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Thread: The Russian economy (catch all)

  1. #81
    Council Member Firn's Avatar
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    Quote Originally Posted by wm View Post
    Over and above the debt issue, one wonders about future loss of revenue to Gazprom. Econ 101 and price theory-- as price goes up demand goes down unless the demand is inelastic. Particularly with warmer weather coming to the region, how inelastic is Ukrainian natural gas demand?
    That's a good question. We already a nice graph of the Ukrainian energy consumption:



    Now I found a stunning graph showing the increasing spread between the gas import price and the price payed by private costumers. Needless to say that the subventions became an increasingly heavy burden for the Ukrainian budget...



    A good short-term comparision with West European and US prices:



    Not much Russian favour for it's little brother under 'friendly' leadership...

    Market prices for private costumers should more then double if you take into account the subvention cuts and the new Gazprom prices. Under such conditions demand will fall a lot. In the long run it is of course considerably more elastic then in the short term. The sommer months should help of course to tackle some issues. So far the industry seems responsible for most of the fall in demand since the fall of the SU, especially after 2005. A drastic case in point is the 2009 crash, prior to that the steel industry in the East did actually pretty well.

    Gas contracts are an interesting topic of which I don't know much. In the past it seemed that Gazprom tried to protect it's long term revenue, cutting for example prices for E.ON IIRC from a higher contract one because it had it's margins squeezed there badly. This doesn't seem to be the case when the primancy of politics calls from Russia with love...
    Last edited by Firn; 04-01-2014 at 12:29 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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  2. #82
    Council Member Firn's Avatar
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    Outlaw, there is no doubt that Russia needs high commodity prices to finance it's budget. From it's production costs, especially in the future and it's budget position Russia is in a dangerous spot in the oil market.



    The big technical challenges force high investments with human capital, financial capital and technology for good reasons coming almost only from Western companies. So any disruption there will lower the future Russian output. Personally I think that an engineered negative (higher prices) supply shock is less likely because the many oil-rich countries have much higher budget expenditure due to (much) higher populations and higher standard of living. See a bit of the Saudi one.

    Of course oil is just a part of the commodity picture. In the important natural gas market only lots of CAPEX will allow it to switch in the long run to other costumers.
    Last edited by Firn; 04-01-2014 at 06:51 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

  3. #83
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    Firn---More information concerning the recent SPR sell of 5M barrels of sour crude---the same quality as sold by the Russians from the Urals.

    SPR oil put up for sale on the day Ukraine’s new chief is in town

    By John Kingston | March 12, 2014 04:27 PM Comments (3)

    One trader speaking to a Platts reporter had this to say about the decision by the Department of Energy today to sell 5 million barrels of oil from the Strategic Petroleum Reserve.

    “The Gulf Coast market has plenty of barrels,” he said. “They should have done it a few weeks ago when the Gulf Coast was tight due to all the weather delays.”

    A few weeks ago, however, Arseniy P. Yatsenyuk wasn’t in Washington. He’s the interim President of Ukraine, and he’s in DC today.

    It almost defies logic to think there isn’t a link. (And White House press secretary Jay Carney said there isn’t one, when asked about it at the daily White House press briefing.)

    But there is no reason to sell oil now. The reason given by the Department of Energy — a test sale to evaluate its ability to distribute oil in the event of an emergency — sounds very formal and entirely believable. But such a test hasn’t been done since 1990. Why now?

    The “energy weapon” that has been discussed so vehemently since the Ukraine crisis began — using US LNG and crude oil exports to weaken world prices and steal Russia’s energy customers — always had a few flaws in it. First of all, even for the terminals where LNG exports have been approved, they aren’t ready to go. Second, US crude exports are still banned, despite lots of talk of changing that.

    But selling oil out of the SPR, and specifying that it’s sour crude that’s for sale — the same type as Urals, Russia’s crude grade — can be done now. Next month, in fact, 5 million barrels of oil over 30 days, for an average of just over 165,000 b/d.

  4. #84
    Council Member Firn's Avatar
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    The 'energy weapon' is rather unwieldy as far as I can see. We discussed the postive changes which can be achieved on the own playing field. Driving down demand by increased energy efficieny, broader energy mix with more renewables and possibly some nuclear, LNG portals, more integrated piplines and grids, more strategic storage and 'battery' capacity. So the Western world can do a great deal with sound investments at home.

    If you hear tough talk from guys like Maduro you should laugh at him or weep for the common folk. Oil at ~$ 75 per barrel for some years will be terrible hit in an already aweful economy...

