And it’s no wonder, as Bloomberg notes…

Chinese developers’ gross margins declined by a weighted average 294 bps last year.

Most developers have forecast a recovery. Further declines in prices could present a threat.

Chinese developers that have reported 2013 results have set an average 2014 sales growth target of 16%, about half last year’s 30% rate. This is likely recognition of a need for better inventory management and of a more challenging sales environment. Developers will also probably curb construction because of slowdowns in some tier two and three cities.

Longfor Properties summed up the attitude among major Chinese and Hong Kong property developers in its company filings… .“In 2014, the Group’s key operating focus will be inventory clearance and cost control… For the coming 6-12 months period, we wil strive to reduce the leve of unsold inventory, hereby gradually improving our sale through rate.”

But apart from that… China’s fixed and the world economy will be back to normal as soon as the US weather clears up…

Bit Tooth Energy: Tech Talk – Natural Gas, China and Russia in the post-Crimea time.

Bit Tooth Energy: Tech Talk – Natural Gas, China and Russia in the post-Crimea time..

TUESDAY, MARCH 25, 2014

The recent takeover of Crimea by Russia has given China a strengthened hand as it continues to negotiate with Gazprom over the supplies of natural gas for the next few years.

It was not that long ago that Gazprom was riding high around the world, as it supplied large quantities of its own and Turkmen gas to Europe, and was negotiating to sell more into China and Asia in general. Then Turkmenistan and China arranged their own deal, and with the construction of a direct pipeline between the two countries, suddenly the market was no longer running entirely Gazprom’s way. They could no longer mandate that Turkmenistan take the price that they offered at the time that Russia controlled all the pipelines that carried the gas to market. And with that change, and the changing natural gas market, so Gazprom’s fortunes have started to teeter.

At the same time the anticipated Russian market in the United States, which would have been supplied from newly developed Russian Artic reserves such as those in the Shtokman field are no longer needed, as the American shale gases have come onto the market in increasing quantities. The world has, in short, become a somewhat less favorable place for Gazprom and the Chinese have hesitated to commit to a further order of natural gas, in part because they anticipate getting a better deal for the fuel than Gazprom would like them to pay.

Russia would like, and is anticipating, that the deal for some 38 billion cubic meters/year of natural gas, starting in 2018 will be signed when President Putin visits China in May. (In context Russia, which supplies about 26% of European natural gas, sends them around 162 bcm per year). Negotiations over the sale of the gas have dragged on for years, having first started in 2004 but the major disagreement continues to be over price. At a time when Norway is seeing a peak in production and Qatar is moving more of its sales to Asia, Russia had seen an increase in European sales, and has been able to move that gas at a price of $387 per 1,000 cubic meters (or $10.54 per kcf/MMBtu. The price of such gas in the US is quite a bit cheaper.

Figure 1. Natural gas prices in the United States. (EIA )

Russia would like to get a price of around $400 per kcm ($10.89 per kcf) with the slight extra going to pay for the pipeline and delivery costs. Whether the two countries can come to an agreement on the price may well now depend on how vulnerable Russia really is to any pressure on its markets from other sources of natural gas. Japan, for example, is now considering re-opening its nuclear power stations, as the costs for imported fuel are having significant consequences on their attempts at economic growth.

Similarly there is talk that the United States may become a significant player on the world stage by exporting LNG as it moves into greater surplus at home, thereby providing another threat to Russian sales. Part of the problem with that idea comes from the costs of producing the gas, relative to the existing price being obtained for it, and part on the amount of natural gas viably available. Consider that, at present, some of the earlier shale gas fields, such as the Barnett, Fayetteville and Haynesville are showing signs of having peaked.

Figure 2. Monthly natural gas production from shale fields (EIA)

While production from the Marcellus continues to rise, there is some question as to whether the Eagle Ford is reaching peak productionalthough that discussion, at the moment relates more to oil production. However given that it is the liquid portion of the production that is the more profitable this still drives the question.

