Can Russia, India, and China unite to shift geopolitical gravity?

Market Realist

Must-know: Pipelineistan calling for a new Eurasian economy (Part 4 of 6)

(Continued from Part 3)

Russia and China

China’s current daily gas demand is around 16 billion cubic feet (or bcf). Imports account for 31.6% of China’s total consumption.

China is the world’s largest energy consumer and Russia is the world’s largest energy supplier. In the past, both countries have entered into a number of deals that have proved advantageous to both sides—considering their relationship in terms of being the largest consumer and producer of energy, respectively, and the fact that they share a border.

With China’s rapid economic growth in recent years being largely fueled by oil from the middle-eastern nations, China has been eager to diversify its energy sources, both in terms of geography and commodity. Getting its gas supplies from Russia, with which its shares its border, would definitely bode well for China.

The current Gazprom (OGZPY)-China National Petroleum Corporation (or CNPC) deal is as important for Russia as it is for China. Europe has been the primary gas consumer market for Russia. Having strained its relations with Europe in the recent months over its tensions with Ukraine, Russia is now eyeing the east where it intends to send a third of its gas exports by 2035.

If the European Union (or EU) stops purchasing gas from Russia, China would prove to be a bigger consumer of gas than the whole of the EU.

The deal will help the Russian gas giant Gazprom diversify its revenue sources. In 2013, gas sales to Europe and Turkey accounted for 32% of Gazprom’s total revenue. Europe continues to look for alternative sources to meet its energy needs, while the shale boom in the U.S. is changing the dynamics of the global energy market. Consequently, it’s become important for Gazprom to cut its dependence on Europe. China, Japan, and India could be crucial markets for the company as it looks to diversify.

Exchange-traded funds (or ETFs) like the Market Vectors Russia ETF (RSX) which has 8.63% of its holdings in Gazprom, and the WisdomTree Emerging Markets Equity Income Fund (DEM) which is invested 5.65% in Gazprom, seek to take advantage of the company’s growth trajectory.

Russia and Japan

Given the opposition to nuclear energy in the country, Japan relies heavily on imported natural gas to meet its power generation needs. Using the more expensive LNG (liquefied natural gas) over nuclear energy has had a negative impact on Japan’s trade figures. As a result, the country is looking to Russia to lower its energy bills. According to Bloomberg, after the Gazprom-CNPC deal, the government in Japan is reviving efforts for a $5.9 billion natural gas pipeline from Russia.

Continue reading the next section of this series to learn how India stands to gain from the development of a new Eurasian economy, and how companies like General Motors (GM) and Ford (F) stand a chance to gain in the future.

Continue to Part 5

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