The world’s biggest liquefied natural gas (LNG) exporter Qatar is facing supply problems with the Saudi-led alliance isolating the country’s trade. This may help Russia on the European gas market.

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Saudi beef with Qatar may be about gas, not terrorism

Qatar’s tanker fleet is barred from using regional ports and anchorages, posing a threat to the country’s LNG supplies.

Traders are worried Saudi Arabia and allies would refuse to accept LNG shipments from Qatar, and that Egypt might even bar tankers carrying Qatari cargo from using the Suez Canal, despite Cairo’s obligation under an international agreement to allow the use of the waterway.

If LNG supplies are disrupted, Europe will have to buy more gas from Russia.

Gazprom is building new pipelines in Europe – Nord Stream-2 and Turkish Stream, but the Russian energy major is facing opposition on the continent.

The larger stumbling block is the Nord Stream extension, which will double the pipeline’s existing capacity to 110 billion cubic meters a year. The new pipeline, which bypasses Ukraine, will cover Germany’s and France’s combined annual consumption of gas. Poland is one of the fiercest Nord Stream opponents and has built an LNG terminal at the port of Swinoujscie.

Read more
Gazprom CEO sees Russian dominance of European gas market

While Russia supplies about 10 billion cubic meters (bcm) a year of the country’s gas, the new Polish terminal has a capacity of 5 bcm which can be increased to 7.5 bcm.

Poland bought less than 10 percent of its gas from Qatar last year, but Polish authorities say the country wants to become a large seller of Qatari LNG in Europe.

According to GIIGNl Report 2017, Qatar exported 79.6 million tons of LNG last year, of which 52.7 went to Asia. Qatar delivered 17.9 million tons to Europe.

“Who can supply gas to Europe? Without Qatar, it is Norway, the United States, and Russia. Europeans will buy American gas for diversification. However, volumes are a question. American gas is not cheap. Norway is not cheap, either. Scandinavians need to open new projects to increase exports, and this is costly,”an expert in energy Igor Yushkov told Life.ru.

“This leaves Russia. Gazprom CEO Aleksey Miller says that Gazprom can supply another 150 billion cubic meters from the gas fields that have already been opened. Russia now exports 178 billion cubic meters. Russia could almost double its exports. The situation around Qatar plays into Gazprom’s hands,” he added.

Baltimore, Maryland
June 6, 2017

Dear Reader,

Many Americans hold a cartoonist’s view of the corporate titan.

They see him as a sort of Wild West cowboy… or an Ayn Rand oversoul cursing the heavy hand of government… as a fellow who pounds his drum for laissez faire.

Yet after Trump withdrew from the Paris climate accord and its bible of government regulations, who sobbed loudest?

The corporate titans.

From a New York Times editorial, bearing date of 1 June 2017:

In January, 630 businesses and investors — with names like DuPont, Hewlett-Packard and Pacific Gas and Electric — signed an open letter to then-President-elect Trump and Congress, calling on them to continue supporting low-carbon policies, investment in a low-carbon economy and American participation in the Paris agreement.

In fact, a “nearly united corporate front” took out full-page advertisements in the Times, the New York Post and The Wall Street Journal, all declaring for Paris.

And so the fierce corporate man of myth goes herding into the regulatory pens… willingly and happily.

This because Corporate America has discovered its soul… or at least its conscience.

That’s the impression they’d like to leave, anyway.

Elon Musk, CEO of Tesla, announced his piety by revealing he would no longer counsel Trump:

“Am departing presidential councils. Climate change is real. Leaving Paris is not good for America or the world.”

Elon Musk, CEO of Tesla, announced his piety by revealing he would no longer counsel Trump: “Am departing presidential councils. Climate change is real. Leaving Paris is not good for America or the world.”

Alex Gorsky of Johnson & Johnson moans: “We have established science-based goals to decrease our carbon footprint and we remain committed to achieving them.”

Ah, but here, Wal-Mart president and CEO Doug McMillon gives the game away:

“Addressing climate change is a win-win: good for society and good for Wal-Mart.”

Key element: “Good for Wal-Mart.”

One eye fixes on society, that is… the other on the bottom line.

Which eye do you think Mr. McMillon favors… or the other gentlemen?

Cast to one side your opinion of climate change and consider this question:

Why is Corporate America so hot to be regulated?

Real America deserves a square answer.

Regulation saddles business with extra costs and saws into profits, after all.

And a study by National Economic Research Associates suggests that complying with Paris emissions targets could cost 2.7 million jobs by 2025.