And in this regard, the rising costs of wells, against the more difficult to assure profits is beginning to have an impact on the willingness of companies in the United States to invest the large quantities of capital into new wells that is needed to sustain and grow production. A recent article in Rigzone took note that the major oil companies are rethinking their strategies of investment, with some reorganization of their plans in particular for investment in shale fields. This raises a question for the author:

Another question for the industry is who will supply the risk capital for exploratory drilling, both on and offshore, if the majors pull back their spending? Onshore, for the past few years, a chunk of that capital has been supplied by private equity investors who have supported exploration and production teams in start-up ventures. They have also provided additional capital to existing companies allowing them to purchase acreage or companies to improve their prospect inventory. Unfortunately, the results of the shale revolution have been disappointing, leading to significant asset impairment charges and negative cash flows as the spending to drill new wells in order to gain and hold leases has exceeded production revenues, given the drop in domestic natural gas prices. Will that capital continue to be available, or will it, too, begin demanding profits rather than reserve additions and production growth?

Before investors put up the money for new LNG plants they need to be assured that there will be a financial return for that investment. Given that it takes time for such a market to evolve, and given the need that Russia has to sustain its market and potentially to increase it, the volumes that the US might put into play are likely to be small, with little other than political impact likely.

If Russia recognizes this, and feels relatively confident that Europe must continue to buy natural gas from Gazprom, particularly with the current move by Europe away from other sources of fuel such as coal, then they are likely to be more resistant to bringing the price down for their Chinese customers. On the other hand if China thinks that it might be able to get a better deal from Iran, were sanctions to ease, or from other MENA countries, then – thinking perhaps that Russia needs the sale more – they might toughen their position and the price debate may continue.

It will be interesting to see if it resolves within the next few weeks, and if so, at what a price.

What A Bank Run In China Looks Like: Hundreds Rush To Banks Following Solvency Rumors | Zero Hedge

What A Bank Run In China Looks Like: Hundreds Rush To Banks Following Solvency Rumors | Zero Hedge.

Curious what the real, and not pre-spun for public consumption, sentiment on the ground is in a China (where the housing bubble has already popped and the severe contraction in credit is forcing the ultra wealthy to luxury real estate in places like Hong Kong) from the perspective of the common man? The photo below, which shows hundreds of people rushing today to withdraw money from branches of two small Chinese banks after rumors spread about solvency at one of them, are sufficiently informative about just how jittery ordinary Chinese have become in recent days, and reflect the growing anxiety among investors as regulators signal greater tolerance for credit defaults.

Reuters explains:

Domestic media reported, and a local official confirmed, that ordinary depositors swarmed a branch of Jiangsu Sheyang Rural Commercial Bank in Yancheng in economically troubled Jiangsu province on Monday. The semi-official China News Service quoted the bank’s chairman, Zang Zhengzhi, as saying it would ensure payments to all the depositors. The report did not say how the rumour originated.

Chen Dequn, a resident in Yandong, just outside Yancheng, said she saw a crowd of about 70 to 80 people gathering in a branch of Sheyang Rural Commercial Bank in her town on Tuesday.

“At the moment there are about 70 or 80 people in there. Normally there’d only be about 10,” she told Reuters by telephone.

Officials at another small bank, Rural Commercial Bank of Huanghai, said they had faced similar rushes by depositors, triggered by rumours of insolvency at Sheyang. “We will be holding an emergency meeting tonight,” an official at the bank’s administration office told Reuters, but declined to comment further.

Why Yancheng investors suddenly lost confidence in the security of their bank deposits is not clear, given that the Sheyang bank is subject to formal reserve requirements, loan-to-deposit ratios and other rules to ensure it keeps sufficient cash on hand to meet demand.

