The joy of painting

Having nothing to say to the world about Russian (and any other country’s) politics or fluctuations in gas prices, one naturally turns to contemplation on the meaning of life, universe and everything. It is not 42. The answer is not discrete, it is continuous. Let me explain.

All the world’s problems come from the inability of the left side of the brain to talk to the right side of the same. That applies universally across genders and borders. 

The angry, judgmental and reward-driven left side of our communal brain dominates politics, business, culture, religion. This has served us well as species on the way out of the forest and onto megapolis. It is failing us now. 

Our human weaknesses are well researched and weaponised. We are primed to chase the next best thing by clever marketing. we are distracted with red herrings in politics while real action is happening elsewhere. We are getting angrier. Deep down, however, we all know this is not how it is meant to be.

The mute, compassionate and touchy-feely right side of the brain does not have a say in this modern discourse. But this is the side which knows how it feels to be happy and free. And it is unflinching in letting you know that Pavlovian response to worldly goodies and YouTube shorts is not it.

The disconnect between the two sides of human nature is probably the reason for being on the brink of a collective nervous breakdown or a catastrophic climate event, whatever comes first. If the lucky few make it there, a Martian settlement will still have the same problem kicked down the road in the future. 

There might be a way out. It is not carbon capture, nitrogen-powered cars a very big rocket or migrants going where they came from. These might cure symptoms but not the disease. The solution could lie in allowing our compassionate right side of the brain have a say. First it might produce a tiny little squeak. Then a little conversation. Then a dialogue of equals.

It does not cost anything and it might change your life. But it is tremendously hard going. And at times terrifying. Much harder than getting a super duper rocket in space.  The trick is to get started and persist. Sorry, you can not outsource this to AI.

Policy makers might revisit the idea of Universal income and a four-day working week to get the process going. This would release some energy from the senseless daily grind to pursue something more enjoyable. For those artistically inclined, there is much more. Get a copy of “Drawing on the right side of the brain” by Betty Edwards. Contour drawing is critical and don’t skip the exercises.

Apart from learning much about yourself with a bit of spare money and time, there might be some interesting side effects when we let our right brain have a say.

You might get a better night’s sleep as the right side of the brain uses so much energy for seeing (observing), scribbling and emoting, the entire brain (including the worrisome left hemisphere) shuts down for the night. Mind you, there will be some uncomfortable nights when the brain will not let you sleep. 

The right side of the brain slows you down. Let someone in front of you make her slow way down the stairs on the tube. There might be a reason why the universe wants you to miss the meeting. 

As your pace slows down, there is time to see around, notice shapes, colours and curves. Possibly other people too. This might feel good. 

So here is the answer how to fix us. The meaning of life and everything is a continuous dialogue between the right and left side of the brain. This could make us more human.

Good luck! 

Ps. and while we’re at it, the right side of the brain has found the route of the UK perpetual productivity problem. it is gossip. No one does much inbetween.

Edited by Martin O’Rourke

Donald Trump and me

This should be the mantra of every one of us these days. From any number of high-flying politicians anywhere in the world to every one of us at the bottom of the pile. The outcome of the US Presidential elections will determine the lives of billions of us. This is what happens when one global power dominates all others and as such the Americans are voting for all of us.

The current US administration is in a sense the end of the line, for many of us. Joe Biden looms as the crumbling figurehead of the post-war world order: past its best, hypocritical, self-serving, rotten to the core. While the post-war decades brought creature comforts to many of us, happiness and fulfilment remain elusive.

The consumerism has proved to be a blind alley: a shiny neon lights pointing to oblivion. Crowded in the polluted dead end, we panic into a mayhem. Some of us are screaming blue in the face that the global warming will kill us all. Some of us are using modern weaponry in a frustrated rage against their neighbours. That might get us all to the bitter end just a little bit faster. The American voter, as anyone of us, must be looking for a way out of this pandemonium. For many Americans Trump seems to be the ticket.