Another study says Paris would have slashed U.S. GDP over $2.5 trillion by 2035.

According to our lights, the answer is this:

Corporate America embraced the Paris accord because it would have gained from it.

Regulation annoys the Johnson & Johnsons, Whirlpools and DuPonts.

But it’s an impossible burden for the striving upstart or the fellow on the middle rungs. They can’t afford it. So they can’t compete.

Regulation therefore builds protective moats around corporations. It pulls up the drawbridge on competitors. It repels invaders.

In nuce: corporations consider costly regulation a trade-off well worth the annoyance.

Economists have a term for it: “rent seeking.”

To cement our case, we summon the small businesses of America to the witness stand…

The New York Times:

The move… has opened up a fissure between smaller companies and some of the biggest names in business…

While multinational corporations such as Disney, Goldman Sachs and IBM have opposed the president’s decision to walk away from the international climate agreement, many small companies around the country were cheering him on, embracing the choice as a tough-minded business move that made good on Mr. Trump’s commitment to put America’s commercial interests first.

“This just heightens the divide between big business and small business,” testifies Jeffrey Korzenik, investment strategist for Fifth Third Bank. “They really have different worldviews.”

And so the prosecution rests…

Here at The Daily Reckoning, we have no heat against corporations as such.

And no one has ever accused us of hostility to capitalism… or to the shade of Adam Smith.

But we hold a violent prejudice against swindle… against fraud in all his forms… in brief, against crony capitalism itself.

We say stand business on its own two legs and let it rise or fall on its merit — let the winners take their cut and let the devil take the hindmost.

Or to return to our castle metaphor, drain the moat… pull down the drawbridge… and let society’s true innovators through the gates.

It might not necessarily be the American way… but it’s the honest way…

Regards,

Brian Maher
Managing Editor, The Daily Reckoning

Sent from my iPad

Paul Goble

Staunton, June 6 – Now that Vladimir Putin has accused the West of “racist Russohobia,” Father Aleksandr Shumsky says, the Kremlin leader is close to a clear recognition of the need to destroy “the Russophobic part of the Russian ruling elite.” And if he does, the West’s Russophobia will prove the salvation of Russia.

In a Russkaya liniya commentary entitled Thank the West for Russophobia! the priest who is also an active member of the Russian Writers’ Union argues that Putin has approached this problem much in the same way that detective Columbo does in the television series by that name.

Like Columbo, Putin sometimes appears not to be fully cognizant of what is going on around him but then he focuses in a mistake by his opponents and gives an absolutely correct diagnosis and then takes action, Shumsy says. That is especially the case with the issue of Russophobia.

Not long ago, the priest continues, “the very word ‘Russian’ was under an unwritten ban and the use of the term ‘Russophobia’ in general was considered a criminal act.” Indeed, he suggests, “if the prime minister even uttered the words ‘Russian culture,’ this generated sincere surprise” and predictions by liberals of the imminent return of Stalinism and the GULAG.

Patriotic Russians in contrast were encouraged by any such references, Shumsky says, but for a long time, their hopes that any such words would be followed by action were routinely dashed. But in fact, even this silence showed that “everyone understood that ‘the Russian question’ is the main issue not only of all Russian life but also of all world politics.”

Things might have continued this way for a long time, Shumsky suggests, had it not been for the rise in the West “not simply” of Russophobia but of a bestial variant of that “in no way less than Nazi racism. And it is precisely in this that the main mistake of the representatives of the criminal Western elite lies.”

“And our president,” Shumsky says, “just like Columbo, immediately ‘got’ them. Vladimir Vladimirovich precisely and clearly declared to the entire world that racist Russophobia from now on is the leitmotif of all Western policy toward Russia” and that the West has “crossed a line” which makes a return even to tense relations of the recent past impossible.

“Never before this” had Putin or his predecessors been “bold enough to say such things at a high level in public,” Shumsky says. “What then does this mean?” According to this Russian priest, it means that “our relations with the West have reached their end, one that points to an inevitable global military clash.”

“Putin no longer wants to conceal that the main goal of the Russophobic West is the complete destruction and ‘cleansing’ of Russia. And that is very valuable: the last illusions regarding the ‘peace-loving’ West have finally been cast aside by Russia’s supreme power,” the priest says.

It took a long time to get to this point, Shumsky continues. One would have wished for it to come sooner, “but the main thing is that it has come.” And that in turn means that Putin must now move to eliminate “the Russophobic part of the Russian ruling elite,” which forms an “enormous” part of the upper reaches of his regime.

