On the sixth of may the Prime Minister of Japan has visited with informal visit to Sochi. He was given a warm welcome, which became part of dinner. Within 35 minutes of heads of Russia and Japan spoke one-on-one. The entire summit lasted more than three hours. The parties discussed various issues: the territorial issue to the international situation.
What been progress on the territorial issue, nothing is reported — as if this information contains a state secret. Nevertheless, during the celebration of the 71st Day of the Victory, three days after the talks, President Putin did not use the phrase “militaristic Japan”, which he used last year.
This time the event was not attended by guests from China. Perhaps the reason that the meeting with Prime Minister Abe granted the Russian leader. Some experts believe that Prime Minister Abe has already prepared for the fact that Russia can return only two Islands.
How will develop the talks, known only to God. Some criticize the Japanese authorities due to the fact that they have submitted a plan of economic cooperation of the eight points is nothing like a recycled old suggestions. Anyway it gives Tokyo a chance to once again try to deepen economic ties with Russia.
Russia hopes for Japanese investment
In the fourth place of eight-point plan is energy. Specific projects are not given, but it is easy to conclude that Japan intends to offer Russia to invest in the development of natural resources.
Rights to develop oil fields in Eastern Siberia were suddenly transferred to Indian companies, which became ice-cold shower for Japanese business.
Perhaps in order to comfort Japan, Putin was invited for a summit meeting the head of “Rosneft” Igor Sechin, who was responsible for negotiations with India. Means that Japan should be grateful at least for the fact that these deposits were not given to China.
Energy also includes the development of gas fields. According to Russian media reports, one of the possible cooperation projects in this area may be to send LNG on the route of the Yamal Peninsula, Hokkaido.
This route is included in the project “Yamal LNG”, the implementation of which is now engaged in the company “NOVATEK”. It seems that the Russian side hopes for investment by Japanese financial institutions.
The project itself is still under development. It is unknown yet even how the gas will turn into liquid. Despite this, Russia’s reaction, which requires Japan to invest in this project, there is an excessive hope that Japan will help create the conditions for lifting anti-Russian sanctions.
In order to predict the actions of Russia in connection with the gas projects in Japan and Asia, it is necessary to clarify its steps in Europe, is located ten thousand kilometers from the far Eastern region. The fact that the Russian gas policy is emerging there.
Since 2008 in connection with the policy in respect of Europe discussed topics such as gas prices, the tariff division of the EU antitrust measures, the construction of “Nord stream” to bypass Ukraine and the revival of the construction project “South stream”.
Over the last four or five years on these topics there was virtually no progress. Only turmoil between Russia and the EU. I recently discussed this subject with Russian experts, and they ruled out my doubts, saying that in the sales strategy of Gazprom is undergoing profound changes.
According to them, Gazprom no longer binds the gas to the prices of oil, gradually turning on exchange rates. To understand what this means, it is necessary to recall the changes that have occurred in the European gas market since 2008.
Oil prices collapsed after the economic crisis, began to recover. Despite the fact that they have not reached the level of 150 dollars per barrel, which was recorded in July 2008, in the period from 2011 to 2013 for three years, they for the first time in history exceeded $ 100 per barrel.
In the European market Gazprom links gas prices to prices on oil products. Changes in gas prices occurring at about six-nine months late.
The causes of the dependence of prices on oil
There are certain reasons why gas prices depend on oil. For a long time, experts puzzled over how to determine the price of gas, because there were no precedents.
In the result, it was decided to bind them to the oil, since then oil was used as fuel for electricity generation, as gas has become a substitute for oil.
Was proposed the calculation formula, which takes into account certain difficulties when handling gas, and that gas is slightly cheaper in terms of thermal effect. This formula has been used for half a century.
However, in 2003, oil prices began to grow rapidly. To say that gas prices are determined by the existing demand, has been impossible. This was influenced by the emergence of speculative funds.
As a result, in October 2008, was recorded historical maximum, which amounted to $ 490 per thousand cubic meters (in 2003, Gazprom was selling gas at $ 120 per thousand cubic meters). After that, the price of oil fell slightly, however, in the period from 2011 to 2013 gas prices were at the level of 380-400 dollars.
That is, in ten years, they grew three to four times. It has become unreasonable burden for European buyers, despite the fact that still contained remnants of the economic crisis of 2008, arose the Greek problem, and the whole European economy was in a crisis situation.
It is impossible to buy something that is too expensive. In the result, it was decided to go to coal. Shale revolution 2008 has led to a serious decline in gas prices in the United States, and therefore American companies are starting to phase out the use of coal.
The surplus of American coal are beginning to arrive in Europe, coming to replace the gas. The fact that there is inequality: “gas prices in USA < coal prices in USA < gas prices in Europe.”
In the period from 2009 to 2014, Germany increased its imports of coal to six million tonnes. While gas consumption decreased by seven billion cubic meters.
