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Thread: The Russian economy (catch all)

  1. #621
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    "European customers cut their demand by 15 billion cubic meters last year, or 8.5%, while sales to the former USSR (mostly Ukraine) fell by 19%, or over 10 bcm. It’s no exaggeration to say that they will prefer any alternative source of gas (except maybe the shale under their own feet) to Gazprom’s as long as economics will allow them to."

    That is much too simple. Primary energy esp. NG demand is determined by weather in central Europe, around 45% of the German imports are used for room heating, 45% for industrial process heat and <10% for generation of electricity.

    2014 was a very warm year, therefore, demand for heating fuels was low, first six months of 2015 were much colder and as a result NG consumption was higher (IIRC ~3%) than first six monts of last year.

    The second aspect is that there is a huge excess capacity of coal fired power plants in Europe (as a result of the German energiewende and economic crisis), which provide cheap alternatives in the fields of electricty generation and CHP, NG lost around 30% of its share in the German electricity market after 2010. This happened without any changes of the German energy policy, the European picture is very similar.

    At least in Germany we do not see a shift from Russian sources to others, instead a general reduction of demand and it is a save bet that this development will continue as new buildings have a much lower energy demand than older ones. The long term perspective is IMHO a 1% annual demand reduction.

    On the plus side for Gazprom is the fact that domestic European production of NG is decreasing and LNG is more expensive than Russian NG delivered by pipelines.

  2. #622
    Council Member Firn's Avatar
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    I pretty much agree with your points, the main thrust of the post was the great fall of Gazprom which executives once talked about a trillion market value to a mere 1/15th of such ambitions...

    It is important to keep some key facts in one's mind when discussing this topic:

    1) European demand and Russian supply are natural matches dictated by geography. Commodities have gone west and technology and products east for similar reasons for hundreds of years.

    2) When it comes to NG both sides are tied tightly together by pipelines and nearness as the product's global market is highly fragmented due to it's particular properties and existing infrastructure.


    The paper "The Impact of Lower Gas and Oil Prices on Global Gas and LNG Markets" offers are global perspective on the said issues. Interestingly is the remark about Gazprom:

    Through quantitative scenario analysis, the paper explores the major uncertainties in the global gas system connected by flexible LNG to 2030. The lack of clarity on Russia’s future preferred commercial behaviour however, adds a level of complexity most market participants would prefer to ignore. Gazprom is occupied on many fronts in both political and commercial spheres. At some point however the need to adopt a more market-oriented strategy is likely to rise on its list of priorities. While the timing of this is at present uncertain, the conclusions of this paper would strongly suggest that this is a development that players in the wider LNG-connected global system should be closely monitoring.
    Personally I think the lower demand projections makes are more likely for Europe, maybe still a bit overestimated.

    3) The liquid in LNG comes at a substantial price which makes it's import only attractive under special circumstances as extremely low (US) prices or ridiculous (Russian) behaviour. Asia seems right now considerably more attractive for US exports then Europe.

    Putin's Gazprom must be quite careful not to push European costumers not too hard to avoid big incentives for various investments in infrastructure to handle LNG, store NG or better link the European pipelines.



    Gross electricity generation by fuel, GWh, EU-28, 1990-2013.png

    4) Coal and gas power dying out in Europe is a tad dramatic for my taste but investment is certainly increasingly flowing towards renewables. The energy demand for room heating should indeed slowly fall for various reasons. We discussed the role of energy consumotion in the energy security thread.



    Derived heat generation by fuel, TJ, EU-28, 1990-2013.png

    I will have to leave it there for today. Overall the picture is not bright for Gazprom and Russia but we won't see a drastic shift away from Russian fossil fuel supplies in particular if nothing stupid happens.
    Last edited by Firn; 08-13-2015 at 07:54 PM.
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

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    Speech at the Kriegsakademie, 1935

  3. #623
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    http://euromaidanpress.com/2015/08/1...flation-at-30/

    Russian “perfect storm”: oil at $25, ruble at 125, inflation at 30%


    2015/08/14 • Russia


    Vladislav Zhukovsky, an economist known for predicting disasters in the Russian economy and for then turning out to be right, says that the situation is more dire than almost anyone imagines because oil is heading to 25 US dollars a barrel, the ruble to 125 to the US dollar, and inflation to 30 percent.