Why the jitteriness? Because until now, bank failures in China have been unknown, as Chinese banks are considered to operate under an implicit guarantee from the government. That is changing. Which is why the rumor mill is on overdrive:

“It’s true that these rumours exist, but actually (the bank going bankrupt) is impossible. It’s a completely different situation from the problem with the cooperatives,” said Zhang Chaoyang, an official at the propaganda department of the Communist Party committee in Tinghu district, where the bank branch is located.

And Bear Stearns is fine…

Zhang was referring to an incident that rattled depositors in Yancheng in January, when some rural cooperatives — which are not subject to the supervision of the bank regulator — ran out of cash and locked their doors. Local officials say several co-op bosses fled after committing fraud.

China’s central bank governor said this month that deposit rates are likely to liberalised in one to two years – the most explicit timeframe to date for what would be the final step in freeing up banks to set their own interest rates.

It is widely expected to introduce a deposit insurance scheme before freeing up deposit rates, to protect savers in case a liberalised market puts major strains on smaller banks and alarms the public. Analysts also expect the controls on deposit rates to be lifted gradually. Is China’s debt nightmare a province called Jiangsu?

Why are bank runs like these only set to accelerate? Simple – unlike the US China has zero deposit insurance. Reuters expplains:

The case highlights the urgency of plans to put in place a deposit insurance system to protect investors against bank insolvency, as Chinese grow increasingly nervous about the impact of slowing economic growth on financial institutions.

Regulators have said they will roll out deposit insurance as soon as possible, without giving a firm deadline.

In the meantime, there are always helpful investor relations people willing to explain calmly just what is going on:

When contacted by Reuters by phone on Tuesday, an official at the Jiangsu Sheyang Rural Commercial Bank branch hung up, saying she was busy.

Others were even more helpful:

An official at the administrative office at Jiangsu Sheyang Rural Commercial Bank said the bank would publish a statement shortly. On its website, the bank says it is capitalised at 525 million yuan and had total deposits of 12 billion yuan as of end-February,

Officials at the Jiangsu branch offices of the China Banking Regulatory Commission (CBRC) declined to comment. The Yancheng branch of CBRC and the propaganda offices in Yancheng city and Sheyang county did not answer calls seeking comment.

Busy or not, for now, the banks may have survived following yet more capital infusions from the local government, but what happens when the default wave that has claimed solar, coal, and real estate developers finally impacts a deposit-holding institution? How will China – which has far more total deposits within its banking system than in the US (since the US banks fund themselves mostly using ultra-short term, overnight shadow funding) – survive a nationwide bank run we wonder?

Russia offers India crude oil supplies, stakes in blocks – Economic Times

Russia offers India crude oil supplies, stakes in blocks – Economic Times.

PTI Mar 24, 2014, 09.41PM IST
(Putin’s trusted lieutenant…)

NEW DELHI: As the US and Europe try to isolate Moscow over its action in Crimea, Russian President Vladimir Putin’s trusted lieutenant Igor Sechin today courted top Indian officials, offering to ship its vast crude oil reserves and stakes in oil and gas acreages.

Sechin, who heads Rosneft, Russia’s biggest oil company, led a delegation of about two-dozen officials to meet Oil Secretary Saurabh Chandra seeking to expand ties with New Delhi.

“India is a very important country for Russia. We have a very efficiently run project with ONGC…now we want to expand our cooperation,” Sechin told PTI after the meeting.

The Russian state oil major offered Oil and Natural Gas Corp (ONGC) a stake in nine offshore oil and gasblocks in the Barents Sea and one in the Black Sea.

“We are (also) looking at supplying crude oil to Indian refineries,” he said, adding that Rosneft produces 200 million tons of crude oil a year.

Moscow is courting India to counter moves by the US and Europe to isolate it for annexing Crimea from Ukraine. Sechin was in Tokyo last week to broaden ties with Japan.

India does not have a firm contract to import crude oil from Russia. It gets a small volumes once in a while from ONGC’s Sakhalin-1 project in Far East Russia.

Indian officials said logistics need to be worked out to import oil from Rosneft’s fields.

