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Vladimir Putin is a man intent on taking his business elsewhere in the face of increased economic sanctions. At the same time China has had to send ships to extract its nationals from Vietnam in the face of violent anti-Chinese riots in response the China's oil drilling in the South China Sea. It does seem like an optimal time to have a chat about gas and oil.

Putin’s Shanghai Expedition Drives Up Gazprom: Russia Overnight

President Vladimir Putin’s planned China visit this week is helping spark the longest rally in OAO Gazprom since 2006 as speculation mounts that he will return with a long-sought gas supply agreement.

Gazprom, the world’s largest natural-gas producer, has climbed eight straight days, rallying 15 percent over the period to 144.29 rubles ($4.15) in Moscow. The stock has gained 12 percent this month, compared with a 1.1 percent advance in the Stoxx 600 Oil & Gas index and the MSCI Emerging Markets Energy index’s 5.7 percent increase.

“Russia and China are closer to a deal than they’ve ever been before,” Karen Kostanian, an analyst at Bank of America, said by phone from Moscow last week. “While Russia seeks to diversify its natural gas exports away from Europe, China wants to diversify its fuel imports.”

Gazprom will have to spend about $56 billion through 2019 to build a new pipeline to China and develop the Kovykta and Chayanda gas fields in eastern Siberia to supply the gas, Kostanian said.

So while western political leaders threaten sanctions that they seem to lack the political muscle to actually put in place, western investors will likely be keeping a very close eye on Gazprom stock.

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Comment Preferences

  •  Now if Putin could just (2+ / 0-)
    Recommended by:
    mookins, unfangus

    pull in western oil companies and financiers he could bypass the administration completely.

    "You cannot win improv." Stephen Colbert (https://www.youtube.com/watch?v=m6tiaooiIo0 at 16:24).

    by Publius2008 on Sun May 18, 2014 at 04:55:08 PM PDT

    •  I think he has more influence with them (3+ / 0-)
      Recommended by:
      arendt, mookins, unfangus

      than the administration likes to admit.

    •  Exxon is not honoring the sanctions (1+ / 0-)
      Recommended by:
      unfangus

      Exxon is the largest fracker in the US. It has been selling some of it's American holdings and increasing investments in Russia because there is less fracking backlash in Siberia - more water, fewer people complaining.

      UPDATE 1-ExxonMobil says not planning to leave Sakhalin project in Russia

      MOSCOW, May 16 (Reuters) - U.S. energy company ExxonMobil has no plans to pull out of an oil project off Russia's Pacific Sakhalin island, it said on Friday, denying a media report that it could do so due to tensions between Moscow and the West over the crisis in Ukraine.

      The United States and the EU have imposed sanctions on Moscow and put some Russian officials and businessmen on sanction lists following Russia's annexation of Ukraine's Crimea peninsula in March.

      Those included Igor Sechin, a close ally of President Vladimir Putin and the head of Russian state oil major Rosneft , which co-owns the Sakhalin-1 project with Exxon.
      ...
      Energy Minister Novak said on Friday that foreign companies are still interested in working in Russia. "I know that many companies are contacting their governments to stop these talks about sanctions," he said. (Additional reporting by Olesya Astakhova in Moscow and Nidhi Verma in New Delhi; editing by Dmitri Zhdannikov and Susan Thomas)

      •  The US has not sanctioned Rosneft. (2+ / 0-)
        Recommended by:
        vcmvo2, mookins

        It's perfectly legal for Exxon to do business with Rosneft.  The sanction was against Igor Sechin only.  

        •  U.S. persons are prohibited from doing business (1+ / 0-)
          Recommended by:
          unfangus

          with sanctioned people or entities. Rex Tillerson and Sechin have worked together on a personal basis to sign dozens of deals in the past. BP's Bob Dudley is also in the same position.

          Both men have stated that they will not let the sanctions against Sechin affect their dealings with Rosneft.

          It makes a mockery of the US sanctions against Sechin.

  •  Soon it'll be a China, Russia N Korea alliance n/t (0+ / 0-)

    Everything that we see is a shadow cast by that which we do not see. Martin Luther King, Jr.

    by destiny1 on Sun May 18, 2014 at 06:05:18 PM PDT

    •  with Belarus and Iran (0+ / 0-)

      and maybe Kazakhstan as adjuncts.