    He attracted widespread attention earlier this week for an appearance on RBK, but the analyst for the Rikom Group gave more detailed answers to the URA.ru news agency. If he is even partially correct, Russia faces not a “black Monday” or a “black September” but a “black” and bleak future.

    Indeed, Zhukovsky argues, the combination of falling oil prices, the collapse of the ruble exchange rate, and rising inflation means that Russia is entering what might be described as “a perfect storm,” one with the capacity to destroy much of the country’s economy this year and next.

    And this situation is made worse by the fact that many at the top of the Russian economic pyramid are behaving as they did in 1998, betting on an ever weaker ruble by buying hard currency and then planning to get back into the Russian market later at firesale prices and thus improving their position but not the country’s.

    These people, Zhukovsky says, “have their families, portfolios and property abroad. They are interested in having the situation in Russia be as bad as possible and the ruble to fall as far as possible so that they will be able to sell their apartments there and buy them here on the cheap.”

    In 1998, at the time of defauls, the Russian stock market fell 80 percent, the ruble fell 84 percent, “and all our bureaucrats … took the money they had and converted it into hard currency. “When the market collapsed, they bought shares at three cents on the dollar. The very same thing is happening now.”

    Moreover, Zhukovsky adds, after the coming collapse “the American, European or Chinese investors will come.” They too will take advantage of the low prices just as they did in 1992 and 1993

    Unless the government changes course, the ruble has no prospects even at the current price of oil, and oil prices are going to continue to fall, the economist says. Eleven of Russia’s 14 oil processing firms are now operating at a deficit; and consequently, “what we see today is just the quiet before a very strong storm.”

    Russian officials are in denial about all of this, and their projections are not predictions of the usual kind: they are issued only to convince people that things will somehow turn out all right. The numbers don’t lie, but officials do. None of their predictions about the ruble exchange rate, prices for oil and inflation have ever been confirmed by events.

    The Russian economy has not reached its bottom, he says; indeed, it doesn’t have one “because the economy has no limited given that it is in a state of disintegration and is constructed on crude aligarchic raw materials capital.” Thus the ruble could fall to 75 to the dollar by the end of the year and more than 125 per dollar sometime in 2016.

    Even if oil prices were to rise to 70 dollars a barrel, that would not be enough to prevent a further decline in the Russian economy. And given that the actual price will be much lower, that decline will be very steep indeed. As prices fall to 40 dollars a barrel, Zhukovsky says, Rsusia will discover “a third bottom” and then “a fourth” and so on.

    Russians need to recognize that the low oil prices are not the product of “a conspiracy of the US and the Arabs against Russia.” Instead, they are the result of an Arab effort to drive down the price so that the latest technological innovations in extraction technology the Americans have will not be profitable.

    Russia isn’t part of the equation for either, Zhukovsky says, but this also means, the basic trend won’t change anytime soon. Moreover, if Russia sits and does not make fundamental change, the new oil extraction technologies



  4. #624
    Council Member Firn's Avatar
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    I think I have said many times I have no idea where oil prices will be in a couple of months and the last year has proven it to me many times. They might hit 25$ or not, the ruble might roll to 125 or not and the inflation might reach new heights or not but something has become even clearer: The current Russian economy is largely built on the export of commodities throught which it funds it's large public sector and social expenditures.

    Today the markets accelerated their sell-off and among the hardest hit was anything linked with commodities, indeed the specific Bloomberg index fell to a 16 year low:

    The Bloomberg Commodity Index of 22 raw materials from oil to metals lost as much as 3 percent to 85.1752, the lowest level since August 1999. Shares in miners and explorers including Glencore Plc, BHP Billiton Ltd. and Exxon Mobil Corp. tumbled while Brent crude fell below $45 a barrel for the first time since 2009.
    If prices remain relatively low and the political climate bad the Russian economy will be in terrific trouble and reveal ever more just how much of it's relative success was due to influx of mostly Western capital, know-how and technology.

    The IMF Country Report No. 15/211 offers a wealth of information with the graphic galore starting around page 22.

