Streetwise Professor

February 13, 2010

Eni, Meeny, Miny, Mo

Filed under: Commodities,Economics,Energy,Politics,Russia — The Professor @ 3:43 pm

The last couple of days I’ve felt that when I wrote “Teleconnections” I was like that guy in the TV show “Early Edition” who got the paper (the Chicago Sun Times) delivered to him before it was published.  Yesterday Bloomberg had an article about a shale gas bonanza in Europe; today’s WSJ has an article describing how Italian energy firm Eni has renegotiated its contracts with Gazprom, as I suggested would happen in the post, because (a) oil prices and gas prices have delinked, due in large part to increased non-traditional supplies, and (b) the development of LNG has helped spur development of a spot market for gas:

In an interview, Eni Chief Executive Paolo Scaroni said the renegotiated long-term contracts will allow the company to counter deep changes in the economics of Europe’s natural gas market, which has weakened of late.

. . . .

For decades, steady gas prices allowed Eni and other distributors to purchase natural gas supplies from fields in Russia and Norway using contracts linked to the price of oil. Over the past year, however, oil prices have recovered from the financial crisis while demand for natural gas has not. That left European gas companies on the hook to purchase gas supplies at higher rates than their spot market prices.

Natural gas prices have also been hurt by the emergence of new supplies, including shale gas fields in North America and an abundance of liquefied natural gas projects, Mr. Scaroni said. “Around this, the drop in demand and the growth of liquefied gas, we renegotiated some characteristics of our long-term contract,” Mr. Scaroni said, declining to elaborate on the terms of the new agreement.

Gazprom head Alexei Medvedev was rather vague about the changes too:

Gazprom Deputy Chairman Alexander Medvedev told a press conference earlier this week that Gazprom had renegotiated the contracts with European companies taking “into account the trends in the European market and the crisis.” However, the “base principles” of the long-term contracts remained unchanged, Mr. Medvedev said without elaborating. Gazprom declined to comment on the matter.

I wonder just what “base principles” and “characteristics” mean. Reading between the lines, I would wager that it means that the pricing mechanism has been shifted (as conjectured in “Telecommunications”) from oil prices to spot gas prices.  It is also possible that the take-or-pay provisions have been altered, as a shift to a more accurate pricing mechanism would reduce the scope for opportunism that TOP clauses are designed to combat.

It is very interesting that even Eni is renegotiating.  The Italians have been particularly slavish in their dealings with Gazprom and Russia.  When Gazprom would say “jump”, Eni would ask “how high, boss?”  The fact that this company has succeeded in wresting contract changes from Gazprom is a very clear indication of how the bargaining power, and the perception of bargaining power, have changed.  And, methinks, the process has only begun.

As I noted in the original post, these changes will have geopolitical effects, not merely economic ones.  One interesting thing to consider is how it will affect Ukraine.  The eastern Europeans and FSU countries generally, and the Ukrainians specifically, will receive less direct benefit from LNG and other new sources of gas.  Moreover, to the extent that western Europe is less dependent on Russian gas–or, put economically, its demand for Russian gas is more elastic due to the availability of alternative supplies–Ukraine is less important to it.  This doesn’t seem to bode well for Ukraine’s ability to fend off Russian pressure.

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9 Comments »

  1. Nice work! Looks like SWP stands for soothsaying wise professor this week!

    Seems like all this horrifying failure is making the denizens of the Kremlin plenty nervous. They are starting to lash out in a most unseemly fashion, even by their psychotic standards.

    http://americanthinker.com/2010/02/the_ambassadow_and_his_twitter.html

    What kind of country sends a man like Dima Rogozin to represent it before the world’s most powerful military alliance? Not the kind that is long for this world.

    Comment by La Russophobe — February 15, 2010 @ 11:11 am

  2. Rogozin is a humorous, good-natured, and upstanding Russian patriot. Yes, some of his Tweets are radical by the standards of “respectable society” (i.e. limp-wristed losers), but one would be better served by looking at the genuine points and grievances that stand behind them than quoting them out of context to engage in a Stalinist-like smear campaign against him. Overall, it’s great fun following his Tweets and you can join his fan group on Facebook.

    Comment by Sublime Oblivion — February 15, 2010 @ 12:32 pm

  3. Humorous upstanding patriot? Isn’t that what they also say about Zhirinovsky, often also named as Russia’s sexist man?

    Welcome to Russia! It’s a barrel of patriotic laughs!

    But what would Russians say if, say, Michael McFaul made such “jokes” about them? Doubt very much they’d urge such tolerance.

    Damn, SUBLIME MORON, you’re idiotic gibberish knows no limits, does it?

    By the way, quoting the man’s own words is not a “smear campaign” it’s journalism. And how exactly would you characterize calling someone a “limp-wristed loser”? Not a smear? Don’t drink and post, it does not often work out well.

    Comment by La Russophobe — February 15, 2010 @ 5:26 pm

  4. If Russia’s economy is on the rebound, why are wage arrears RISING? Why does a G-8 and Security Council member even HAVE wage arrears?

    http://www.themoscowtimes.com/business/article/employees-owed-136-million-in-unpaid-wages/399816.html

    Comment by La Russophobe — February 15, 2010 @ 5:27 pm

  5. Maybe employers are not paying wages because they know they are about to be washed away by a sea of red ink?

    http://www.businessweek.com/news/2010-02-15/russia-s-bad-debt-creates-significant-risk-bank-group-says.html

    Comment by La Russophobe — February 15, 2010 @ 6:14 pm

  6. Phoby, Phony, Phoby…

    $136 million in wage arrears in a 1.25 terabuck economy is trivial. And you know, Phoby, there are wage arrears in the US too, when businesses go belly-up before payday.