      Russia and China formed the "Shanghai Cooperative Organization" about ten years ago, more or less an anti-American semi-alliance.  

      •  or india (0+ / 0-)

        who had a similar pipeline project with putin
        anounced 2 years ago (going through china first)
        let see that would be rouhgly half of the world population
        who knows maybe it will be popular among them.
        about the SCO are you sure they sit around the whole day and dam the muricans
        for me they look busy to create a newly organized world
        ps i dont say i like it
        but your comment made it sound like they where austira and lichtenstein and not roughly 3 billion people geting closer
        together by economic corporation

        •  The large populations (0+ / 0-)

          of mostly poorly educated rural people all these countries have are more of a liability than an advantage to their leaders and elites.  One way of interpreting present Chinese domestic policy is as a massive long term population reduction program.

          I don't see India and China in the same political macro grouping for long.  That's the two divas in the same building problem on a very large scale.

          Russia is actually an economic lightweight relative to the others.  Over the next several decades it faces the choice of being an Asian power as you describe and thereby giving up its European nature, or of shedding its troublesome conquests in Asia (as the oil/gas run out) and becoming the largest EU member.

  •  Putin's objective of making U.S. policy relative (0+ / 0-)

    to Russia irrelevant continues apace.

    •  Apace? (5+ / 0-)

      Not a puff of gas will be exported until the pipeline is constructed to newly developed gas fields. Even the diary gives the earliest at five years from now even if the agreement were signed this week.

      Russia exports about 80% of its gas to the EU so it will be increasing production while exports to its west reduce so that some exports to a country with which it has had even more strained relations continue. China is also developing its own gas fields and has declared huge areas of the China Sea as its own to exploit. The dispute with Vietnam is about a rig that the Chinese have installed offshore some disputed islands.

      Rather than some sort of victory or tactic for Putin, it shows the desperate state of the Russian economy. Heavy dependence on one area - exporting energy - is a recipe for disaster. The Arab OPEC countries know this and are using various forms of sovereign funds to diversify. Putin is a KGB operative who fundamentally does not understand economics. This wooing of Beijing will mean one thing if a deal is done - China is striking a very cheap deal at a time when Putin is desperate to ensure a continued revenue stream for his government.

      "Come to Sochi, visit the gay clubs and play with the bears" - NOT a Russian advertising slogan.

      by Lib Dem FoP on Sun May 18, 2014 at 07:45:32 PM PDT

      [ Parent ]

      •  ^THIS^ (1+ / 0-)
        Recommended by:
        vcmvo2

        Many rec.s for your comment. I still think Putin is getting and not enjoying a lesson in Global Economics.

      •  Europe cannot cut back gas purchases any faster (3+ / 0-)
        Recommended by:
        chuckvw, unfangus, Wolf10

        than Russia can ramp up production to China. In fact, Europe's own supplies are decreasing and they are pushing hard against fracking.

        Putin is a KGB operative who fundamentally does not understand economics.
        Complete nonsense. One of the reasons Putin is popular in Russia is because the standard of living of the middle class has risen under his presidency. The opposite has occurred in the US during this same time period.
        Russia overtakes Germany to become 5th largest economy

        Russia passed an important milestone on July 15, overtaking Germany to become the biggest economy in Europe in terms of purchasing power parity and the fifth biggest in the world.

        This achievement comes on top of the World Bank's decision a week earlier to upgrade Russia from a "middle-income" to a "high income" country after per-capita income passed the $12,700 mark.
        ...
        The World Bank's new GDP rating published last week ranks the US as the world's largest economy by purchasing power parity last year with $15.7 trillion, followed by China with $12.5 trillion, India with $4.8 trillion, and Japan with $4.5 trillion (see table below).

        •  Wrong (0+ / 0-)

          The UK government at least was already pressing ahead with fracking following a moratorium to assess the risks after a very minor earthquake caused in the Blackpool area.

          The complete irrelevance of the item you put in blockquotes is illustrated by the simple fact that countries with higher populations have a higher "GDP" rating all other things being equal. Unfortunately for the Russians, all things are not equal. Take retirement pensions. In Germany in 2012, the average state retirement pension was €1263.15 or @ US$1730 per month. The average in Russia in 2013 was US$ 285 yet in 2012 Putin raided what in the USA would be called the Social Security Trust Fund but the system is unsustainable. He had exchanged short term political popularity and social stability for long term problems for the Russian economy, yet another example of his economic illiteracy.