    Medium-term policy challenges. An ambitious and credible medium-term fiscal consolidation program is necessary to adjust to lower oil prices. Changes to the fiscal rule should be considered to support medium-term fiscal sustainability. Boosting potential growth will require implementation of structural reforms. This would include (i) strengthening governance and protection of property rights; (ii) lowering administrative barriers and regulation; (iii) increasing competition in domestic markets; (iv) enhancing customs administration and reducing trade barriers; and (v) improving the transparency and efficiency of public investment procedures.

    Reinvigorating the privatization agenda, as soon as market conditions permit, would enhance economic efficiency. A deeper and more efficient financial system would improve the allocation of capital thereby enhancing economic growth.
    I confess I had to chuckle going from (i) to (iv)...
    Last edited by Firn; 08-24-2015 at 06:16 PM.
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

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    Bruegel's report The systemic roots of Russia’s recession

    http://bruegel.org/2015/10/the-syste...ias-recession/

  6. #626
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    Quote Originally Posted by kaur View Post
    Bruegel's report The systemic roots of Russia’s recession

    http://bruegel.org/2015/10/the-syste...ias-recession/
    Good catch as it sums them up neatly.
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

  7. #627
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    https://www.opendemocracy.net/sean-g...shock-doctrine

    While a crisis of faith, of sorts, has resounded in western discourse on the economic effectiveness of austerity, this scepticism, rather ironically, dissipates when you cross over into the remnants of the Iron Curtain.

    Neoliberalism’s flagellants reside east of the Elbe. There, ideological purity remains, if not redoubled. Former patients of shock therapy are now its most devoted converts. This was not only demonstrated by Estonian, Latvian, Lithuanian, Slovak, and Polish officials’ unyielding support for ‘tough reforms’ in Greece, but the general lack of sympathy among their populations for the Greek people. Past shock therapies have left them numb, docile, and inured to the calamities of neoliberal logics.

    The neoliberal faith is expanding further eastward as well. The Ukrainian leadership have shown their unbridled readiness to exchange one master, Russia, for another: western finance and corporate capital. Even in light of the Troika’s ‘fiscal waterboarding’ of Greece and the utter failure of austerity as economic policy, the Ukrainian government is willing, even enthusiastic, to implement reforms prescribed by the IMF not only with the blind faith that they will stimulate economic recovery, but also in the name of ‘European values’, which are now subject to much scrutiny.
    Haeresis est maxima opera maleficarum non credere.

  8. #628
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    mirhond, if you don't live in "gas station", then you have to drag yourself out from the "end of golden age" somehow. Show me the other way than neoliberal. State railways fallen king turned academics (after ambassador episode Yakunin has shown his way https://www.project-syndicate.org/co...akunin-2015-10 This is also theory at the moment. In Russia there is another professor called presidential advisor Sergei Glazyev. His solution to revival of Russia and Eurasian project is working in Ukraine at the moment.

  9. #629
    Council Member mirhond's Avatar
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    Quote Originally Posted by kaur View Post
    mirhond, if you don't live in "gas station", then you have to drag yourself out from the "end of golden age" somehow. Show me the other way than neoliberal.
    Your faith is strong and steadfast, I see, Thatcher bless you and Reagan smiles on you
    Haeresis est maxima opera maleficarum non credere.

  10. #630
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    mirhond, show me the working alternative and I'm glad. After reading this discussion even Russia's own bright heads can't see it.

    И все же: сколько понадобится снова времени, чтобы слезть с волны самодержавия и несвободы?

    Гуриев: Я остаюсь оптимистом — все будет нормально, но не в ближайшие несколько лет. Завтра будет хуже, чем сегодня, но послезавтра будет совсем хорошо.

    Аузан: Я думаю, что при нашей жизни начнутся изменения, но это будет очень длительный процесс. В России были только одни длинные реформы — реформы царя Александра II. Вот я бы очень хотел, чтобы мы опять вошли в длинную волну реформ. Потому что с короткой волной мы все время будем повторять одну и ту же картинку. Если мы это сделаем, то шанс на успех — 10–12%, если ничего не будем делать — ноль.
    http://www.newtimes.ru/articles/detail/103328

  11. #631
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    mirhond, it seems you share the thoughts mentioned here.