For Russia and Russians, the Trump presidential win could bring a swift conclusion to the bloody mess of the Ukrainian war. But this will be on the American terms and in the American long-term interests. For the Russian administration, the exercise will be limited to selling whatever is the deal they can’t refuse to the Russian public and paying the full whack in reparations to Ukraine. Trump might be the only US politician who can make a deal with the current Russian administration, and there are politicians in Ukraine who are already positioning themselves for such an outcome.

Arguably it was not Putin’s Russia that trashed the post-war world order, and it is not for Putin’s Russia to cobble it back together. This is to give too much credit to the administration which has been deluded into thinking that it is still running a global power. And the last two years have been an exercise in cutting down Russia to size. It has been ruthless and brutal with much help (read self-harm) from the Kremlin itself.

The second stage of the cutting down is well on the  way. Sanctions have started to bite in a meaningful way after a slow start. Over a few days in January we have learnt that bank transfers for Russian companies via Indian and Turkish banks have ground to a halt (source), the Western-built equipment is failing and cannot be replaced (source), there are not enough vegetable seeds to go into the ground in spring (source), there are looming US restrictions on the Russian agricultural exports (No Russian Agriculture Act). Drone attacks on Russian industrial capacity continue and might become more frequent and painful. This stage of the war be less costly in direct human casualties but will be more painful and expensive for Russia in any other way. By the time of the US elections in November 2024, it might become obvious (for the Russian administration ) that they should cut their losses and take the American offer when it comes.  

The alternative for Kremlin is to run down the country to the ground by militarising the economy, nationalisation and mobilisation. This might result in food shortages, collapse of the infrastructure and the financial sector, and serious public discontent. The standard of living might deteriorate quickly. This might even lead to popular unrest and pose a direct threat to the regime. This would push the Kremlin to a deal with Ukraine, still on American terms. This outcome is more likely if the Biden administration scrapes through to win the US elections.

The isolationist Trump administration and a deal with Russia on Ukraine would mean that Europe would have to deal with the costly aftermath both politically and economically. But handled with care this could bring some stability in the European affairs.

When Grigory Alekseyevich met Vladimir Vladimirovich

On October 26th, 2023 Grigory Yavlinsky,  the prominent Russian opposition politician met with the Russian president Vladimir Putin. This must have been an unusual event for both sides – the first one-to-one meeting between the politicians since May 2014. There was only one more encounter in March 2018 when President Putin met with Mr. Yavlinsky and other candidates who ran for the Russian presidency that year.

On top of that the timing of the meeting proved to be interesting, while the content of the discussion and the aftermath could be described as ambiguous. In other words: “What was it all about?”

Taken at face value, the Putin/Yavlinsky meeting was mainly about the war in Ukraine. President Putin decided to give Mr. Yavlinsky a chance to put across his long-standing anti-war position. Possibly, this could be read as an attempt by Kremlin to send a political signal that Moscow is ready to negotiate a ceasefire. Mr. Yavlinsky is seen as a credible anti-war politician. He is currently gathering ten million signatures in support of his party Yabloko, which has a strongly anti-war platform. Could it mean that his anti-war views would be tolerated or even allowed to sip into mainstream politics as the Russian administration is scraping its way out from the bloody and costly war?

A darker and more cynical view of the event is that Mr. Yavlinsky was offered a deal (not necessarily in too many words but clear enough for him to read between the lines). He is allowed to run for Russian presidency in March 2024 on his anti-war platform. In return, he is effectively legitimising the process and the outcome of the elections.

Grigory Yavlinksy is a well-known Russian opposition politician; he is the same age as Mr. Putin (both are 71); he has been in opposition longer than President Putin has been in power (since 1996 and 1999 respectively).  Mr. Yavlinsky and his party Yabloko have strong anti-war views, they sounded alarm about the coming war during the Russian parliamentary campaign of 2021. Mr. Yavlinsky ran for Russian presidency four times (he won 7.3% of the vote in 1996 and 1.05% in 2018, he was barred from running in 2012). Unlike many other prominent opposition figures, Grigory Yavlinsky is not in jail and is still residing in Moscow.