“We may have to lay some pipelines to transport the crude. We have decided to form a working group to study how this can progress,” an official said.

Of the blocks offered in the Barents Sea, OVL found five were not lucrative. Of the remaining four, it would like to participate in two. It will decide on the other two once Rosneft makes available data by June.

Rosneft had previously offered ONGC a stake in the Magadan 2 and Magadan 3 exploration blocks in the northern part of the Sea of Okhotsk, which the Indian firm is studying.

Irwin Cotler On Why He Believes He Was Poisoned In Russia

Irwin Cotler On Why He Believes He Was Poisoned In Russia.

Huffington Post Canada  |  Posted: 03/24/2014 6:26 pm EDT  |  Updated: 03/24/2014 6:59 pm EDT

irwin cotler poison

When Russia issued its blacklist of 13 Canadians on Monday, Irwin Cotler wasquick to express his honour at being included.

“I wear my exclusion from Russia as a badge of honour and am proud to be in such distinguished company,” he said in a statement.

“I have no intention of visiting Siberia. I have no investments in Sochi. I have no desire to visit Moscow and be poisoned as happened on my last trip.”

Yes, poisoned.

HuffPost Canada’s Althia Raj asked the Liberal MP for the backstory, and he said he hasn’t discussed the episode with anyone other than his family and friends until now.

It happened in 2006, when he was in Russia on a parliamentary delegation. He was dining with NDP MP Joe Comartin, who ordered the exact same meal but “nothing at all, happily, happened to him”. However Cotler was not so lucky.

Here’s the story in his own words:

“By the time, I got back to my hotel, I was violently ill. More than I had ever been almost in my life, and I started to throw up blood. I called the people in the hotel and told them I needed a doctor. Instead of sending a doctor, they sent up people to clean up all the blood — in other words, all the evidence that a doctor would need.

“I called the Canadian embassy in Moscow, and they sent a doctor and the doctor looked at me, examined me and told me I had to go right away to the hospital. And they took me into the Russian Medical Centre, the hospital in Moscow and I was held there for several days. I never knew exactly what was being done because I didn’t understand Russian and they didn’t speak English.

“I was subsequently discharged, not feeling well and returned to Canada. Some months later I met a friend of mine who actually had been one of the physicians attending [Soviet defector Alexander] Litvinov, who told me that all my symptoms were the same as Litvinov. Except that they, in my case, probably just wanted to intimidate me and temporarily disable me, but not to kill me.

“There were a number of incidents at that time, of people being poisoned. When I was at my reunion of my Yale Law School class, I learned from talking to my classmate who became a president of the European Court of Human Rights that he too was poisoned around the same time in Russia. So it didn’t appear to be coincidental.

“But then, the final part about this, is rather intriguing. In 2010, during the Intra-Parliamentary Conference to combat anti-Semitism, I called the Russian Embassy in Ottawa because they hadn’t yet given us the names of their parliamentarians to attend the conference and they said, ‘Oh Mr. Cotler, we’re sorry. We want to get two high-ranking people so please call us next week and we will give you the names.’

“And I called them back the next week, and they gave me the names and then they said to me, ‘Why don’t you come visit us in Russia?’

“And I said, ‘You know, the last time when I was there, I was poisoned.’ And then, just like that, the answer was, ‘We’re sorry. That was a mistake, it won’t happen again.’

“So I haven’t been back since then, but now I guess they made it official that I am banned from returning. But it is not the first time — I was arrested and expelled in 1979. I was banned at that time for defending political prisoners in the Soviet Union whom they accused of consorting with criminal elements in the Soviet Union and named them, like the great Andrei Sakharov, the human rights dissident.

“Now I suspect, it has nothing to do with the Ukraine but probably because I tabled a Private Member’s Bill regarding Sergei Magnitsky.”

Magnitsky was an accountant and auditor in Moscow who uncovered a corruption scheme and testified against several senior Russian officials. He was subsequently imprisoned and died in jail in 2009 at the age of 37. Cotler chairs an intra-parliamentary group on Magnitsky, and he says that is like a “red flag” to Russia.

