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EUROPE’S DEPLETED GAS STORAGE MIGHT NOT GET REFILLED AHEAD OF NEXT WINTER

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ECONOMICS


EUROPE’S DEPLETED GAS STORAGE MIGHT NOT GET REFILLED AHEAD OF NEXT WINTER

Europe’s Depleted Gas Storage Might Not Get Refilled Ahead Of Next Winter

Europe may have trouble replenishing its natural gas storage facilities…


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Published

2 days ago

on

March 1, 2022
This article was originally published by Zero Hedge

Europe’s Depleted Gas Storage Might Not Get Refilled Ahead Of Next Winter

Europe may have trouble replenishing its natural gas storage facilities by next
winter as storage levels are at decade lows. 

Russia, which supplies one-third of Europe’s natgas needs, has said delivery of
gas through vast networks of pipelines will continue.



On Monday, Russia’s gas producer Gazprom published a statement warning there
will be “serious challenges” in replenishing European gas storage facilities for
next winter considering “such significant gas volumes” are needed and never has
this happened ahead of the summer months. 

Gazprom said there could be daily restrictions on injections because of the
technological capacities of the pipeline infrastructure. Then there’s also the
risk of damage to pipelines that transit gas from Russia through Ukraine. On top
of this, European markets will be competing with increasing demand from Asian
markets. 

Bloomberg data shows that German underground storages “are depleted” by 70.6%,
while French ones are 77.1%. Gas withdrawal from European storage lasts until
late March and, in some cases, early April. Gas injections begin shortly after
to resupply the continent for the summer months and ahead of next winter.
However, since storage levels are at decade-low levels, filling up ahead of next
winter could be a challenge. 

Then there’s the risk of Russia limiting natgas flows to Europe in retaliation
for a raft of fresh sanctions that froze Russian central bank assets, and some
Russian banks were removed from the SWIFT financial messaging system, which has
caused utter chaos in Russian markets on Monday, especially in FX markets. 

Wood Mackenzie analyst Kateryna Filippenko told Reuters, “Europe might have to
pull every lever to keep the lights on – reducing gas burn and cranking up
mothballed nuclear and coal plants; maximizing indigenous gas production and
pipeline imports.” 

Filippenko said there would be temporary fixes, leaving Europe with “perilously
low storage volumes” going into winter, adding that energy prices “could be
higher than 2021/22”.

Kaushal Ramesh, an analyst at Rystad Energy, also agreed
with Filippenko: “End-2022 and going into 2023 may see prices closer to the 2021
winter and could be higher.” 

Although the European benchmark, Dutch gas prices, are below December’s record
highs, prices did jump 60% on Thursday after Moscow invaded Ukraine. 



Higher energy prices have rippled through the economy and resulted in a massive
surge of power prices that have crushed households across Europe. Governments in
the region are spending billions of euros shielding consumers from soaring power
prices. 

“Rising commodities prices will further fuel already high levels of inflation,
putting Western central banks between a rock and a hard place,” said Teeuwe
Mevissen, senior market economist at Rabobank.

> “Raising interest rates will increase the chance of hurting the pace of
> economic recovery, not raising rates might lead to increased inflation
> expectations and might still lead to a deflationary environment because of
> lower purchase power putting pressure on spending power and, therefore,
> demand,” said Mevissen. 

The good news so far is that “western nations have excluded Russian commodity
exports from sanctions,” said Mark Haefele, chief investment officer for global
wealth management at UBS Group AG.

> “But positions are shifting fast, and Western nations have already begun
> implementing measures that seemed unlikely a few days ago, and the White House
> has stated that energy sanctions are on the table,” Haefele said. 

Even though Gazprom continues to pump gas into the energy crisis-stricken
continent, there are genuine risks that supply disruptions could be seen or at
least pipeline capacity into Europe might not be able to inject enough gas to
refill supplies ahead of next winter, which could very well result in higher
energy prices. 