The meeting between Mr. Yavlinsky and Mr. Putin took place on October 26th, the day full of speculation that Vladimir Putin had died. Rather promptly on October 27th the Kremlin spokesman Dmitry Peskov denied the rumours of Putin’s demise.

On November 4th Mr. Yavlinsky gave a YouTube interview to the veteran Russian journalist and broadcaster Alexei Venediktov. The interview mainly focused on the war in Ukraine, which was discussed during Mr. Yavlinsky’s meeting with President Putin. When asked a direct question about Mr. Putin’s health and appearance, Grigory Yavlinsky confidently replied that the Russian president was his normal self.  

Mr. Yavlinsky did not disclose who initiated the meeting (and why) but said that it had been a serious discussion which lasted for an hour and a half.  The focal point was Mr. Yavlinsky’s anti-war position and his vision of the future relations between Russia and Ukraine. Mr. Yavlinsky offered himself as a negotiator with Ukraine to achieve an immediate ceasefire.  

Mr. Yavlinsky  insisted that he managed to give a detailed account of his anti-war position to Mr. Putin. Anyone who is opposed to the anti-war position, Mr. Yavlinsky said, “is responsible for mindless deaths of a huge number of people”. Vladimir Putin does not share this view “at the moment”, but “this [Mr. Yavlinsky’s anti-war position]  is now a subject for consideration”.

“By the way”, the opposition politician said in the interview, “the events have been moving fast, very fast, if you have noticed. In the last five-seven days the talks on this subject on the other [presumably Ukrainian] side have become very active”. According to Mr. Yavlinksy, the Ukrainian press has been seriously discussing his meeting with Mr. Putin on October 26th, while the Russian press has only mentioned “a laughable and pointless matter” of the next presidential elections in Russia[1]. Mr. Yavlinsky does not have doubts about the outcome of the elections: it is laughable not to expect that Vladimir Putin would be re-elected.  

Talking about the war, Mr. Yavlinsky said that Ukraine might have been in a much stronger negotiating position a year ago “after events around Kharkov and Kherson”. That moment [for negotiations] has been missed and in that respect, Ukraine has lost, he believes. (Russia has lost much more, in my view, including the illusion of being one the global superpowers). At the meeting with the Russian president, Mr. Yavlinsky offered himself as a negotiator with Ukraine. Vladimir Putin did not respond to the offer, Mr. Yavlinsky said. 

When asked by the broadcaster what the negotiating position would have been if he were appointed to hold talks with Ukraine, Mr. Yavlinsky replied that it would be an immediate ceasefire, not substantive talks on the shape of the front line or fate of the territories.

Mr. Yavlinsky was directly asked about Mr. Putin’s health and appearance, how Mr. Putin behaved in person during the one-to-one. Mr. Yavlinsky confidently replied that the private dialogue with Mr. Putin was “absolutely normal”, the President was the same as he remembered him from meetings going back twenty years. The meeting took place on October 26th, the day when the health and the very physical existence of Vladimir Putin was called into question.

In the YouTube interview, Mr. Yavlinsky comes across as sincere but also on the defensive. A cynic would ask how such a man could have survived a lifetime in opposition in Russia. My guess is that Yavlinky’s political longevity is down to him being treated by the Russian ruling class as both “useful idiot” and “toothless idiot”. While his humanist position is consistent and admirable it is completely lost on (or simply unknown to) many Russians (at least “at the moment”). Also consistent and admirable is his long-standing position that election not revolution should change the regime in Russia. It’s a pity that Mr. Yavlinsky himself does not expect such an election to happen any time soon.

[1] The first round of the next is scheduled for March 17, 2024.

We’re only human after all

Last week (Oct 28/Oct 29) the Weekend FT ran a series of articles on India. This was inside the Money section which is a bit of a backyard for the publication if you ask me. This time there were plenty of golden nuggets to be dug out and closely examined for a non-specialist in Indian affairs.