“My sense is that’s probably the retaliatory reason in my case.”

Cotler said some of the Americans also banned by Russia were people who had worked on the Magnitsky file. Cotler has blogged about Magnitsky’s case for HuffPost.

Cotler said he also doesn’t think the sanctions Russia imposed on the 13 Canadians today will have any impact.

“I don’t think it will have any effect. In my case, it only encourages me and inspires me to intensify my advocacy. And I don’t need to go to Russia for purposes of that advocacy. Our intra-parliamentary group for Sergei Magnitsky is international, it contains parliamentarians from over 20 countries.”

Russia Is Slowly Turning The NatGas Tap Off To Europe | Zero Hedge

Russia Is Slowly Turning The NatGas Tap Off To Europe | Zero Hedge.

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…

Russia Is Slowly Turning The NatGas Tap Off To Europe | Zero Hedge

Russia Is Slowly Turning The NatGas Tap Off To Europe | Zero Hedge.

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…

U.S. could start energy war with Russia – Winnipeg Free Press

U.S. could start energy war with Russia – Winnipeg Free Press.

By: Washington Post

Posted: 03/23/2014 1:41 PM |

A woman holds a banner that reads:

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A woman holds a banner that reads: “Putin is Occupier” during a rally against the breakup of the country in Simferopol, Crimea, Ukraine, Tuesday, March 11, 2014. (DARKO VOJINOVIC / THE ASSOCIATED PRESS FILES)

Debate has raged over whether the United States can fight Vladimir Putin on the Russian president’s most favourable ground: energy politics. It can, and it should, particularly because there’s an obvious path forward that coincides with American — indeed, world — economic interests. That path is lifting irrational restrictions on exports and making it easier to build natural gas export terminals.

For years, Putin has used his nation’s wealth of oil and natural gas as a cudgel to bully his neighbours. At present, the European Union’s large imports of Russian natural gas discourage a forceful Western response to Russia’s aggressive actions in Ukraine. Meanwhile, the United States is tapping massive reserves of unconventional natural gas. That has not only made the U.S. self-sustaining in gas, but also driven down the price of U.S. gas to a point well below what Europeans are paying for the Russian stuff. If the federal government allowed more of it to be liquefied and exported, would the Russians lose a share of the European market?

The story is more complicated than that. Russian gas, which doesn’t need to be liquefied to move (by pipeline) into the European market, would enjoy significant price advantages over imported U.S. gas. The interaction of private buyers and sellers would probably direct U.S. exports to places where gas is more profitable to sell, such as Japan and Korea. The result would be a bounty for the U.S. economy and an improved American trade deficit — but not much direct displacement of Russian gas in Europe.

But that’s also not the end of the story. The U.S. entry into the Asian market would diminish Russia’s opportunity to profit there, as it aims to do. Contributing to an already widening and more diverse global supply of liquefied natural gas (LNG) would also give European importers more flexibility in sourcing their fuel — from the United States, Qatar, or others — the sort of market conditions that have already enabled Europeans to renegotiate gas contracts with Russia. The Council on Foreign Relations’ Michael Levi points out that Putin might end up with an uncomfortable choice between maintaining market share in Europe and slashing his prices more.

Ramping up U.S. exports would take years, but the effects would not only be long-term, as some critics charge. Action that communicates a certain intent to allow more LNG exports would send a signal that “the U.S. is open for business,” as the Eurasia Group’s Leslie Palti-Guzman puts it. That could deter Putin from playing the energy card and help many buyers in negotiating long-term contracts.

The economic case for allowing natural gas exports is compelling on its own. Doing so would bring money into the country and uphold the vital principle that energy resources should flow freely around the globe, making the markets for the fuels the world economy needs as flexible and robust as possible. The more major suppliers there are following that principle, the less control predatory regimes such as Putin’s will have over the market.

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