Wednesday, December 29, 2021

Russia: is Surgutneftegaz the Kremlin's secret thrift?

 The mysterious company refuses to reveal their owners and hoards a tremendous amount of foreign currency. Insights from german newspaper WELT in this curious business.

Only now and then does the Russian oil company Surgutneftegaz make a name for itself. But then all of a sudden and quite sensational, to remind everyone again, as it were, that he does exist after all. Most recently in mid-November of this year. The stock soared 49 percent in three days. That would be extreme for a young company that has become the plaything of speculative investors. And it is even more so with a traditional company.

But Surgutneftegaz with its 111,800 employees is no ordinary case. The group, which accounts for eleven percent of all Russian oil production and seven percent of oil processing, is different. Although the third largest oil company in the country, it still poses great puzzles to this day.

The biggest: Why is Surgutneftegaz, based in the West Siberian lowlands on the Ob River, hoarding so much free money? And on foreign exchange accounts, which at least bring stable interest income and thus contribute a whopping 20 percent to earnings before taxes and over 40 percent to free cash flow.

The bottom line is now 3.8 trillion rubles (46 billion euros). That is 82.5 billion rubles more than at the end of the second quarter. Certainly, compared to a US technology company like Apple, that's just a quarter. But within Russia and within the classic industrial sector also across Europe, there is hardly any company that could even come close to Surgutneftegaz in this respect.

For the market and its experts, it is and remains largely incomprehensible what this financial behavior and this strategy are actually supposed to be. All the more so since the group - apart from the quarterly company figures, to which it is obliged due to the stock exchange listing - discloses almost no information about itself.

The analysts of the Russian investment company BKS recently stated succinctly in a comment for the business portal RBK.

A few years ago, Vladimir Bogdanov, who took over the management of the once state oil company at the age of 33 at the time of the Soviet perestroika in 1984 and retained it after its privatization in 1993 together with his manager colleagues, once suggested that the reason for the - almost obsessive - frugality lay in the extreme hardship of the 1990s.

“This money is a security mechanism,” the now 70-year-old replied to a question at a shareholders' meeting. “Nobody knows what will happen to the oil price. We need the money so that our workforce can live quietly. Because what will we do if a situation like 1998 occurs again? ”At that time, the ruble crash caused turmoil.

Bogdanov is estimated by Forbes magazine to have a fortune of two billion dollars and is also called the "Siberian hermit" because of his seclusion and media aversion.

“This money is a security mechanism,” the now 70-year-old replied to a question at a shareholders' meeting. “Nobody knows what will happen to the oil price. We need the money so that our workforce can live quietly. Because what will we do if a situation like 1998 occurs again? ”At that time, the ruble crash caused turmoil.

Bogdanov is estimated by Forbes magazine to have a fortune of two billion dollars and is also called the "Siberian hermit" because of his seclusion and media aversion.

Accordingly, Bogdanov's statement, which is supposed to come across as sympathetic, is anything but plausible for the market. Let alone satisfying.

Over the years, the "hermit" Bogdanov, who like many top Russian business representatives and politicians has been on the US sanctions list since 2018, has managed to disguise the real owners of Surgutneftegaz despite being listed on the stock exchange.

Even in 2009, when the group bought 21.1 percent of the Hungarian gas company Mol in its only attempt to expand abroad and Mol demanded disclosure of the real owners, Bogdanow remained tough: he simply gave up his involvement with Mol after a short time.

All of this has led to a lot of speculation and conflicting information over the years. The group itself stated in 2005 that 15.7 percent of the shares were held by ING-Bank and 7.7 percent by the International Bank of Moscow.

The Moscow political scientist Stanislaw Belkowskij leaned furthest in his speculations, and he said in an interview with WELT at the end of 2007: “Putin is also a great businessman. He controls 37 percent of the shares in Surgutneftegaz ”.

This assessment is largely correct, according to the British magazine "Times" once confirmed by the US secret service CIA under US President George Bush. Putin himself, on the other hand, made it clear in the meantime that many of the shares in Surgutneftegaz are simply held by the people who work there.

Nobody believes that the oil company really leads its own life and is not close to the Kremlin. On the one hand, the oil trader Gunvor, who was half held for a long time by Putin's Petersburg intimate and businessman Gennady Timchenko, owes its establishment to its proximity to Surgutneftegaz.