    The Russian budget is calculated using $ 95 as a baseline prediction IIRC. The Norwegians do so with $ 65.
    Last edited by Firn; 04-01-2014 at 07:01 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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    Firn---have been watching both TASS and Interfax---especially Interfax as they do a massive lot of oil/gas PRs----not a single mention of the 5M sell of sour crude.

    You have to admit it is a not to subtle shot across the oil front ----shows me that maybe someone in the WH has been thinking creatively which some in the media have bashed them for not doing.

    Firn---checked the average price for landed crude in the US for 2013 was roughly 97 USD and refiners paid an average of 98 USD---sour crude is a major portion of US refinery abilities.

    So if this is what US importers were on average paying ---it is really close to the Russian 95 USD needed for budgeting purposes.
    Last edited by OUTLAW 09; 04-01-2014 at 07:28 PM.

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    Council Member Firn's Avatar
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    Just to finish it off for the day, some graphics about various budget breakeven prices.










    The newest one...



    Generally it is pretty bad position to be a high-cost producer of a commodity, especially one which needs large margins to finance the budget. The gas deliveries into the EU have been a very important anchor for Russias revenue.
    Last edited by Firn; 04-01-2014 at 08:57 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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    Council Member Fuchs's Avatar
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    Such costs are not truly fixed and difficult to compare.
    Some look more like marginal costs than average costs anyway.

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    Firn---looks like after what two weeks of sanctions the air is getting somewhat thin for some Russian small/middle businesses and Russian banks in general.

    April 02, 2014 14:02
    Nabiullina: CB to provide banks with more liquidity due to foreign financing problems (Part 2)

    MOSCOW. April 2 (Interfax) - Russia's Central Bank will expand liquidity provided to Russian banks due to problems with foreign financing, Central Bank Chairman Elvira Nabiullina said at an Association of Russian Banks (ARB) congress.

    "We understand the influence our decision could have on increasing rates. We are going forward with implementing a new tool that will allow [us] to refinance banks' secured investment loans for a longer term. This is alongside expanding experimentation and broadening loan refinancing for small and medium business," she said.

    Political risks are significant now, and they will be particularly relevant if Russian banks and companies encounter limitations for refinancing on western markets, Nabiullina said, adding that this is also true if rating outlooks are reviewed and changed, or if the ratings themselves change. "This could negatively reflect on financial stability," she said.

    "We in the Central Bank are now looking at how we can react to this, including from the standpoint of providing liquidity if need be," Nabiullina said.

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    Firn---this one is especially for you---check out the last sentence and tell me if you think they slipped and told the truth or is it a bad translation on their part?


    Taken from Interfax today:
    April 02, 2014 15:32 Russia should settle in rubles with all trade partners - Kostin

    MOSCOW. April 2 (Interfax) - It would make sense for Russia to switch to settlements in rubles with all trade partners, Andrei Kostin, the head of VTB (MOEX: VTBR), said at the Congress of the Association of Russian Banks.

    "It's an old topic, the broader transition to settlements in rubles with our trading partners. We need to start at once. Not just with settlements in the framework of the customs Union and CIS, but also in relations with trade partners like China and Western Europe," Kostin said.

    He said the transition to ruble payments ought to be one of the key tasks for the banking system, Central Bank and government.

    The euro zone and dollar zone currently account for half of Russia's export and less than half of the country's import, "and the United States as such just 2% of export and 5% of our import," Kostin said. He said exporters, particularly state ones, above all ought to make the switch.

    "Aggregate exports by Gazprom (MOEX: GAZP), Rosneft (MOEX: ROSN) and Rosoboronexport are almost $230 billion a year, which is 44% of Russia's entire export, Kostin said.

    He said the departure from settlements in dollars was long overdue and that the topic should be re-addressed now. "For a month now we have been hearing calls from senior figures in the West to isolate Russia after virtually destroying our banking sector, using the modern financial 'nuclear arsenal' of dollar settlements," Kostin said.

    Firn---so a slip of the tongue or the truth?

    Doubt seriously most EU or US companies would settle in Rubles and if they did the exchange rates would be a determent to Russia.

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    Firn---another one for you---this time I was happy to see a reference to the Ukrainian shale gas coming online as it has been reported that the Ukraine sits atop a massive dome which when producing will lower greatly their dependence on Gazprom---there were rumors that the Russian via Gazprom wanted to into that particular dome in order to get cheaper gas as their own pricing is actually on the high side when compare to world prices currently.


    Soon, Buyers Will Use Gas as a Weapon
    By Yulia Latynina
    Apr. 01 2014 20:03
    Last edited 20:04

    Taken from The Moscow Times today:

    Three weeks ago, just as Russia was in the early stages of annexing Crimea, I wrote in this space that the most strategic move the West could take against President Vladimir Putin would be to help lower world oil and gas prices. On Wednesday, U.S. President Barack Obama announced that Washington was prepared to supply gas to Europe in place of Russia.