    One of the main conclusions of the workshop is that political liberalism as an ideology and as a political thought in Russia has been largely discredited. Western countries and international organizations have probably underestimated the trauma of the collapse of the Soviet Union, which instilled in a significant part of the Russian public a distrust toward liberalism, there understood as an ideological justification to destroy the Soviet Welfare state. This disqualification of political liberalism, associated by the Russian public opinion with neoliberal economic practices responsible for huge socioeconomic inequalities, contributes largely, today, to the call within Russia for a return to a Great Power status.

    We need to remember that a large part of the Russian society has been calling for Russia’s international prestige and a comeback to some Soviet practices and conservative values since the early 1990s – with the electoral successes of the Communist Party for instance – long before “greatpowerness” and conservatism became the flagship of Putin’s third mandate. Indeed, for part of the public opinion, Russia’s greatpowerness is synonym for a strong state domestically, capable of reinstating a paternalistic social-economic order.
    http://www.resetdoc.org/story/00000022596

  12. #632
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    Quote Originally Posted by kaur View Post
    mirhond, show me the working alternative and I'm glad. After reading this discussion even Russia's own bright heads can't see it.

    http://www.newtimes.ru/articles/detail/103328
    You know, I almost always laugh when venerable economists talk about history: for many of them the real world is a subcase of some crackpot economic theory, they really don't bother with facts and data. But thanks, anyway, I'll put this in my collection.

    Quote Originally Posted by kaur View Post
    mirhond, it seems you share the thoughts mentioned here.

    We need to remember that a large part of the Russian society has been calling for Russia’s international prestige and a comeback to some Soviet practices and conservative values since the early 1990s – with the electoral successes of the Communist Party for instance – long before “greatpowerness” and conservatism became the flagship of Putin’s third mandate. Indeed, for part of the public opinion, Russia’s greatpowerness is synonym for a strong state domestically, capable of reinstating a paternalistic social-economic order.
    http://www.resetdoc.org/story/00000022596
    Captain Obvious rescued us again, but this stuff does not belong to this thread, actually. Copy this to the relevant thread, please.
    Haeresis est maxima opera maleficarum non credere.

  13. #633
    Council Member davidbfpo's Avatar
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    From Mirhond:
    Captain Obvious rescued us again, but this stuff does not belong to this thread, actually. Copy this to the relevant thread, please.
    Posts 627-632 have been copied from the Ukraine (non-military) thread as they belong here.
    davidbfpo

  14. #634
    Council Member Firn's Avatar
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    With Russia's Economy, Talk Is Cheap (Op-Ed) by Mark Adomanis.

    Some Russian analysts have spoken of the "war between the television and the refrigerator," a pithy way to describe an escalating clash between a politicized propaganda narrative in which Russia is "rising from its knees" and an increasingly bleak economic reality in which inflation, shortages, and recession loom ever larger.

    In terms of what Western Russian analysts should pay attention to I would rephrase this slightly as the fight between Sputnik (a state-run news agency) and Rosstat (the state statistics service).
    I found I also increasingly useful to ignore a lot of the output which was designed to be noise and look at the research articles and statistics. Maybe the best frame for thought was actually the old Collapse of an Empire: Lessons for Modern Russia. Mark Thoma once joked that new economic thinking means reading old books. In this case it worked surprisingly well.

    As always, reality has exceedingly little regard for abstract ideological notions.
    Great quote that.
    Last edited by Firn; 11-18-2015 at 07:18 PM.
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

  15. #635
    Council Member Firn's Avatar
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    Return of Russia's economic rollercoaster:

    His son is a captain in the fire brigade. His salary was 60,000 rubles a month but he had told his father that the ministry in charge of the emergency services had just announced to its employees that their salaries would be slashed to 15,000 a month - around 190 euros.

    In February the government announced its members would take a 10-percent cut from their 250,000 ruble a month pay packets, but this goes far beyond that.

    "I'm so mad I just want to punch the minister in the face," the driver said, wondering how on earth his family would survive.
    I guess the author means by 15,000 and not to 15,000. However the follow snippet tells an even worse story:

    Tough times

    On hearing this we rang a friend who works for the fire department, albeit at a lower rank. His story was worse. He hadn't been paid for December. He won't be paid in January and said he'd be lucky if he was paid in February - and if he is, it won't be at his usual rate.
    Russian Cinema Attendance during New Year was down 30%, so the great wage decline of 2015 did take its toll also there.