    And yes, it’s tough for banks all over.

    What’s not trivial is Russian economic and demographic growth. The second highest birth rate of any major European country! Up almost 50% since 1999! And male life expectancy up about 5 years since then too!

    Comment by rkka — February 15, 2010 @ 7:01 pm

  7. RKKA:

    It’s a pity you’re such an ignoramus or it might be fun arguing with you.

    An average Russian is paid $3/hour. That means 45 million man-hours of wages are unpaid. And that’s just what the Kremlin is willing to admit (it’s ruled over by a proud KGB spy, you may not know). That’s nearly two million man-days. In a country where people are starving, sick and don’t rank in top 130 nations of the world for life expectency, that’s all rather significant stuff. But you wouldn’t know that, becuase you’ve never been one of them and you couldn’t care less about their fate, just like Russia’s leaders.

    Try to tell the truth at least a little, honey, you’ll look less like an ape.

    Meanwhile, it would also be nice if you paid at least a modicum of attention to the actual point, which wasn’t the AMOUNT of wage arrears but the shocking RATE at which they are rising and the obvious connection to mushrooming Russian debt. The shameful, childish, ridiculous efforts of Soviet cretins like you to simply try and change the subject whenever they can’t handle the facts would be really amusing if so many people were not suffering mightily in Russia and elsewhere as a result of it.

    Your implication that data produced by the Kremlin regarding birthrate and life expectency can be relied upon (data which you don’t even cite) is the laughable idiocy of a true Internet clown. The Kremlin is ruled by a spy who spent his whole life learning how to lie, and you suggest he’d tell the truth if it made him look bad? Sheer poppycock. Only someone who has no idea what it means to live in Russia and earn $3/hour could utter such apelike drivel.

    Comment by La Russophobe — February 16, 2010 @ 1:56 pm

  8. “It’s a pity you’re such an ignoramus or it might be fun arguing with you.”

    Phoby, Phoby, Phoby…

    Your factually-impaired drivel is truly entertaining.

    “An average Russian is paid $3/hour.”

    A signal accomplishment, that. Prior to Putin, it was ~$20/month. That works out to $0.125/hour. No wonder Putin is so popular!

    “That means 45 million man-hours of wages are unpaid”

    And vastly more wages are being paid. You know, Phoby, if you’d have a look at the stats, you’d see that the present figure for wage arrears is down 68% from 2005. In 2005, it was 14.3 billion rubles. What you portray as a rapid increase is actually a small blip in the context of a massive decline in wage arrears. You’re just too ignorant to know it.

    “Yeah, and And that’s just what the Kremlin is willing to admit (it’s ruled over by a proud KGB spy, you may not know). That’s nearly two million man-days. In a country where people are starving, sick and don’t rank in top 130 nations of the world for life expectency, that’s all rather significant stuff.”

    And every factor you mention was far worse when Yeltsin was running things. Russia’s recovery from the Yeltsin/Western smuta continues, and at a rapid pace.

    “But you wouldn’t know that, becuase you’ve never been one of them and you couldn’t care less about their fate, just like Russia’s leaders.”

    Phoby, the data show that Putin was the salvation of Russia. Your pathetic efforts to deny this reality are very amusing.

    “Try to tell the truth at least a little, honey, you’ll look less like an ape.”

    Phoby, the merest acquaintance with factuality reveal that your data gathering and analysis capabilities correspond closely to that of a rotifer.

    “Meanwhile, it would also be nice if you paid at least a modicum of attention to the actual point, which wasn’t the AMOUNT of wage arrears but the shocking RATE at which they are rising and the obvious connection to mushrooming Russian debt.”

    Oh, yeah, arrears are down ~68% by comparison to the 2005 level. Here’s the link to, you know, actual data”

    http://www.gks.ru/bgd/regl/b09_12/IssWWW.exe/stg/d02/23-29.htm

    You’re trying to inflate the importance of a trivial blip. And failing. The article you linked to said that arrears had declined to 3.6 billion rubles for December 2009, but were up a touch for January.

    “The shameful, childish, ridiculous efforts of Soviet cretins like you to simply try and change the subject whenever they can’t handle the facts would be really amusing if so many people were not suffering mightily in Russia and elsewhere as a result of it.”

    Like I said, the one with the shaky grip on factuality is you.

    “Your implication that data produced by the Kremlin regarding birthrate and life expectency can be relied upon (data which you don’t even cite) is the laughable idiocy of a true Internet clown.”

    And what’s the source of the wage arrears data you’re blathering about? That very same Kremlin statistical service. Your contradictory attitude towards it is pathetic. You trust it when you think it supports your bloviations, and you denigrate it when it does not. Just goes to show how untrustworthy your use of information is.

    “The Kremlin is ruled by a spy who spent his whole life learning how to lie, and you suggest he’d tell the truth if it made him look bad? Sheer poppycock.”

    Actually, Phoby, that very same Kremlin statistical service shows Russian deaths increasing from 2000-2001-2002. That is an example of what you just said couldn’t happen. This shows that the liar here is you.

    “Only someone who has no idea what it means to live in Russia and earn $3/hour could utter such apelike drivel.”

    Those of us who remember when Russians had to live in Russia and earn $0.125/hour paid years in arrears under Yeltsin know that the source of rotifer-level drivel here is you.

    Comment by rkka — February 16, 2010 @ 4:55 pm

  9. @LR,

    Though it might not be perfect, I nonetheless believe Rosstat is the better source for accurate statistics on Russia than your ass.

    Best,
    S/O

    Comment by Sublime Oblivion — February 16, 2010 @ 4:57 pm

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