Tyler Durden
Tue, 03/01/2022 – 04:15
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AUTHOR: TYLER DURDEN




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Markets Sometimes Do The Work That Armies Can’t

China almost certainly owns more gold than the US – here’s why that matters


ECONOMICS


MARKETS SOMETIMES DO THE WORK THAT ARMIES CAN’T

#CKStrong The instant immiseration of a big economy [by sanctions] is
unprecedented and will cause alarm around the world, not least in China, which
will…


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#CKStrong

> The instant immiseration of a big economy [by sanctions] is unprecedented and
> will cause alarm around the world, not least in China, which will recalculate
> the costs of a war over Taiwan. The West’s priority must be to win the
> economic confrontation with Russia. Then it must create a doctrine to govern
> these weapons in order to prevent a broader shift towards autarky. – Economist

1997 Asian Financial Crisis Forces Indonesia’s Dictator From Office

During the 1997 Asian Financial Crisis, Indonesia was hit hardest. The economic
and political chaos that ensued forced Indonesia’s Suharto government from power
in May 1998,  after ruling unopposed for 31 years. Something that domestic
political pressure and periodic military unrest could not. 

Suharto consolidated his power in 1967 after the 1965 military coup, which is
the basis for the excellent Australian movie,  The Year of Living Dangerously. 

Massive capital flight from Indonesia coupled with its current account deficit
caused the rupiah to lose 80 percent of its value against the dollar from August
1997 to January 1998.   

> By 1998, Suharto became increasingly seen as the source of the country’s
> mounting economic and political crises, and prominent political figures began
> speaking out against his presidency…Rioting and looting across Jakarta and
> other cities began over the following days…On 20 May, there was a “massive
> show of force” from the military, with soldiers and armored vehicles on the
> streets of Jakarta. Facing a threat of impeachment from Harmoko, and having
> received a letter from 14 cabinet members rejecting the formation of a new
> cabinet, Suharto decided to resign. — Wikidpedia

Unlike Putin, Suharto didn’t have a real external enemy to deflect blame for the
country’s economic woes, though the Malaysian Prime Minister Mahathir Mohamad
did single out Geroge Soros.  Sound familiar? 

The hard-right scapegoating of George Soros for all the world’s ills is now
commonplace, but Mahathir did it a decade before Sean Hannity and two decades
before Laura Ingram hit the airwaves at Fox News. 

However, not himself personally, Soros’ firm did go after the vulnerable Asian
currencies, as did Morgan Stanley and almost all the big Wall Street firms and
hedge funds. But that is what they do.  As one trader told me during the period,
“these economies are so out of balance, it was like shooting fish in a barrel.”

Moreover,  Indonesia was in a current account deficit and highly dependent on
foreign capital. Russia, by comparison,  runs a large current account surplus
and is hardly dependent on the “hot money” foreign capital as they were, which
led to their infamous 1998 default.

The head of Russia’s central bank, Elvira Nabiullina, is one of the world’s
best, so we doubt the ruble is heading the way of the rupiah during the 1997
crisis though it’s too early to be sure. 

Well Putin Go The Way Of Suharto? 

It’s too early to speculate, and the two countries couldn’t be more different. 

Russia and Indonesia during 1997 are two very different situations.  Indonesia
collapsed due to market forces exploiting the country’s economic
vulnerabilities.  Russia’s case, however, is similar to what happened during the
first few quarters of the pandemic when the world’s policymakers flipped the
global economy’s lights off.  Similarly, Western government sanctions are
flipping off Russia’s outside lights, and the darkness is rapidly spreading to
the domestic economy.  

Short-term Putin’s fate most likely depends on the support of his inner circle,
the heads of the intelligence agencies, for example, which will be dependent on
how the war unfolds.  

How will Russia’s population react to being cut off from the West, such as 
Apple’s announcement they will stop selling products to Russia?   

Who knows, it’s way to early but we are highly doubtful the younger population
will have much patience as they watch their country morph into another North
Korea.  Time will only tell. 