Without the elimination of such people, the priest says, “resistance to the Russophobic West will be impossible, a West which is unleashing a war against us.” That war cannot be fought successfully “with such a quantity of traitors in power.” Putin has now shown that he understands this, and “we with impatience will await when he begins to solve it in a real way.”

“Thanks to the West for Russophobia!” Father Aleksandr concludes.

by Tyler Durden

Jun 6, 2017 11:07 AM

According to the official narrative, the reason for the latest Gulf crisis in which a coalition of Saudi-led states cut off diplomatic and economic ties with Qatar, is because – to everyone’s “stunned amazement” – Qatar was funding terrorists, and after Trump’s recent visit to Saudi Arabia in which he urged a crackdown on financial support of terrorism, and also following the FT’s report that Qatar has directly provided $1 billion in funding to Iran and al-Qaeda spinoffs, Saudi Arabia finally had had enough of its “rogue” neighbor, which in recent years had made ideologically unacceptable overtures toward both Shia Iran and Russia.

However, as often happens, the official narrative is traditionally a convenient smokescreen from the real underlying tensions.

The real reason behind the diplomatic fallout may be far simpler, and once again has to do with a long-running and controversial topic, namely Qatar’s regional natural gas dominance.

Recall that many have speculated (with evidence going back as far back as 2012) that one of the reasons for the long-running Syria proxy war was nothing more complex than competing gas pipelines, with Qatar eager to pass its own pipeline, connecting Europe to its vast natural gas deposits, however as that would put Gazprom’s monopoly of European LNG supply in jeopardy, Russia had been firmly, and violently, against this strategy from the beginning and explains Putin’s firm support of the Assad regime and the Kremlin’s desire to prevent the replacement of the Syrian government with a puppet regime.

Now, in a separate analysis, Bloomberg also debunks the “official narrative” behind the Gulf crisis and suggests that Saudi Arabia’s isolation of Qatar, “and the dispute’s long past and likely lingering future are best explained by natural gas.”

The reasons for nat gas as the source of discord are numerous and start in 1995 “when the tiny desert peninsula was about to make its first shipment of liquid natural gas from the world’s largest reservoir. The offshore North Field, which provides virtually all of Qatar’s gas, is shared with Iran, Saudi Arabia’s hated rival.”

The result to Qatar’s finances was similar to the windfall that Saudi Arabia reaped from its vast crude oil wealth.

The wealth that followed turned Qatar into not just the world’s richest nation, with an annual per-capita income of $130,000, but also the world’s largest LNG exporter. The focus on gas set it apart from its oil producing neighbors in the Gulf Cooperation Council and allowed it to break from domination by Saudi Arabia, which in Monday’s statement of complaint described Qataris as an “extension of their brethren in the Kingdom” as it cut off diplomatic relations and closed the border.

In short, over the past two decades, Qatar become the single biggest natural gas powerhouse in the region, with only Russia’s Gazprom able to challenge Qatar’s influence in LNG exports.

To be sure, Qatar has shown a remarkable ability to shift its ideological allegiance, with the FT reporting as recently as 2013, that initially Qatar was a staunch supporter, backer and financier of the Syrian rebels, tasked to topple the Assad regime, a process which could culminate with the creation of the much maligned trans-Syrian pipeline.

The tiny gas-rich state of Qatar has spent as much as $3bn over the past two years supporting the rebellion in Syria, far exceeding any other government, but is now being nudged aside by Saudi Arabia as the prime source of arms to rebels.

The cost of Qatar’s intervention, its latest push to back an Arab revolt, amounts to a fraction of its international investment portfolio. But its financial support for the revolution that has turned into a vicious civil war dramatically overshadows western backing for the opposition.

As the years passed, Qatar grew to comprehend that Russia would not allow its pipeline to traverse Syria, and as a result it strategically pivoted in a pro-Russia direction, and as we showed yesterday, Qatar’s sovereign wealth fund agreed last year to invest $2.7 billion in Russia’s state-run Rosneft Oil, even as Qatar is host of the largest US military base in the region, US Central Command. This particular pivot may have also added to fears that Qatar was becoming a far more active supporter of a Russia-Iran-Syria axis in the region, its recent financial and ideological support of Iran notwithstanding.

As a result of the tiny nation’s growing financial and political “independence”, its neighbors grew increasingly frustrated and concerned: “Qatar used to be a kind of Saudi vassal state, but it used the autonomy that its gas wealth created to carve out an independent role for itself,” said Jim Krane, energy research fellow at Rice University’s Baker Institute, quoted by Bloomberg.