The number that caught my attention was the Human Capital Index for India and China. This was published by the World Bank back in 2020 in updated after the pandemic. The index is based on a relatively straight forward calculation and is a function of a child’s chances of surviving, getting educated and working until retirement[1].

For China, the Human Capital Index is 0.65 and for India is 0.49. The average for high-income economies is around 0.70. Singapore has the maximum among the 174 counties, and it is 0.88. The reasons behind the India/China gap are better explained by specialists (see the same FT articles – excellent, in my view, though behind the paywall), but what about the rest of us?

A quick Google search led to the report itself and the country data, all neatly arranged and easily accessible. I looked at China, India, Russia, Ukraine and the US (this is in an alphabetical order). The US has the highest value for the index at 0.70, Russia is at 0.68, Ukraine’s Human Capital Index is 0.63. The data is pre-pandemic and pre-war.

There is a good but not a linear correlation between the human development index and the country economic success (as measured by the GDP per capita).  The charts below give a bit more detail on key components of the index: infant survival rates, years in education and text scores achieved. At a very superficial level, the figures indicate the US is running close to its human capital capacity while China, India, Russia and Ukraine should do much better economically for the quality of the people.  Not much of a discovery, perhaps, but food for thought, nevertheless.

The World Bank Human Capital Index 2020 and its components

Source: World Bank[2]

P.S. It is stating the obvious that investment in people might have a better pay-off than investment in various warring tribes.

P.P.S. And there might be a room to redefine the concept of “national security” as making own nation/people secure, which means healthier, less anxious, having more spare time, etc. Could it be “Americans first” as an election slogan? And could Russians do better then figuring out that their national security depends on presidential elections at home, not in the US.

[1] The official definition in the publication: The Human Capital Index (HCI) measures the human capital that a child born today can expect to attain by her 18th birthday, given the risks of poor health and poor education prevailing in her country.

[2]“World Bank. 2020. The Human Capital Index 2020 Update: Human Capital in the Time of COVID-19. © World Bank, Washington, DC

Russian gas export price up in Dec, but Jan 2022 likely to slide to sub $500/mcm

  • Based on the Russian customs data released on February 7, the weighted-average price of Russian-origin gas to all export destinations (exc. China was $517 per 1,000 cubic meters (mcm) in December 2021, compared to our forecast of $580/mcm.
  • Based on customs data, we estimate that the price for Russian gas in Europe only (excluding FSU, Turkey and ESP sales) was $711/mcm in December. This is at a 28% discount to the average price of TTF December futures of $1,005/mcm. While the majority of Russian contract prices is linked to TTF futures, some of the contracts might be based on long-term/fixed prices, which explains discounts to hub prices.
  • Our pricing model shows that the weighted average price of Russian-origin gas to all destinations (exc. China) in January 2022 declined 8% MoM to $475/mcm and export volumes fell 20.9% MoM to 12.7 bcm. The fall in price is on the back of higher proportion of sales to FSU and Turkey, where prices are below the European level. Russian customs will report the relevant data in early March.
Gas-price_Dec21_customs_7Feb22_FINALDownload
  • The Russian gas price to European customers is estimated at $749/mcm, at a 46% discount to the average price of January TTF futures ($1,392/mcm) and 25% discount to TTF average spot price for January 2022 ($1,005/mcm).
  • This means that some Gazprom customers in Europe were buying Russian gas at a deep discount to headline hub prices. At the same time, Russian gas contracts with prices linked to next-month futures (est. 21% of total export to Europe in January) would have been more expensive ($1,392/mcm) than spot volumes in January ($1,005/mcm).

In the first week of February, the average price of TTF next-day futures ($935/mcm) has been below Russian contract prices based on dated futures ($1,002-$1,375/mcm). At the same time, Russia gas export to Europe (exc. Turkey and Ukraine) was up 24% MoM to 312 mn cu m/d (1-5 February), up from 251 mn cu m/d on average in January.

