Must-know: Pipelineistan calling for a new Eurasian economy (Part 3 of 6)
What is Pipelineistan?
Pipelineistan refers to all those crucial oil and gas pipelines crisscrossing Eurasia that make up the true circulatory system for the life of the region.
As percentages of the worlds’ total reserves, Russia holds 45% of the gas, 23% of the coal, 14% of the uranium, and 13% of the oil. Currently, Russia is the world’s largest energy supplier. Russia isn’t a member of the Organization of Petroleum Exporting Countries (or OPEC) and repeatedly presents itself as an alternative to middle-eastern energy resources. Within Russia, Gazprom (OGZPY) has a monopoly for the natural gas pipelines and has exclusive right to export natural gas. It also has control over all gas pipelines leading out of Central Asia. As a result, it controls their access to the European market.
Exchange-traded funds (or ETFs) like the Market Vectors Russia ETF (RSX) which has 8.63% of its holdings in Gazprom, seek to take advantage of the company’s growth trajectory.
In what could be termed the biggest Pipelineistan deal so far, Russia has entered an agreement with China to supply hundreds of billions of dollars worth of natural gas via a pipeline from Siberia.
“This is the biggest contract in the history of the gas sector of the former USSR,” said Russian President Vladimir Putin, after the agreement was signed in Shanghai between Gazprom and China National Petroleum Corp. (CNPC), the parent company of PetroChina (PTR).
According to the agreement, the state-controlled Russian energy giant Gazprom will supply the state-controlled CNPC with 3.75 billion cubic feet (or bcf) of liquefied natural gas a day for no less than 30 years, starting in 2018. That equals a quarter of Russia’s gas exports to all of Europe. Over the life of the 30-year contract, one trillion cubic meters would be delivered.
With increasing threats from the European Union (or EU), Russia’s symbiosis with the Asian markets is only accelerating. For China especially, the Gazprom-CNPC deal is a win-win situation. After all, between energy supplied across seas policed and controlled by the U.S. Navy and steady, versus that supplied across the stable land routes out of Siberia—it’s no contest. India, on the other hand, is also eyeing Russia as a cheaper source of gas than its existing sourcing from Qatar.
This one deal could cause realignment of global relationships based on resources. Continue reading the next section of this series to understand how the Pipelineistan deal could cause the geopolitical center of gravity to shift to the east, and how companies like General Motors (GM) and Ford (F) stand a chance to gain in the future.
Browse this series on Market Realist:
- Part 1 - Overview: Why Eurasia is the center of world power
- Part 2 - Must-know: Why Asian economies aren’t willing to isolate Russia
- Part 4 - Can Russia, India, and China unite to shift geopolitical gravity?
- Commodity Markets