Furthermore, Qatar’s natural gas output has been “free from entanglement” – and political pressure – in the OPEC, the oil cartel that Saudi Arabia dominates.

“The rest of the region has been looking for an opportunity to clip Qatar’s wings.”

And, as Bloomberg adds, “that opportunity came with U.S. President Donald Trump’s recent visit to Saudi Arabia, when he called on “all nations of conscience” to isolate Iran. When Qatar disagreed publicly, in a statement the government later said was a product of hacking, the Saudi-led retribution followed.”

To be sure, in a series of tweets, Trump himself doubled down on the “official narraitve”, taking credit for Qatar’s isolation (perhaps forgetting that a US base is housed in the small nation).

So good to see the Saudi Arabia visit with the King and 50 countries already paying off. They said they would take a hard line on funding…

— Donald J. Trump (@realDonaldTrump) June 6, 2017

…extremism, and all reference was pointing to Qatar. Perhaps this will be the beginning of the end to the horror of terrorism!

— Donald J. Trump (@realDonaldTrump) June 6, 2017

The cynics may be forgiven to assume that if Trump is tweeting that the reason for Qatar’s isolation is “to end the horror of terrorism”, even as the US just signed a $100+ billion arms deal with the single biggest supporter of terrorism in the world, Saudi Arabia, then indeed the Trump-endorsed “narrative” is to be dismissed outright.

Which again brings us back to nat gas, where Qatar rapidly emerged as the dominant, and lowest cost producer at a time when its neighbors started demanding the commodity on their own, giving the tiny state all the leverage. As Bloomberg adds “demand for natural gas to produce electricity and power industry has been growing in the Gulf states. They’re having to resort to higher-cost LNG imports and exploring difficult domestic gas formations that are expensive to get out of the ground, according to the research. Qatar’s gas has the lowest extraction costs in the world.”

Of course, with financial wealth came the need to spread political infludence: ”

Qatar gas wealth enabled it to develop foreign policies that came to irritate its neighbors. It backed the Muslim Brotherhood in Egypt, Hamas in the Gaza Strip and armed factions opposed by the UAE or Saudi Arabia in Libya and Syria. Gas also paid for a global television network, Al Jazeera, which at various times has embarrassed or angered most Middle Eastern governments.

And, above all, “gas prompted Qatar to promote a regional policy of engagement with Shiite Iran to secure the source of its wealth.”

And here the source of tension emerged: because as Steven Wright, Ph.D. Associate Professor at Qatar University told Bloomberg, “you can question why Qatar has been unwilling to supply its neighboring countries, making them gas poor,” said Wright, the academic, speaking by telephone from the Qatari capital Doha. “There probably was an expectation that Qatar would sell gas to them at a discount price.”

It did not, and instead it took a step backward in 2005, when Qatar declared a moratorium on the further development of the North Field that could have provided more gas for local export, adding to the frustrations of its neighbors.

Qatar said it needed to test how the field was responding to its exploitation, denying that it was bending to sensitivities in Iran, which had been much slower to draw gas from its side of the shared field. That two-year moratorium was lifted in April, a decade late, after Iran for the first time caught up with Qatar’s extraction rates.

As Qatar refused to yield, the resentment grew.

“People here are scratching their heads as to exactly what the Saudis expect Qatar to do,” said Gerd Nonneman, professor of international relations and Gulf studies at Georgetown University’s Doha campus. “They seem to want Qatar to cave in completely, but it won’t call the Muslim Brotherhood a terrorist organization, because it isn’t. And it isn’t going to excommunicate Iran, because that would jeopardize a relationship that is just too fundamental to Qatar’s economic development.”

* * *

Whether nat gas is the source of the Qatari isolation will depend on the next steps by both Saudi Arabia and Iran. Saudi Arabia, along with the United Arab Emirates and Egypt – are all highly reliant on Qatari gas via pipeline and LNG.

According to Reuters, traders startled by the development, have begun to plan for all eventualities, especially any upsets to piped gas supplies from Qatar to the UAE. The UAE consumes 1.8 billion cubic feet/day of Qatari gas via the Dolphin pipeline, and has LNG purchase agreements with its neighbor, leaving it doubly exposed to tit-for-tat measures, industry sources and traders said.

So far flows through Dolphin are unaffected but traders say even a partial shutdown would ripple through global gas markets by forcing the UAE to seek replacement LNG supply just as its domestic demand peaks.

With LNG markets in bearish mood and demand weak, the UAE could cope with Qatar suspending its two to three monthly LNG deliveries by calling on international markets, but Dolphin piped flows are too large to fully replace.