One Last Thing – China 

The Economist also writes, 

> Autocracies will be most nervous: they own half of the world’s $20trn pile of
> reserves and sovereign wealth assets. While China can inflict huge economic
> costs on the West by blocking supply chains, it is now clear that in the event
> of a war over Taiwan, the West could freeze China’s $3.3trn reserve pile…Over
> the next decade technological changes could create new payments networks that
> bypass the Western banking system.
> 
> …Some of this fragmentation has become inevitable. But by applying sanctions
> to ever more countries over the past two decades, and now also raising their
> potential severity, the West risks pushing more countries to delink from the
> Western-led financial system than is desirable. — Economist

Will China Dump Its Treasury Securites?

The primary reason why nominal interest rates, and real rates, for that matter,
are so low in the United States is that central banks, who are price
insensitive, own 53.2 percent of all outstanding coupon Treasury securities as
of the end of last year.  The Fed held $4.9 trillion (29.4 percent) and foreign
central banks $3.9 trillion (23.8 percent).  In other words, similar to housing,
there is an engineered shortage of coupon Treasuries relative to the amount of
money in the global financial system, distorting interest rates. 

Of the total foreign holdings of Treasuries, China is the second-largest, just
behind Japan, owning over 27 percent of the foreign-held.  The data are
illustrated in the chart below.

The latter three, UK, Ireland, and Luxemboug, most likely reflect the individual
county’s status as a  financial center or tax haven.  For example, we speculate
close to half of Ireland’s holdings reflect Apple and Microsoft’s corporate
portfolio.  We could be wrong, and if you have better information, please email
us or comment at the bottom of the post. 

We also suspect leaders in China are getting very nervous after seeing the
West’s harsh sanctions on Russia, including the freezing of its central bank
assets. 

Is China Still Comfortable Holding Treasuries? 

Seriously, folks,  do you think the regime in China is as comfortable as it was
at the beginning of the year, holding almost one-third of their foreign reserves
in U.S. Treasuries after the events of the past ten days?  We doubt it. 

Watch This Signal

I began my professional career in the private sector, negotiating the sizeable
commercial bank sovereign debt restructurings.  If negotiations hit a snag, as
they often did, we would watch the government’s action regarding their foreign
reserves held in custody in the United States.  If they began to move them out
of the country, it was a signal they may be preparing to declare a debt payment
moratorium and suspend payments to gain leverage in the negotiations — the
nuclear option. 

If, say, China begins to dump their Treasury holdings rapidly, it could very
well signal they are preparing to take Taiwan.  Just a theory and a
hypothetical, or it could be they are becoming more politically risk-averse and
hedging after observing what happened to Russia’s central bank.     

If our speculation is correct, U.S. interest rates will be moving closer to a
market-driven price. That is,  much higher or forcing the Fed to step in to keep
a lid on interest rates, which cause inflation to move higher.  

> The more they [sanctions] are used, the more countries will seek to avoid
> relying on Western finance..It would also lead to a dangerous fragmentation of
> the world economy. 
> 
> …Today it is hard to park trillions of dollars outside Western markets, but in
> time more countries may seek to diversify their reserves by investing more
> elsewhere. – Economist

Dayam, the current world situation is starting to read like a Tom Clancy novel. 



 

> …the second phase of the Japanese offensive: an economic attack, where Japan
> engineers the collapse of the U.S. stock market by hiring a programmer who is
> a consultant for an exchange firm to insert a logic bomb into the system,
> which when triggered blocks the storage of all trade records made after noon
> on Friday. They also assassinate the President of the Federal Reserve Bank. –
> Wikipedia

The Times They Are a-Changin’.   

Here’s to hoping the policymakers have thought this through and have a
contingency plan.

Only sweat the things you can control.

Stay frosty, folks. 

 

>  

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AUTHOR: MACROMON




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PRECIOUS METALS


CHINA ALMOST CERTAINLY OWNS MORE GOLD THAN THE US – HERE’S WHY THAT MATTERS

If you thought the West was unprepared for inflation – or indeed for Russia –
wait and see just how unprepared it is for this bombshell.
This is the…


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If you thought the West was unprepared for inflation – or indeed for Russia –
wait and see just how unprepared it is for this bombshell.

This is the biggest story in world finance, and yet nobody, bar your intrepid
blogger, is reporting on it.

For those without the attention spans to read all the way to the end, let’s cut
to the chase and get the main point out upfront: China has more gold than the
United States.