On the other hand, there has always been a strict ban in Russia's financial circles on using financial instruments such as derivatives on the Surgutneftegaz share, WELT learned some time ago from an investment banker with an assurance of anonymity. This shows that the company is something special for the Russian rulers and that it is controlled from the very top.

So the public didn't really get any further on the subject of ownership over the years. And the fact mentioned at the beginning that the Surgutneftegaz share suddenly went through the roof in November and the daily trading volume in Moscow meanwhile rose a whopping 3900 percent, while the overall market fell in double digits in November, was not clarified.

There is talk in the Moscow investment scene that Surgutneftegaz could participate in a major acquisition or merger with his fat financial pillow. Such speculation is not new, of course. There was a rumor once before that Surgutneftegaz could swallow the second largest and private Russian oil company Lukoil - the epitome of transparency compared to Surgutneftegaz. The share soared back then too. But both companies denied it.

Another explanation for the stock's jump in November is that the ruble fell over five percent against the dollar in November, and the subsequent revaluation of Surgutneftegaz's foreign exchange accounts suggests an increase in corporate earnings.

In the first nine months of the year, sales were positive, but the bottom line was that profits fell by two thirds to 297 billion rubles (3.6 billion euros), which was partly due to the relative strength of the ruble, which was unfavorable for the company.

The company's shares could rise 400 percent if it finally implemented a substantial reform in its corporate governance, wrote Ronald P. Smith, oil and gas analyst at BCS Global Markets in Moscow, recently. The curiosity is that the market capitalization of the group is only half as high as the fat financial pillow on the accounts.

The three reforms mentioned by Smith include, on the one hand, shifting the notorious financial cushion into more lucrative asset classes or distributing it, and on the other hand, bringing order to the rumored “phantom” of high state participation.

Monday, December 27, 2021

Nord Stream 2: ukrainian CEO of Naftogaz wary of russian intentions

 After the change of government in Germany, ukrainian officials await if there is a new approach concerning the Nord Stream 2 pipeline. However for Naftogaz-CEO Yuri Vitrenko there is no change to expect from Russia. An interview with german newspaper BILD:

The traffic light-coalition is arguing about a contaminated legacy from Merkel and Groko days: the Nord Stream 2 gas pipeline.

▶ ︎ The Greens want to prevent it, see it as a political project by the Kremlin to blackmail Eastern Europe and especially Ukraine.

▶ ︎ The SPD is traditionally in favor of the project in which its ex-boss Gerhard Schröder is the boss.

Apart from Germany and Austria, nobody in the EU is in favor of the Gazprom pipeline. And Ukraine in particular, which has hitherto been the main transit country for Kremlin gas, warns.

BILD spoke to Yuriy Vitrenko (45), the head of the Ukrainian state gas company Naftogaz.

Thursday, December 23, 2021

Gas crisis: American LNG coming to Europe

 As european countries struggle with high energy prices along with empty gas reservoirs, Cheniere Energy is sending providential LNG tankers to Europe. Gas prices drop, writes WELT:

Is it the spirit of Christmas or the invisible hand of the market? The fill levels in German and European gas storage facilities are at an all-time low, energy prices jump to new, alarming record levels every day - a fleet of American gas tankers appears on the western horizon as a savior in an emergency to alleviate Europe's energy poverty.

What sounds like a Christmas fairy tale is reality: According to information from the Bloomberg news agency, at least ten tankers with liquefied gas are on their way to Europe. "Another 20 ships seem to be crossing the Atlantic, but have not yet announced their final destination," report the market watchers. "The US cargoes will help offset the lower shipments from Russia, Europe's main supplier."

is it the spirit of Christmas or the invisible hand of the market? The fill levels in German and European gas storage facilities are at an all-time low, energy prices jump to new, alarming record levels every day - a fleet of American gas tankers appears on the western horizon as a savior in an emergency to alleviate Europe's energy poverty.

Germany: will the coal phase-out lead to a gypsum shortage?

 While the conversion of coal into electricity is about to be phased out a considerable byeffect has to be considered: gypsum is an important byproduct of coal power plants that is extracted by flue-gas desulfurization (FGD). Experts caution about a foreseeable lack of gypsum which is widely used in construction, writes WELT:

There is broad social and political consensus on phasing out coal-fired power generation. Hopefully, we will still find out where the electricity will come from on windless winter nights. But another substance will also become scarce when the coal-fired power plants go out of operation: gypsum.