    There is also an interesting bit about the flight of capital, which was a big topic in this thread and with $150 billion a big flow in 2014:

    A few months back staff at airports actively started asking if passengers were carrying cash out of the country since amounts above $10,000 must be declared. The last time they asked me, my reply was simple: "Unfortunately not," but the border guard said I'd be surprised how many people were carrying bags of cash in their hand luggage.
    Last edited by Firn; 01-12-2016 at 08:58 PM.
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

  16. #636
    Council Member Firn's Avatar
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    Two worthwhile updates by Mark Adomanis, including a neat chart:

    Please note that all of the above concerns domestic, ruble-denominated debt. Foreign currency debt gets most of the attention in the press, there’s been a long series of articles about how the ruble’s collapse would lead to the bankruptcy and general ruin of the Russian corporate sector, but in absolute terms it is a relatively small part of the picture.


    As of November 2015, even with the ruble’s nosedive past 70 per dollar, the total amount of delinquent foreign currency debt was about 17% the size of overdue ruble-denominated debt. That is to say that, by itself, the Russian construction sector now has more overdue loans than the overdue foreign currency debt of all Russian companies in all sectors. That, to put it mildly, is a problem.
    A good update on the Russian construction sector

    None of this means that “Russia is doomed” or that we’re on the precipice of a societal collapse. Housing is relatively modest as an overall share of Russian GDP, and “over-investment” in real estate has never approached the crazy scale seen in places like Spain or China. A housing bust would be painful, especially for developers, but it wouldn’t be fatal.

    Nonetheless, housing was one of the few brights spots in the Russian economy. Continued high output in the construction sector helped prevent unemployment from heading even higher or the recession from being even deeper. During 2016, that is going to change.

    Crude crashing below $30 per barrel, even if softened by the correlated ruble fall, is of course bad news for the Russian budget. I don't know where the oil price be in a couple of months or years but every month of such low prices hurts the Russian economy badly.
    Last edited by Firn; 01-12-2016 at 09:12 PM.
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

  17. #637
    Council Member Firn's Avatar
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    Two charts to keep in mind before going into the interview with the Russian Finance Minister:





    So let us see the reaction of the Minister...

    In short budget cuts are necessary to avoid a situation like back in '98 were the budget and balance sheet were not strong enough to stop the financial meltdown. According to DW some of cuts have already happened without much ado. Needless to say that any budget cut in this situation will have a negative impact on demand and the economy as a whole, especially in a country like Russia were the public sector and de-facto SCE make up much more of it compared to your typical Western country...

    There is no doubt that the Minister hopes that ressources prices rally. Personally I guess that real prices will be higher in years to come, but every month this bear market lasts will inflict harm on the Russian budget and the Russian economy...
    Last edited by Firn; 01-14-2016 at 07:59 PM.
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

  18. #638
    Council Member Firn's Avatar
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    Quote Originally Posted by Firn View Post

    In short budget cuts are necessary to avoid a situation like back in '98 were the budget and balance sheet were not strong enough to stop the financial meltdown. According to DW some of cuts have already happened without much ado. Needless to say that any budget cut in this situation will have a negative impact on demand and the economy as a whole, especially in a country like Russia were the public sector and de-facto SCE make up much more of it compared to your typical Western country...

    There is no doubt that the Minister hopes that resources prices rally. Personally I guess that real prices will be higher in years to come, but every month this bear market lasts will inflict harm on the Russian budget and the Russian economy...
    Resources have indeed moved considerably higher* and are a huge help to support the economic policies of the government on which a large proportion of the economy rests.

    Skilled actions by smart folk in important positions have been key to quell the flames of a financial crisis by usually choosing usually quickly the lesser evil. Still the Russian economy suffered heavy blows over the last years and is clearly relatively weaker then four years ago. The overall long term economic trends are also overall negative and relative positive development to a very negative one on a year-to-year comparison is still overall - well - a relative negative one...

    Firn

    Maybe I will do a short update with some proper facts in the coming weeks.

    *I guess that in a couple of years the price of oil will be lower again. However I don't short out of principle...
    Last edited by Firn; 01-07-2018 at 09:12 AM.
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

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