WHY CHINA MIGHT WANT TO OWN A LOT MORE GOLD THAN IT’S ADMITTING

We’ve seen many examples over the last few decades of how the United States
weaponises the dollar, exploiting its status as global reserve currency. 

The sanctions on Russia and its removal from the Swift messaging system this
week are perhaps the most dramatic example of all. Russian civilians have had
their wealth decimated (in fact, probably significantly more than decimated for
most) almost overnight. 

China will be surely watching all of this, learning from Russia’s mistakes and
thinking it needs to de-dollarise as swiftly and discreetly as possible. Whether
to protect its citizens’ wealth or its national interests, China cannot be
beholden to a banking system that is run by the West – the US especially – and
which is one of their weapons of war.

Both Russia and China have known they must de-dollarise for some considerable
time, which is why both have been so steadily increasing their gold holdings. 

Let’s start with Russia’s gold. The chart is courtesy of Nick Laird of
goldchartsrus.com and it shows the Russian Central Bank’s accumulation to
today’s figure of, give or take, 2,300 tonnes – roughly 74 million ounces (there
are 32,150 troy ounces in a tonne).





That makes Russia, according to official figures at least, the fifth-largest
gold owner in the world.

The table below, courtesy of the World Gold Council, shows the top 19 owners of
gold, also their foreign exchange reserves and their percentage allocation to
gold. The US has the most – 8,134 tonnes – followed by Germany, Italy, France
and Russia.

The UK sits proudly in 17th position. Behind Kazakhstan, Turkey and Uzbekistan.
Thank you Gordon Brown.

 

Country

FX reserves $m

Total reserves $m

Gold holdings %

Gold reserves Oz (m)

Gold reserves (tonnes)

1

USA

239,485

695,225

65.55

455,741

8,133.5

2

Germany

99,513

287,732

65.41

188,219

3,359.1

3

Italy

83,583

220,966

62.17

137,383

2,451.8

4

France

102,439

238,954

57.13

136,515

2,436.4

5

Russian 

485,462

614,255

20.97

128,793

2,298.5

6

China

3,264,064

3,373,233

3.24

109,169

1,948.3

7

Switzerland

1,019,165

1,077,439

5.41

58,274

1,040.0

8

Japan

1,358,141

1,405,543

3.37

47,402

845.9

9

India

598,057

639,736

6.52

41,679

743.8

10

Netherlands

28,229

62,547

54.87

34,318

612.4

11

Taiwan 

544,899

568,636

4.17

23,7367

423.6

12

Kazakhstan

13,407

35,664

62.41

22,257

397.2

13

Turkey

81,176

103,186

21.33

22,010

392.8

14

Uzbekistan

13,070

34,558

62.18

21,489

383.5

15

Portugal

11,606

33,042

64.88

21,436

382.6

16

Saudi Arabia

465,059

483,161

3.75

18,102

323.07

17

UK

175,879

193,265

9

17,386

310.3

18

Lebanon

19,430

35,501

45.27

16,072

286.8

19

Spain

75,479

91,256

17.29

15,778

281.6

The country we are focusing on today is the one in sixth place on that table,
China. 


HERE’S WHY CHINA’S GOLD RESERVES MUST BE FAR BIGGER THAN OFFICIAL DATA SUGGESTS

First, consider China’s US dollar holdings – over three trillion of them. That’s
more than the UK’s annual GDP. Its US dollar holdings eclipse those of every
other nation; China is not going to want those to go to zero – not yet, anyway.

Then consider its gold holdings. It has 1,948 tonnes, barely 3% of its foreign
exchange reserves. The US’s gold holdings equate to over 65% of its reserves. 

What if China were to approach that level?

Well, my argument is that China has much more gold than it says it does. 

There are two parts to this argument. First, China’s gold mining. In 2007, China
overtook South Africa as the world’s largest gold producer. It has remained so
ever since. This past decade it has produced about 15% of all the gold mined in
the world. 

Since 2000, China has mined roughly 6,830 tonnes. Over half of Chinese gold
production is state-owned – the China National Gold Group Corporation alone
accounts for 20%. And China keeps the gold it mines – the export of domestic
mine production is not allowed.