“A drop off in Dolphin deliveries would have a huge impact on LNG markets,” one trader monitoring developments said.

And since it all boils down to who has the most leverage as this latest regional “balance of power” crisis unfolds, Qatar could simply take the Mutual Assured Destruction route, and halt all pipeline shipments to its neighbors crippling both theirs, and its own, economy in the process, to find just where the point of “max pain” is located.

Yuan-for-oil will entirely change the monetary dynamics of global energy flows

Bryon King
Fri, Jun 2, 2017 

If Saudi begins accepting yuan for oil, all bets are off on the petrodollar

Editor’s note: Russia and China have already inked energy deals in yuan. The fact that the Saudis are inching closer to a similar agreement with Beijing should be front page news.

China is currently modifying the terms of its oil trade with Saudi Arabia. Specifically, China is working on a deal to pay for Saudi oil using Chinese yuan. This effort poses a direct threat to the security of the dollar.

If this China-Saudi deal happens — yuan for oil — it’s another step closer to the grave for the petrodollar, which has dominated global finance since 1974. You can revisit Jim Rickards article about the Assault on the Dollar, here.

To recap, the petrodollar is weakening because the dollar is losing power as the world’s reserve currency. This is similar to the way pounds sterling gradually fell out of favor during the decline of the British Empire. The decline may take a long time, but what we’re seeing today is another step in the death march of the dollar.

I’ll tell you how to protect your wealth in dollars after I explain this shift.
Since 1974, Saudi has accepted payment for almost all of its oil exports — to all countries — in dollars. This is due to an agreement between Saudi and the U.S., dating back to the days of President Nixon.

Beginning about 15 years ago, China ceased being self-sufficient in oil, and began buying Saudi oil. As per all Saudi customers, China had to pay in dollars. Even today, China still pays for Saudi oil in U.S. dollars and not yuan, which perturbs China’s leaders.

Since 2010, China’s total oil imports have nearly doubled. According to Bloomberg News, China has surpassed the U.S. as the world’s largest oil importing nation. Here’s a chart, showing the trend.

As China imports more and more oil, the idea of paying for that oil in yuan instead of dollars becomes more critical. China does not want to use dollars to buy oil. So, China is beginning to squeeze Saudi over the form of currency in which their oil trade is conducted. China is doing this by steadily lowering its oil purchases from Saudi.
Presently, China’s three top oil suppliers are Russia, Saudi Arabia and the West African nation of Angola. Backing-up these three key suppliers are a combination of sources in Iran, Iraq and Oman, which help to diversify China’s oil-supply chain.

In the past few years, China has shifted oil purchases away from Saudi, and Russia’s oil exports have risen from 5% to 15% of the Chinese total.

China imports more oil from Russia, Iran, Iraq and Oman; less from Saudi.

Saudi’s share of Chinese imports has dropped from over 25% in 2008, to under 15% now. Meanwhile, Saudi competitors Russia, Iran, Iraq and Oman are selling more oil to China.

Saudi would like to reverse this declining trend of oil-trade with China. However, these kind of major oil flows don’t just happen in a vacuum.
There’s a good reason why Russian oil sales to China are increasing. As you’ll see in Nomi’s article, trade and financial services are often closely linked. Over the past few years, China has deepened its trading roots with Russia — now, China pays for Russian oil in yuan. Russia, in turn, uses yuan to buy goods from China.

Beyond trade in goods, within the past six months Russia has set up a branch of the Bank of Russia in Beijing. From there, Russia can use its Chinese yuan to buy gold on the Shanghai Exchange. In a sense, Chinese-Russian oil trade is now backed-up by a “gold standard.”

Looking ahead, Saudi Arabia will find itself more and more locked-out of the Chinese oil market if it won’t sell oil for yuan. But to do this, the Saudis must move away from U.S. dollars— and from petrodollars — if Saudi wants to maintain and increase access to China’s oil market.

We’ll know more about the likelihood of this after Donald Trump’s tour of the Middle East.

If Saudi begins accepting yuan for oil, all bets are off on the petrodollar. Yuan-for-oil will entirely change the monetary dynamics of global energy flows. I expect the U.S. dollar to weaken severely when that news breaks.
Much of this oil-for-yuan news is public information. Yet, for some strange reason, there’s a form of blindness within western policymaking and media circles concerning the implications of yuan-for-oil. The idea is so “off-the-wall” that many policy leaders simply ignore it.

Ignore away. But we could wake up one morning in the midst of a massive currency crisis, in which dollar values are falling and oil prices in dollars are soaring.

Source: Daily Reckoning