    After Russia unleashed its "gas war" against Ukraine in 2006, Europe realized that the Kremlin was an unreliable supplier and that it used gas as a weapon, not a commodity. Therefore, even before the advent of the shale gas revolution, Europe began making every effort to reduce its dependency on Russian gas. As a result, from 2006 to 2013, the share of Russian gas in Europe's overall consumption fell from 39 to 25 percent.

    Actually, Russia's most hawkish patriots suggested that Moscow stop supplying Europe gas and sell it to China instead.

    To get an idea of whether Russia could really make good on such a threat, consider the following: In 2013, China extracted only 200 million cubic meters of shale gas, but it expects to extract 6.5 billion cubic meters in 2015 and up to 60 billion to 100 billion cubic meters by 2020.

    What's more, Beijing built a 6.4 thousand-#kilometer gas pipeline from Turkmenistan to China at a cost of $6.5 billion, or about $1 million per kilometer. By comparison, Gazprom built the Bovanenkovo-Ukhta pipeline at a cost of $18 million per kilometer, or 18 times higher than China's.

    Shale gas production in the U.S. now costs from $100 to $130 per thousand cubic meters. Chinese extraction costs probably will not exceed that figure, even though its gas generally is located much deeper underground. Although the exact figure is a commercial secret, China probably pays Turkmenistan about $100 to $140 per thousand cubic meters of gas. In other words, between Turkmenistan and its own shale deposits, China has plenty of inexpensive gas to cover its needs.

    Throughout recent years, Gazprom never reached an agreement on price to begin selling gas to China — and that was even before Beijing began exploiting its own shale gas and buying from Turkmenistan.

    In other words, China is unlikely to agree to buy Gazprom gas for more than $100 to $120 per thousand cubic meters — that is, for less than it costs on the Russian domestic market.

    The cruel irony is that ever since 2005, when officials signed the contracts for the Nord Stream project, the Kremlin's entire policy toward Europe has been based on gas — that is, on gas as a weapon.

    Gas really is a weapon, but only in the hands of a highly sophisticated buyer, not in the hands of a "petrocrat" who exports oil and gas and imports everything else. In the end, the buyer can always find a new supplier for what has become a highly politicized commodity. But the seller — at least in the case of Russia — cannot even provide gas to its friend and ally, Venezuela.

    I suspect that the Kremlin is trying to divide Ukraine primarily for fear that Ukrainian shale gas, which is scheduled to start production late this year, will weaken Russia's perceived gas weapon not only on the Ukrainian market, but even on the European market.

    It seems that Putin's actions have actually helped hasten the very scenario that he had been scheming so hard to prevent.
    Last edited by OUTLAW 09; 04-02-2014 at 04:14 PM.

  11. #91
    Council Member Stan's Avatar
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    Quote Originally Posted by OUTLAW 09 View Post

    Taken from Interfax today:
    April 02, 2014 15:32 Russia should settle in rubles with all trade partners - Kostin
    Outlaw,
    Pretty simple, they have been frozen out of USD exchanges, but not Rubles.

    Russia-Idaho-trading in limbo

    Russia was a promising destination for the trade mission. The U.S. exported nearly $11.8 billion in goods and services to the country in 2013. That made Russia only the 28th-leading destination for American exports, but the total was up 20 percent from 2012, when Russia joined the World Trade Organization.

    Idaho exports to Russia remained flat at $20.5 million in 2013.

    Russia appeared particularly ripe for the nine agriculture companies, including Heyburn's Double L, which makes potato harvesting and handling equipment.
    More at the link

    The intent and purpose of links, quotes, etc. is to back your posts and give credit to the authors that wrote this Sierra. It also provides readers with a place to go.

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  12. #92
    Council Member Stan's Avatar
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    Hmmm, far too much speculation for me at this point...

    A Bad Start

    Since mid-2011, industrial production growth in Russia has been weakening. In January, IP fell a further -0.2% year over year. The leading drivers of the softness in IP have been electricity and gas, two favorites of Russian equity investors.
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  13. #93
    Council Member Firn's Avatar
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    Outlaw

    First, this graph from 2012 by Russia's Federal Costum Service seems to indicated a higher trade share of the $ and € zones then Mr. Kostin suggests:



    Ukraine is of course also an important trade partner. Other Western countries plus Japan are also as a whole significant ones. So who's currency gets stored in those CB balance sheets?



    Very little ruble in sight. Overall it should take a considerable amount of political pressure and incentives to push foreign companies from making their trade in the 'natural', most sensible hard currency.