I say that number again: 6,830 tonnes. Already that official 1,948 figure looks
very dubious. 

With reserves in decline at home, Chinese mining companies have also been buying
assets abroad, across Africa, South America and Asia. International production
exceeds domestic production – by about 15 tonnes in 2020.

Second, there is the fact that, as well as being the biggest producer, China is
the world’s biggest importer. Gold imports via Switzerland and Dubai are not
always declared, but we do know that via Hong Kong alone, over 6,700 tonnes have
entered the country since 2000. 

Add that to cumulative gold production since 2000, and you get a figure over
13,500 tonnes.

Whether imported, mined or recycled, most of the gold that enters China goes
through the Shanghai Gold Exchange (SGE), including the gold imported from Hong
Kong. So SGE withdrawals – for which we do have numbers – can act as something
of an approximation for demand. And it is possible to get numbers for SGE
withdrawals: since 2008, almost 22,000 tonnes have been withdrawn from the SGE.





Then we have to add gold held in China, whether as bullion or jewellery, before
2000. The World Gold Council estimates a figure of 2,500 tonnes in
privately-held jewellery. Added to domestic mining and official reserves, you
get a figure of around 4,000 tonnes.

Cobble it all together – cumulative production, imports and existing stock – and
you arrive at a figure not far off 31,000 tonnes. 





I’ve spoken to some of the world’s top analysts – Ross Norman, Bron Suchecki and
Koos Jansen – and they all arrive at similar estimates. Alasdair McLeod of
Goldmoney thinks it is higher still. 


SO WHY WOULD CHINA KEEP ITS GOLD RESERVES QUIET?

But there is more, as Ross Norman points out. 

Not all gold entering China is accounted for by SGE withdrawals. The People’s
Bank of China (PBOC), the central bank, likes to buy 12.5kg bars, which do not
trade on the SGE. The PBOC often uses dollars on exchanges in London, Dubai and
Switzerland, while the SGE sells its gold in yuan. 

The Chinese army, too, owns gold and does not have to declare its purchases. And
there are other state agencies, as well: the State Administration of Foreign
Exchange and China Investment Corporation – the sovereign wealth fund, for
example. 

How much of this gold is state owned? Norman guesses 50%; Suchecki, formerly of
the Perth Mint, says 55%.

At 50%, the implication is that China owns over 15,000 tonnes – closing in on
double the US.

“Chinese Central Bank gold holdings have apparently been entirely unchanged
since mid-2019 at 1,948 tonnes,” Ross Norman tells me. “But few of us believe
that. Put an additional zero on the end (19,480 tonnes) and I should not be
surprised if that is not much closer to their official holdings”.

Alasdair McLeod goes one stage further. “The PRC probably has as much as 30,000
tonnes hidden in various accounts, but not declared as official reserves”.

Whether ten, 15 or 30,000 tonnes, there is no way China can declare such large
holdings. Not yet anyway – it would cause an unwanted surge in both the yuan and
the gold price. The government’s $3.2trn of US dollar foreign exchange reserves
would be devalued. 

“I don’t think China needs to brag about its largesse,” says Norman. “After all,
a stronger currency as a result of that reserve backing would be
counter-productive, as it would confer competitive disadvantage”.

What’s more, to declare so much gold would be a direct challenge to American
supremacy, which China is probably not yet ready for. Parity first, then
supremacy.

For now they follow Deng Xiaoping’s doctrine of “we must not shine too
brightly.” Its declared 1,948 tonnes is, perhaps, the bare minimum it could
declare and look credible. But a mere 3% of China’s forex reserves in gold? Pull
the other one.

If China decides to weaponise money, as the US has done, all it has to do is
declare its gold holdings, perhaps even partially back the yuan with them. Talk
was, at one stage, its central bank digital currency (CBDC) would be partially
gold backed.

Unbacked Western money risks losing a great deal of its purchasing power in such
an event. To back Western fiat even partially with gold would mean a dramatic
upwards revaluation of gold – into the tens of thousands.

But that is the card China now has with its 20 years of relentless accumulation.
He who owns the gold, makes the rules.