On the one hand, the demand for gas grew, and with another — the countries of Western Europe begin to pursue a policy of reducing greenhouse emissions.
Compared with oil and coal gas — a more environmentally friendly fuel, but its combustion in any case stands out hydroxide carbon. After the accident at NPP “Fukushima-1” Germany stops to take into account nuclear energy, despite the fact that in this type of energy carbon dioxide emissions do not exist. The country shares more hopes on renewable energy.
From the point of view of reducing greenhouse gas emissions there is a contradiction: Germany increased purchases of coal because it’s cheap, and it tries to develop renewable energy. It’s worth noting that I was unable to find sane explanations for this phenomenon, perhaps due to the fact that almost all experts are concerned about the state of the economy as a whole.
Incentive in the form of the Russian threat
After the accident at NPP “Fukushima-1” many believed that there would come a Golden age of gas, but this did not happen: might have prevented high prices that are dependent on oil, as well as the development of renewable energy.
As a result, the export of gas to Europe has declined. It occurred and also for reasons connected with Russia. The Ukrainian crisis in 2014 has led to the emergence in Europe of the hysterical theories about the Russian threat. As a result of the EU, especially Eastern European countries, attended to reduce gas dependence on Russia. The Commission has also not remained aloof.
Experts begin to discuss, how long will Europe, if Russia completely cut off gas supplies. To reduce dependence on Russia, the EU switches to LNG imports despite its high cost. European sensation that Russia will use gas exports for political purposes, is itself politics.
Some experts screaming that will follow Crimea, the Baltic States, followed by Eastern Europe. Disappear hard look at the situation. Perhaps this view has led to the spread of nationalism in today’s Europe.
But back to our topic. The problem lies not only in the amount of gas. The client cannot completely abandon gas because of its high cost. In any case have to buy it in a certain amount. In this regard, buyers begin to negotiate with Gazprom on gas prices to ensure that they were not tied to oil.
European exchange-traded gas prices contributed to the negotiations on reducing the cost of gas. In 90-e years, this trend originated in the UK, which is a gas producing country. Then it spread to the mainland. The objective was to set prices depending on the demand, not the cost of oil.
In the result, gas prices in Europe were divided into two types: defined by long-term contracts linked to oil and stock. The latter were slightly lower in the period from 2003 to 2006, gas is tied to oil, were cheaper, so I can’t say that any of these two types has always been expensive.
However, in 2009 the European market surged LNG from Qatar and other countries, resulting in decreased market value of gas. The prices for oil have grown, and the gas is tied to oil, were expensive. Gazprom’s prices were much higher stock prices.
In such conditions it is impossible to ignore the demands of European customers who were in extremely difficult situation. In this regard, in early 2013 Gazprom begins to partially use the stock price, although it does not change the fundamentals of existing contracts. To date, Gazprom resorted to such adjustment more than 60 times.
The collapse in oil prices in late 2014 was to change the situation and return the world to conditions that existed prior to 2009. This year prices, tied to oil, also declined to 150-180 dollars. Now they are no different from exchange prices. The volume of exports started to decline in 2013, from February 2015, began to increase.
However, Gazprom itself is beginning to abandon the classical scheme, in accordance with which the gas is tied to oil prices. This is a major change in sales strategy, which they say Russian experts. In other words, Gazprom has decided to give priority is not pricing, but to ensure its share.
Gazprom turns in a solid company
In 2015 started gas auction “Gazprom export”. Since the original terms of sale did not bring any major success, this year the Russian Corporation has improved these conditions. Some experts believe that this is proof that Gazprom has ceased to be hostile to the policy of trade liberalization, including tariff division in the EU.
Changed Gazprom’s own sales policy? As before, the Russian company believes that long-term contracts should be tied to oil. However, many experts began to say positive things about its policies, stressing that, based on the actual steps, Gazprom turns into a solid company.
It is expected that this summer on the European market Gazprom will reduce the price to $ 130. If this happens, then the probability of recovery of the share which has been lost as a result of increased sales of coal.
Even if prices rise slightly, but will be reflected at the level of $ 150, despite the fact that American gas is $ 70, will be unprofitable to import LNG from the US considering the cost of liquefaction and transportation. Thus, competition to Russian gas will only be able to make cheaper LNG from Qatar.
According to experts, Gazprom is advantageous to supply gas to the European market at prices from 95 to 170 dollars. If the Russian company fix prices at 100 dollars, it will be able to oust the European market from other vendors.
Oil prices gradually begin to rise: it is likely that they will reach 50 dollars per barrel. If to reflect this growth in gas contracts, the gas price will rise to $ 200. Therefore, we can not guarantee that Gazprom will not return to the old policy, starting again to give priority to prices rather than share.