Gazprom in January: output near capacity points to higher export in coming months

  • In January, Gazprom produced 47.4 bcm of gas, up 1% YoY, according to the company’s statement on Telegram. This means that the average daily gas output was 1,529 mn cu m/d, up 16 mn cu m/d on the same period of last year. We note, however, that the daily average output is down from 1,540 mn cu m/d in mid-January to estimated 1,518 mn cu m/d in the second half of January.  
  • In our estimate the Chayanda field which feeds the Power of Siberia pipeline was the main source of additional output (up 17 mn cu m/d to 48 mn cu m/d). Outside East Siberia the gas production was only marginally lower (down 1.4mn cu m/d to 1,480 mn cu m/d). This might be close to Gazprom production capacity which is around 1,500 mn cu m/d.
  • Gazprom deliveries to domestic consumers in January were up 3.2% YoY to 35.4 bcm (1,144 mn cu m/d). The pace of growth in domestic demand continues to slow down YoY. We expect Gazprom deliveries to Russian customers to flatten out YoY in the remainder of winter, 
  • In January Gazprom export to Europe, Turkey and China fell 41% YoY to 11.4 bcm (368 mn cu m/d). Gas export was also down 16% MoM (compared to December last year).
  • There are signs that gas export to Europe might start to recover in the coming months. Gazprom doubled transit via Ukraine on February 1. We also believe that Gazprom would need to restore gas export to Europe to meet export target for this year.
  • Our modelling of Gazprom gas balance in January indicates that the company reduced withdrawal from Russian and European gas storage by 6.5 bcm (210 mn cu m/d) YoY, to offset for a reduction in export to Europe and Turkey (down 8.4 bcm or  273 mn cu m/d YoY).
  • This means that Gazprom gas storage was around 52 bcm as of end January, up 14 bcm YoY and 15% above 3-year average. At the end of the heating season in Russia (end March), Gazprom gas storage might be as high as 38 bcm, up 23 bcm YoY. The surplus storage could be used to supply additional volumes to Europe in the coming months, in our view.
Gazprom_Jan22-stats_1Feb22_FINALDownload

Gazprom: positive signs for the European gas market

  • Russian gas export to Europe so far in January averaged 246 mn cu m/d, down 31% year-on-year (data as of January 26). However, there are indirect signs that Gazprom might be looking to increase supplies in the coming months.
  • According to Interfax[1], at a meeting with analysts Gazprom management pointed to high prices under long-term contracts as one of the reasons for a sharp drop in Russian gas supplies to Europe. Prices for around 50% of export deliveries are linked to month-ahead futures price. In December the average price for January deliveries was over $1,390 per 1,000 cubic meters. So far in January, the average next-day spot price was around $1,000 per mcm, according to our calculations.
  • Russian gas export to Europe could recover in February-Mach on more favourable pricing, according to the Interfax report.
  • Separately Gazprom might be placing Eurobond as soon as February if the geopolitical situation improves. This could reopen credit markets for Russian bond issuers, Interfax said[2].  Gazprom has just released an updated Eurobond prospectus. This usually indicates an approaching Eurobond placement. The company might want to raise money to refinance $1.3bn bond due on March 7. At the same time, Gazprom has a substantial cash pile to pay the debt if required.
  • A bond placement is usually accompanied by a roadshow and meetings between Gazprom top management and bondholders. This could be good news for the market if the company clarifies its strategy in Europe and provides more detail of production and export targets for the year.  Bond investors might want to hear confirmation that Gazprom might restore export flows to Europe to meet its operating and financial targets for the year. It would be also hard to expect a successful bond placement by Gazprom unless sanction and other risks are much reduced in the near future.
  • In another piece of news on January 26 Nord Stream-2 AG announced that it had set up a subsidiary to operate the 54-km section of the NS-2 pipeline which runs in the German territorial waters. The founding of a subsidiary was the requirement of the German Federal Network Agency. This might reopen certification of the NS-2 pipeline which was suspended in November 2021.
  • We believe that the announcement could be a sign that the NS-2 certification process is alive. We also note that opposition of the Ukrainian officials to the project appears to have shifted from a complete rejection of the pipeline on security grounds to more technical issues, such as a requirement to certify the entire pipeline rather than just the 54-km section in Germany. At the same time, it has been made clear to Russia that NS-2 pipeline would be mothballed if Russia makes a military move into Ukraine.
Gazprom_Europe_bond_28Jan22_FINALDownload