So far largely overlooked by the general public, it is becoming clear that the white universal building material will slip into a supply gap by the 1930s at the latest. Because today more than half of the material - exactly 55 percent in Germany - comes from flue gas desulphurisation plants (FGD). These amounts will no longer apply in the future.

It will be difficult to do without, because gypsum is almost a kind of miracle material: it can be shaped in any way, moisture-regulating, non-flammable, infinitely recyclable, mineral. It's found in countless uses. Only rarely in medicine, where for bone fractures instead of the legendary plaster leg, other solutions with plastic splints are often used.

Wednesday, December 22, 2021

Gas prices: reflections about Russia as the main supply source

 French newspaper Le Monde reflects about the strategic options of the Bloc concerning gas supply in the light of skyrocketing energy prices and the clatter of boots at the border to Ukraine:

Europe is entering winter, and the question is no longer whether it will have gas to heat itself and run the factories, but at what price. It has flared up in recent weeks and costs six times more than a year ago. The bill for individuals and manufacturers will be heavy in 2022. The functioning of the European market lends itself to this, as does the economic context: demand is strong during this season, activity remains strong despite the threat of the Omicron variant of SARS-CoV -2, storage is at a very low level (63%) and the unexpected shutdown of French nuclear power plants is increasing tensions.

If there were just that ... Gas prices, and by extension electricity prices, are also trending against the backdrop of Russian boots on Ukraine's eastern borders. Russia supplies a third of the European Union (EU) gas. This share, greater than that of Norway and Algeria combined, puts Vladimir Putin in a strong position to derive double benefit, financial and political, from the situation. The Russian president has been playing this market power for months by asking Gazprom not to export more than expected by its contracts with European customers.

Germany: coal beats wind power in 2021

 The energetic balance for 2021 reveals that fossile fuels were able to increase their output compared to renewables, writes WELT:

The climate politicians of the traffic-light-coalition have bad timing. They had only just decided to bring the coal phase out to 2030, when the frowned upon electricity producers are once again demonstrating their importance for the energy supply with all their might.

Lignite power plants produced 18 percent more electricity in 2021 than in the previous year, while hard coal power plants even increased their output by almost 27 percent. This is what it says in the annual balance sheet that the Federal Association of Energy and Water Management (BDEW) has now published.

Tuesday, December 21, 2021

Germany: Russia curbs gas supply; retaliation for murder verdict?

 No more gas is flowing from Russia via Belarus to Germany since sunday. Some experts see this as an expression of disapproval by the Kremlin for the murder verdict against the russian hitman that killed a chechen individual in Berlin in 2019 and the restive attitude of newly appointed foreign minister Annalena Baerbock, writes BILD:

He did it again!

Russian President Vladimir Putin (69) has turned off the gas. Since Sunday, no more Russian gas has flowed to Germany via Belarus and Poland.

▶ ︎ “For commercial reasons”, as they say from Moscow, but experts see a different reason for turning the gas tap on again in the direction of the Federal Republic of Germany.

The Poles were the first to notice last Friday that something was wrong with the gas deliveries via the Yamal pipeline of the Russian state-owned company Gazprom. At around 5 a.m., the pressure in the pipeline dropped, initially by only about ten percent, and then by another 90 percent on Saturday morning.

EU: conservative lawmakers warn Commission President unfulfillable energy requirements

 As the decision about the "green character" of different energy sources is scrutinized, conservative lawmakers caution European Commission President Ursula von der Leyen that some requirements might be unrealizable and thus damage companies and strain consumers, writes WELT:

The argument has been smoldering for months, but Ursula von der Leyen wants to end it soon. The European Commission will shortly decide whether it will classify nuclear power and natural gas as sustainable in the future - and under what conditions.

Before the final spurt in Brussels, MEPs warn that companies and consumers in many European countries could suffer the wrong decision. They fear that excessively strict requirements from Brussels could ensure that the energy supply is at risk, that energy prices remain high in the long term - and that the energy transition could fail on top of that.