But I may reverse the situation: given the distribution of LNG in the coming years and the fall in stock prices on gas Gazprom will continue to give priority to its share of the sacrifice of pricing. In contrast to earlier times, such a possibility can not be denied.
So, will Russia adopted a similar policy in the Asia-Pacific region? I think it will be quite different on Sakhalin island and on the mainland.
First, there is the project to supply gas from Eastern Siberia and the Far East in China. The Outlook of Chinese gas demand nebulous. It will depend on the growth of the Chinese economy, structural changes, prospects for domestic gas production, as well as measures in relation to the demand for coal. It is impossible to conclude only one of these factors.
If the demand for gas will exceed government expectations, then the first priority will be the conclusion of contracts with suppliers, and this task will be subordinated to the policy of the relevant departments.
In the reverse situation it is difficult to predict possible developments. In this case, nobody wants to take responsibility for themselves, therefore, most likely, the authorities will resort to excessive increase in imports.
China ceased to be a ray of hope
China unlikely to buy gas at any price. Because demand prospects are unknown, the relationship with China will be significantly different from the European, where the main task is to maintain and increase export volumes. Gazprom is not sold in China yet not a single cubic meter of gas.
Russia is not likely hopes that in the near future, oil prices will rise to $ 100 per barrel, so she doesn’t think can get in the East is a large profit. The problem is that in the Asian market Russia will not be able to follow the low gas prices (they have already reached 150-180 dollars), which are determined by the collapse in oil prices and increased supplies of LNG.
Pipelines and other infrastructure, created in Soviet times, allows the seamless export gas to Europe.
Meanwhile, as for Eastern Siberia and the Far East, these regions will have to build everything from scratch. This is the main difference from the European direction. Moreover, mainland gas fields are located far from its destination.
Europeans consider the Siberia region, where no foot of man. If we Express distance in numbers, the route from Western Siberia to the border with Europe is 4200-4600 kilometers.
However, if you count distance from Eastern Siberia to the border with China, 3000 kilometers, and the coast of the Pacific ocean 4,000 kilometers, you will notice that they are not so very different from the distance from Western Siberia to Europe.
Some Japanese mistakenly believe that Eastern Siberia is located near the Pacific ocean. The views of Europeans about the fact that Siberia is far away from Europe, give rise to misconception, according to which Siberia is too far East of its real position.
Total area of Eastern Siberia and the Russian Far East is two-thirds of the whole territory of Russia. Therefore, we cannot underestimate the scale of construction.
In may 2014 Russia and China have reached an agreement on gas supplies via the pipeline. Then, the media have commented extensively on export gas prices (in fact the price has not been determined): most experts believed that given the investment they have to make 300-350 dollars.
However, with the decline of prices up to 150-180 dollars under the influence of the LNG market in China is unlikely to pay for Russian gas of $ 300 and above.
The project will not pay off if the gas will cost less than $ 200
Many experts believe that, if you sell gas for less than $ 200, the construction of a pipeline from Eastern Siberia to China will not be repaid.
The situation is complicated not only concerns related to the construction, but also the uncertainty of prices and volumes of purchases. Recently observed changes in the numbers reflecting the reserves of gas fields, intended for Chinese exports, and the expected volume of production, so China began to question whether Gazprom to finish the development of gas fields in Eastern Siberia (Chayanda and Kovykta) in the promised time.
Therefore, despite official statements about the beginning of construction of the pipeline from the border with Russia to Hebei province and Shanghai, it is reported that work is going extremely sluggish pace. Also suddenly disappeared the conversations on the payment of the advance of Russia for gas.
Some analysts also point out that in the planning period from 2025 to 2030, the volume of imported gas will not undergo any changes. In other words, this means that in this period China has no plans to increase the number of deliveries of the Russian gas.
Apparently, at least up to 2020 factors such as a surplus of LNG on the world market and caused a drop in oil prices the decline in prices for Turkmen gas supplied to China will affect China’s stance towards Russia.
If Russia will not decrease gas prices, there will be no reason why China will buy Russian gas. That is, the policy will remain in politics, and the economy — the economy.
Thus, China shows no serious interest in supplies of Russian gas. Against the background of uncertainty with export prices, the completion date of the pipeline “Power of Siberia” have been moved from 2018 to 2021.
Russian experts on China in one voice say that around mid-2015, Russia has begun to treat China cooler. The situation with the “Power of Siberia” reflects this state of Affairs.
It is also noted that, despite existing agreements on investments in the amount of $ 35 billion, at present, most Chinese companies are in the face of shrinking domestic demand, are not interested in investments into the Russian economy and participation in the development of Russian industry.
As a result of the collapse of the Russian ruble increased the cost of Chinese products, which were attractive because of the low price. Chinese banks offered the Russian to carry out operations in dollars due to the instability of the currencies of both countries, however, the Russian side does not go on is self-esteem.