    Perhaps it is good to ask cui bono, Mr. Kostin of VTB?
    Last edited by Firn; 04-02-2014 at 06:37 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

  14. #94
    Council Member Firn's Avatar
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    Russias pipelines, obviously pretty dense in the relative densely populated West, with no transibirian one...





    Chinas network:



    As we discussed before connecting their pipelines can make sense, especially strategically, but is expensive. I have no idea how much return they will get on their investments, so many variables. Needless to say that the vast majority of Chinese lives quite 'close' to the coastline and this tendency should become more pronounced. Maybe LNG might be more competitive there, I don't know.
    Last edited by Firn; 04-02-2014 at 06:44 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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    Council Member Firn's Avatar
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    Global and Russian Energy Sector at the Crossroad: New Challenges by Dr. Tatiana Mitrova, the Head of Oil and Gas Department, Energy Research Institute of the Russian Academy of Sciences.

    A very informative read, lost of great graphics. Just as I like it
    ... "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. #96
    Council Member Stan's Avatar
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    Quote Originally Posted by Firn View Post
    Russias pipelines, obviously pretty dense in the relative densely populated West, with no transibirian one...
    Firn,
    How many of these pipe lines actually work (have been completed) ?

    Nordstream is a long way from it's 1,224 kilometer journey.

    Tons of investment and great websites, but which are actually producing revenues ?

    The plan was to cut transit nations out of the picture. That has yet to happen here. Meaning, Nordstream has a ways to go.

    Seems a bit premature to calculate something that does not exist other than in pie charts and on paper.
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  17. #97
    Council Member Firn's Avatar
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    That's a good question for which I do not have a quick answer. Capacity would be nice to know as well.

    Those maps gives you a nice snapshot about networks but those pesky 'details' are another matter. They also show longer term possibilites but it is a completely different question if it makes economic sense. Strategic projects have often the key downside that they haven't been done before for good 'non-strategic' reasons.

    Considering the way Russia is run I wouldn't be surprised to see them burn a lot of Capex for their primacy of politics. We will have to see how things will flow.
    ... "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. #98
    Council Member Firn's Avatar
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    Some news from the financial front: First April, first day that the Bank Rossii didn't sell foreign currency in five months. That is pretty impressive if it isn't a joke.

    The bank sells foreign currency to support the ruble when the ruble is within 1.95 rubles of the edge of a floating corridor against a dollar-euro basket, which has stretched from 36.25 to 43.25 rubles since March 28.

    The absence of market interventions indicated that the ruble had strengthened to the non-intervention range near the middle of the corridor.

    At 10.30 a.m. in Moscow on Thursday the ruble was trading at 41.57 against the basket, within the range where the central bank sells $200 million a day to support the ruble.
    If you look at the last year it does sound believable, there was a strong downward pressure on the ruble. I didn't follow the amount spent on currency interventions, but I wouldn't be surprised to hear $ 45 bn, up from $ 39bn some time ago.
    ... "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

  19. #99
    Council Member Firn's Avatar
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    Economic Downturn [may] Forces State-Run Firms to Consider Dividend Cut

    Russia's government may allow state-controlled companies to cut their dividend payments by calculating them according to Russian accounting standards rather than international standards to help weather an economic downturn, Vedomosti reported Wednesday.

    The newspaper, citing sources familiar with a draft proposal, said the State Property Agency and Economic Development Ministry would allow the companies to revert to old accounting ways, seen as less transparent than international reporting standards.
    1) Cutting the dividends protects the liquidity, which is a pretty standard action if companies face worse income then expected and a free cash flow that isn't all that free.

    2) To be honest I don't know why the should have to switch to Russian accounting standards to do so. Just cut them. Or do they operate with a fixed payout rate and want to hide something? Maybe a relative higher % reserved to the state? I have no idea.

    Overall there seems to be considerable attention to avoid too much exposure to the credit markets. Increasing the cash reserves comes of course at a price with a generally lower return due to lack of investments etc but to get to the long term one must survive in the short run...
    Last edited by Firn; 04-03-2014 at 12:01 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

  20. #100
    Council Member Firn's Avatar
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    The state-owned Sberbank, the largest Russian bank IIRC, has stopped granting foreign currency loans to individuals 'because of the rubles high volatility'. Companies can still get them.

    Guess where those Euros or USD would have to come from?

    Lots of actions in many areas to make sure that the foreign currency reserves of Bank Rossii don't get depleted. I'm sure that the smart guys there don't like the pace at which the pile gets smaller...

    P.S: Seems like they used a perceived tranquility to buy some foreign reserves. We talk millions bought against billions sold on forex, and the ruble has weakened again.
    Last edited by Firn; 04-03-2014 at 12:26 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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