That is the tenor of a letter that 22 MPs from eleven countries sent to von der Leyen, President of the European Commission, on Friday. “We remain convinced that Europe must make the transition to climate neutrality realistic, responsible and appropriate; especially when it comes to the specific needs of small and medium-sized companies, ”says the letter initiated by CDU member Markus Pieper. The unpublished letter is available to WELT.

Friday, December 17, 2021

Nord Stream 2: operator ramps up pressure, fills pipeline with gas

 Despite the fact that the controversial pipeline still doesn't have the necessary operating licence, the pipeline is being flooded with gas "to establish the necessary line pressure", as the operating company puts it, writes WELT:

The operating company of the controversial Baltic Sea pipeline Nord Stream 2 started filling the second line on Friday. According to the company, this is intended to build up the technical line pressure required for the gas flow.

“The pre-commissioning work on the second line was successfully completed to ensure the integrity of the pipeline,” explained the Swiss-based subsidiary of the Russian state monopoly Gazprom. The pipeline was "built in accordance with applicable technical and industrial standards and independently certified".

The early filling of the pipelines at a time of extremely high gas prices is surprising, as the operating license for the pipeline will still be months away. The Federal Network Agency (BNetzA) had suspended the approval process for pipeline operation for the time being because Gazprom had not yet implemented the formal conditions of the European gas directive.

According to the European competition rules, the owner and user of a line monopoly must not be identical. Gazprom must therefore set up an operating company that is formally and personally independent in accordance with the German legal form in order to meet this requirement. Only then can the certification of the gas pipe be completed.

Gazprom is working on the implementation. But decisions will probably "not be made in the first half of the year", said the President of the Federal Network Agency, Jochen Homann, with a view to 2022. The process will continue as soon as the necessary documents are submitted in such a way that "they can be checked" - but that alone has Nord Stream 2 AG in hand.

The BNetzA is under political pressure from various sides. Opponents of the project, including the USA, are demanding that the federal government not allow the line to go into operation for geopolitical reasons. Several EU countries are also calling on Germany to use the pipeline in the Ukraine conflict as a means of pressure against Russia.

Supporters of the pipeline project therefore suspect that the approval process of the Federal Network Agency could drag on longer than is actually necessary due to this political pressure. Some want to see the formulation of the BNetzA president as an indication that time leeway should be used to the maximum. Homann had pointed out that after the examination by the BNetzA, the whole thing would still go to the European Commission. This has "a lot of time to deal with it again".

If Gazprom is already filling the pipeline between St. Petersburg and Greifswald with gas, that could - intentionally or only as a welcome side effect - exert counter pressure on the licensing authority. Because gas prices in Germany and Europe are currently at a record level. In addition, a physical shortage of gas cannot be ruled out for industrial companies and power plant operators.

Operators of gas power plants in Germany are already warning of the increased risk of business interruptions due to a lack of gas deliveries this winter. The industry association “Trading Hub Europe” (THE), which is responsible for the gas supply, is also trying to organize additional gas volumes especially for Bavaria for February by means of a “special tender”.

If there were physical supply bottlenecks in Germany in the event of an extremely cold and long winter, politicians could come under pressure to justify why gas volumes from Nord Stream 2 are not used that are already physically available at the landing point Greifsland on German territory.

How sensitive the gas market is with regard to the politically sensitive supply situation was shown recently by reactions to a statement by the Federal Foreign Minister. Annalena Baerbock (Greens) had pointed out that "as things stand, this pipeline cannot be approved because it does not meet the requirements of European energy law." Market participants and media representatives misinterpreted as a political declaration of intent.

As a result, gas prices in European wholesale rose significantly over several days. Chancellor Olaf Scholz (SPD) only pointed out at the end of this week that Baerbock's statements had been misunderstood: The commissioning of the pipeline was not a political question, Scholz made clear: For commissioning, compliance with European law was only required in one sub-aspect clear up. "An authority in Germany decides on this quite apolitically."

Germany: EU plans thwart Germany's energy shift

 EU guidelines with very strict precepts on gas power plants could lead Germany to extend the operating time of coal power plants the government wanted to give up by 2030, reports WELT:

The new federal government would like to "ideally" bring the coal phase-out in Germany forward from 2038 to 2030. But the traffic light coalition partners encounter immense problems right at the beginning of their project. In addition to the even declining production of renewable energies, new specifications from Brussels threaten to make it more difficult to achieve the targets.