In addition, Russia does not hide its concerns regarding Chinese policy of neo-colonialism, which engenders the idea of “One belt and one road”, which in turn disappoints the Chinese side.
Growth fears Chinese companies
One of the reasons why “the honeymoon” in Russian-Chinese relations comes to an end, lies in the misunderstanding between the Russian and Chinese business. The rapprochement between Russia and China was observed in the political and geopolitical realms, however, with regard to the actions of individual enterprises, the negotiations between them do not go smoothly.
The Russian side nourishes the hope that Chinese companies are ready to spend huge money, without going into details. In turn, Chinese companies have completely no experience of communication with representatives of Russian business, thus causing contradictions.
According to media reports, negotiations on transport corridors “Primorye-1 and Primorye-2”, which should link the far East with China have stalled due to the fact that China demanded the rights to these tracks in exchange for investments. The Chinese side proposed the project under the scheme of build — own — operate — transfer, however, apparently, the Russian side did not understand all the nuances of this project and refused to pass on the right on the highway, located on its own territory. As a result, the project implementation was a big question.
Meanwhile, the Russian media reported that China poses to Russia unsolvable problem. Personally I have doubts that in Russia everything was ready to accept Chinese investment.
That is, the problem is not just Chinese companies. We can say that after the Japanese enterprises to deal with the Russian reality and finally had a Chinese business.
Meanwhile, one of the agreements implemented was the financial participation of Chinese banks in the project “Yamal LNG”. Despite this, the negotiations took a lot of time. Most likely, the Russian side was disappointed that Chinese banks have analyzed the feasibility of the project according to the Western scheme.
Most Chinese financiers are trained in the West. Therefore, their approach to assessing financial risks abroad are unlikely to differ much from the criteria of the American banks.
By the way, the media reported the agreement a week before the visit of Prime Minister Shinzo Abe to Russia, so it is likely that China, suggesting that Japan will try to deepen relations with Russia in the energy sector, went on a political solution. If so, then right those experts who believe that Moscow goes to his goal, pushing their foreheads Japan and China.
The problem is not only between companies but also in intergovernmental relations. When Russia was interested in cooperation with China, she held three intergovernmental meetings.
It was reported that China has expressed its attitude to Russia that its representative has not received the position of Vice President of AIIB, however, according to well informed sources, it was not so: the Russian side for a long time could not determine the candidates, so China was forced to appoint another applicant.
This information is seriously contrary to the initial statements. In such circumstances, the prospects of exporting gas to China from Eastern Siberia become increasingly vague.
What is behind the extension of the project “Sakhalin-2”
As for the “Power of Siberia-2”, which still have not reached even an agreement in principle, on this project at all yet no specifics.
According to some sources, China has invited Russia to build the fifth gas pipeline with their own money.
Not it seems that this project has a bright future. “Force of Siberia-2 can be saved only by the decision of Gazprom to begin implementation of this project. And the decision of the Russian company will only in that case if she will cease to fear of reducing the volume of gas exports to Europe as a result of the policy of preservation of the share.
As for LNG, as for the projects “Sakhalin-2”, “Vladivostok LNG” and “far East LNG” will be used in Sakhalin gas, Russia will be able to get rid of the curse of Eastern Siberia.
The last two projects are new and will require investment at the initial stage. The result is due to the fall in gas prices, the prospects of these projects be called into question. Therefore, appears the idea of expanding the project “Sakhalin-2”.
This raises the question of why Russia needs so much time to the project, which was given an economic priority. Perhaps one of the reasons is that with the high cost of Russian oil fell into the euphoria, not being able to focus on the really important projects.
1 and 2 may in Kitakyushu held a meeting of heads of energy departments of the countries “the Big seven”. During the meeting, Japan proposed the creation of an international LNG market. It should appear in Japan not later than the first half of 2020. The emergence of such a market means that gas will not be tied to oil prices. In order to increase liquidity, it was also proposed to waive some restrictions for buyers of LNG.
This event is significant in that changes do not occur on the initiative of the heads of state, but, on the contrary, the leaders of developed countries have taken real market conditions. These vendors, like Russia, is free to accept the terms of this agreement or not, but if they still will not accept them, they will not be able to count on increased trade volumes.
Whether it’s an extension of the “Sakhalin-2”, or the implementation of the “Vladivostok LNG” and “far East LNG”, Moscow will not be able to strengthen its “Eastern vector” in the gas sector, if she will not follow the principles in the Asian market, which it began to stick in Europe, based on the requirements of the time.
No one knows what lies ahead. It is difficult to make a final conclusion on whether the global LNG market to operate at market prices.
If he starts to develop according to the laws of the oil market in the future will have to solve the following problem: how not to prevent speculative funds affected the formation of gas prices. I think that will take a long time to Russia, one of the players on the gas market, reacted to this issue with the utmost seriousness.