          The only way forward, argue nearly all experts, is to raise Russia’s low pension age of 55 for women and 60 for men. Both the IMF and the members of Strategy 2020, an expert group formed by the Russian government, call for a gradual increase of the pension age to 63.

          The move is thought to be politically dangerous, if not impossible. Mr Putin has increasingly relied on the support of the rural population and industrial workers, as well as the 40% or so of the electorate who are elderly. One of Mr Putin’s many pre-election promises, now turned into official directives, was to keep the pension age intact. That order left the government with few options.

          Mr Medvedev and his team were thus handed an unenviable task. No one disputes that today’s pension system, created in 2002, needs some kind of reform. Part of the problem is demography. Declining birth rates in the 1980s and 1990s have left Russia with too few workers to support those in retirement; birth rates have stabilised in recent years but too late to affect the looming pension crisis. Today there are 100 workers for every 87 pensioners, says Evsey Gurvich of the Economic Expert Group, who led the Strategy 2020 pension task-force; by 2020, that figure will be 100 workers for 100 pensioners.

          So like the Red Queen. Putin has to keep running just to keep up with increasing demands on the Government's economy. Any deal with China would not be a replacement for reduced EU demand, it is desperately needed to simply pay state salaries and pensions. Russia needs a tame "new-COMECON" to take its frankly rubbish consumer goods. In a report issued in January this year,  >95% would prefer to buy a non-Russian electronics product, 83% would prefer foreign clothing, 82% shoes and even 60% prefer foreign alcoholic drinks apart from beer where it is 54%  and Russian vodka, unsurprisingly, which is favored by 80%. (Actually it is quite surprising that 20% prefer foreign vodka!)

          "Come to Sochi, visit the gay clubs and play with the bears" - NOT a Russian advertising slogan.

          by Lib Dem FoP on Mon May 19, 2014 at 09:35:39 AM PDT

          [ Parent ]

          •  You are blaming Putin for economic problems that (0+ / 0-)

            are not unique to Russia - especially pensions. The US is looking to increasing their retirement age as well. At least Russia has oil revenues to help ameliorate the problem.

            The US imports almost all of it's electronic products, clothing and shoes as well as an extremely large amount of other consumer goods. It runs a trade deficit of over $500 billion. Russia runs a trade surplus of about $200 billion. Only about half of Russia's trade is oil/gas. The US is set to increase it's exports of oil/gas in the near future.

            Did you even read the link you supplied? Your link backed up my statement that Putin is popular because the standard of living of most Russians has increased.

            Landor’s Russian Consumer Report: An introduction

            A reemerging power, redefined

            There are 143 million Russian consumers, and for the first time in 20 years that number is growing. What’s more, Russians are getting richer and have more money to spend on consumer goods.

            Retail is the driving force of the economy and is three times larger than the raw materials sector in terms of value.1 According to the Russian state statistics agency Rosstat,2 Russia is already among the top three European markets by value for almost all consumer products3 and is number one, as of 2013, in categories such as mobile telecom, dairy, clothing, footwear, and apparel.4

            1. Russians prefer to buy Russian, but domestic companies are failing to deliver

            Our results show that there is a potent “product nationalism” in the world of Russian retail. Customers generally prefer to buy Russian if they have a choice.

            So like the Red Queen. Putin has to keep running just to keep up with increasing demands on the Government's economy. Any deal with China would not be a replacement for reduced EU demand, it is desperately needed to simply pay state salaries and pensions.
            Russia has had a better balanced budget than the US.  Most years there has been a surplus. Russian debt is 13% of GDP. The US is 110% GDP.

            One of the problems is that Russia was pillaged when US backed Yeltsen gave away state assets for pennies on the dollar.

  •  This will be about interests (2+ / 0-)
    Recommended by:
    gerald 1969, Richard Lyon

    Mutual or merely convenient.

    Enjoy the show, I predict a big banquet!

    No one is coming to save us, the future is in our hands.

    by koNko on Mon May 19, 2014 at 03:21:20 AM PDT

  •  Brics is determined to move away from the dollar (2+ / 0-)
    Recommended by:
    unfangus, Wolf10

    This is one of the early steps. The U.S. won't be able to bomb their way out of this one.

    It always seems impossible until its done. -Nelson Mandela

    by chuckvw on Mon May 19, 2014 at 09:32:32 AM PDT

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