The starting position for the planned energy transition turbo of the new federal government deteriorated considerably on Wednesday: According to the latest figures from the German Association of Energy and Water Management (BDEW), the goal of achieving 80 percent green electricity in Germany by 2030 has become little more unrealistic. Accordingly, the share of renewable energies in gross electricity consumption has even shrunk from 46 percent to 42 percent this year. The main reason for this was poor wind conditions.

It is therefore ruled out in specialist circles that renewable energies can replace the capacities of coal and nuclear power that will be lost in the near future. Almost every study on the achievement of the German energy transition targets assumes that gas-fired power plants will have to be built to a considerable extent by 2030 in order to be able to temporarily close the electricity gap.

Germany: chancellor Scholz on Nord Stream 2 and nuclear power

 Newly appointed chancellor Olaf Scholz refused in a speech to interconnect the question of the operating licence of contentious pipeline Nord Stream 2 and the tense situation in Ukraine. Nord Stream 2 is a purely commercial project, he said. He disagreed with french President Macron about the future of nuclear. He pointed out that Germany has other energetical models. 

Source WELT:

Federal Chancellor Olaf Scholz (SPD) has spoken out against combining the operating license for the controversial Nord Stream 2 gas pipeline with efforts to de-escalate the Ukraine crisis. “With regard to Nord Stream 2, it is a private-sector project,” he said on Friday night after the EU summit in Brussels.

For commissioning, compliance with European law has to be clarified in one aspect. "An authority in Germany decides on this quite apolitically," emphasized the SPD politician. This is "a different question" than the current efforts to prevent a violation of the Ukrainian borders.

The Baltic Sea pipeline from Russia to Germany was completed weeks ago. The Federal Network Agency decides on the operating permit. The pipeline has long been criticized by the US, but also by some EU countries. They fear that they are too dependent on Russia for energy supplies.

At its summit, the EU unanimously threatened Russia with retaliation in the event of an attack on Ukraine. In a joint statement by the heads of state and government, Russia urgently needs to defuse the tensions caused by the deployment of troops on the border with Ukraine and aggressive rhetoric. Any further military aggression will have "massive consequences and high costs".

Friday, December 10, 2021

Battery technology: australian start-up Vulcan Energy buys German geothermal power station

 Source Der Spiegel:

The Australian lithium start-up Vulcan Energy is pushing ahead with its plans to extract the element that is important for battery production in Germany. Vulcan's German subsidiary is buying a geothermal power plant in the Upper Rhine Valley for around 31.5 million euros. As the company announced, it will take over the power plant from the regional energy supplier Pfalzwerke. A first pilot plant for the production of lithium hydroxide is to be put into test operation at the geothermal power plant in Insheim in the Palatinate.

Vulcan is working on the supply of lithium to Volkswagen and other European automakers such as Opel parent company Stellantis. You have already placed orders because lithium is needed in the manufacture of batteries for electric cars. From the point of view of experts, however, the company still has to prove that its idea for lithium extraction actually works financially lucrative enough on a large industrial scale.

Nord Stream 2: Biden administration piles pressure on new german government

 The US government is losing patience with german officials who - to date - do not want to commit to a dropping of the contentious pipeline in case of a russian aggression against Ukraine. From the US viewpoint it remains to be if newly appointed foreign secretary Annalena Baerbock gets her way and if new german chancellor Olaf Scholz can preserve his independence towards the general position of his social-democratic party who supports this project, writes WELT:

Seldom has a Chancellor found himself caught between two superpowers so quickly. Not only congratulations for Olaf Scholz (SPD) came from Washington and Moscow, but also tangible pressure. The US wants to deter Russia from invading Ukraine - and, parallel to Scholz's inauguration, made it clear that they consider the federal government to be part of the problem.

"We have had intensive discussions with both the outgoing and the new German government about the issue of Nord Stream 2 in connection with a possible invasion," said US President Joe Biden's national security advisor, Jake Sullivan. "If Vladimir Putin wants gas to flow through this pipeline, he may not want to take the risk of invading Ukraine."

The message: If Putin attacks Ukraine, Berlin must stop the German-Russian pipeline. The US is fed up with Germany's geostrategic ghost ride. Putin had tightened Russia's course against Europe over two decades - but the German chancellors stuck to the billion-dollar pipeline project.