Dominic’s film, Adam Smith: Father of the Fringe, about the unlikely influence
of the father of economics on the greatest arts festival in the world is now
available to watch on YouTube.

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AUTHOR: DOMINIC FRISBY




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PRECIOUS METALS


GOLD PRICE OUTLOOK WITH FED’S INTEREST RATE HIKE IN THE HORIZON

Gold price is trading within a rather tight range of between $1,935 and $1,925
for the second session in a row following Jerome Powell’s testimony….


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Gold price is trading within a rather tight range of between $1,935 and $1,925
for the second session in a row following Jerome Powell’s testimony. At the time
of writing, the precious metal was trading at $1,932.14.

gold price


FED’S INTEREST RATE

In his testimony before the US Congress on Wednesday, the Federal Reserve’s
Chair – Jerome Powell – indicated that the US central bank will continue with
its plan to gradually hike interest rates. On the one hand, he acknowledged that
the Russia-Ukraine war have intensified economic uncertainties. Nonetheless, he
was quick to add that the situation has not shifted the Fed from its path in
dealing with the high inflationary pressures.

With regards to the situation in eastern Europe and subsequent reaction of the
global economy, Powell stated that the Fed is “going to avoid uncertainty to
what is already an extraordinarily challenging and uncertain moment.”

Amid the strengthening labour market, rapidly recovering economy, and soaring
prices, the Fed Chair is of the opinion that a quarter-point interest rate hike
is an apt point to begin its plan of increasing rates and dealing with high
inflation. At the beginning, the US central bank is set to gradually hike
interest rates. However, it is ready to embrace a more aggressive approach if
inflation does not cool down within a reasonable timeframe.

The first interest rate hike since December 2018 is expected about two weeks
from now after the Fed meeting that will be concluded on 16th March. With that
in mind, gold price will likely record curbed gains in the short term. The
precious metal is usually sensitive to higher interest rates as it increases the
opportunity cost of holding the non-yielding bullion.

In fact, following Jerome Powell’s testimony on Wednesday, Treasury yields
rallied back above 1.90% to an intraday high of 1.91%. Granted, it has since
pulled back to 1.88% as at 08:34 a.m GMT. As the US bond yields continue to find
support at 1.85%, gold price is trading within a rather tight range of between
$1,935.70 and $1,925.00 for the second session in a row.

Nonetheless, the precious metal is still finding support in the ongoing
Russia-Ukraine war and the subsequent demand for safe havens. Explosions have
been reported in Ukraine’s capital city, Kyiv while the nation’s second city,
Kharkiv remains under severe attack from Russian troops. Besides, Moscow has
taken over the southern Ukraine city of Kherson and surrounded Mariupol.

The post Gold price outlook with Fed’s interest rate hike in the horizon
appeared first on Invezz.

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AUTHOR: FAITH MAINA




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BIDEN TO PITCH CLIMATE AGENDA, REVIVAL OF “BUILD BACK BETTER” DURING FIRST STATE
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Economics2 days ago


OIL HITS $110 AS BIDEN BEGINS SOTU ADDRESS; GOLDMAN SAYS EMERGENCY OIL RELEASE
WON’T DO JACK

Economics1 day ago


MANUFACTURING CONTINUES RED HOT, WHILE CONSTRUCTION GAINS COMPLETELY CONSUMED BY
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Economics2 days ago


CANADIAN DOLLAR STEADY, GDP OUTPERFORMS

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“15,000 ON THE DOW” – CHARLES NENNER WARNS OF “GREAT DANGER” FROM WAR-CYCLE

Economics18 hours ago


WHY ACCUMULATE A SPECULATIVE POSITION ON STONECO STOCK

Economics2 days ago


A FORECAST ON RUSSIAN POLICY RATE, INFLATION

Economics2 days ago





TRENDING

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Portofino Gets Options on Multiple Lithium Projects, Covering More than 27,000ha
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Precious Metals18 hours ago

High-Grade Find Puts Exploration Company at Leading Edge of Global Silver Rush

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IIROC Trading Halt – POR

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FuboTV Stock Is a Strong Buy on Post-Earnings Weakness

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