[1] Европа в январе полагается на запасы в ПХГ, СПГ и спот, переживая последствия шока декабрьских цен на газ, Ifax, 27 January 2022

[2] Газпром в феврале может выйти с новыми евробондами, если геополитика даст шанс – источник. Ifax, 28 January 2022

Gazprom in mid-January: output rises, export to Europe plummets and to China jumps, domestic sales flatten out

  • In the first 15 days of January, Gazprom produced 23.1 bcm of gas, up 2.1% YoY. This means that the average daily gas output was 1,540 mn cu m/d, up 32 mn cu m/d on the same period of last year.
  • The main contribution to extra output (est.19 mn cu m/d) might have come from the Chayanda field in East Siberia, which feeds the Power of Siberia pipeline to China. Gas export to China was up 50% YoY to estimated 44 mn cu m/d, based on numbers released by Gazprom.
  • Gazprom deliveries to domestic consumers in the first 15 days of January were up 3.7% YoY to 16.8 bcm (1,121 mn cu m/d). The weather in Russia has been mixed in January with both cold and mild spells. This pattern might last for the rest of the winter.   
  • Over the first half of January Gazprom export to Europe, Turkey and China fell 41% YoY to 5.4 bcm (360 mn cu m/d). Gas export was also down 17.9% MoM (compared to December last year). We estimate that gas export to Europe only (excluding China and Turkey) was down 55% YoY to 227 mn cu m/d.
  • Our model of Gazprom gas balance for January indicates that the company might have reduced Russian gas storage withdrawal by est. 195 mn cu m/d to offset for a reduction in export (down est. 248 mn cu m/d). This could mean that Gazprom gas storage will be at 52 bcm as of end January, up 14 bcm YoY. At the end of the heating season in Russia (end March), Gazprom gas storage might be as high as 38 bcm, up 23 bcm YoY.
Gazprom_mid-Jan22-stats_17an22_FINALDownload

Russian-origin gas price to all export markets at $503 in November, export to Europe drops by 29% YoY

  • The weighted-average price of Russian-origin gas to Europe, Turkey and the Former Soviet Union (FSU) was $503 per 1,000 cubic meters (mcm) in November, compared to our forecast of $511/mcm. This is based on the Russian customs data, released on January 14. It does not include sales to China.
  • Russian customs report the total value of Russian-origin gas shipped across the border. We work out average prices paid for Russian gas by customers in the FSU, Europe and Turkey. 
  • We estimate that Russian gas price to Europe only (excluding FSU, Turkey and ESP sales) was $668/mcm in November. This is at a 39% discount to the average price of TTF November futures of $1,112/mcm.
  • Based on our pricing model, the weighted average price of Russian-origin gas to all destinations (Europe, Turkey and the Former Soviet Union) in December was $580/mcm. The Russian gas price to Europe only (excluding FSU, Turkey and ESP sales) is estimated at $855/mcm, at a 14% discount to the average price of December TTF futures ($1,001/mcm) and 38% discount to TTF average spot price for December. 
  • We estimate that Russian gas export to FSU, Europe, Turkey and China was 16.08 bcm in November 2021, down 22% YoY. This is based on various data points released by Russian customs and Gazprom. Detailed data for November with a breakdown of gas export by country is yet to be published by the Russian customs. However, the preliminary numbers indicate that Russian-origin gas export to Europe was down 29% YoY in November.
Gas-price_Nov21_customs_SHORT_14Jan22_FINALDownload

Gazprom output hits 13-year high in 2021 to meet domestic needs

  • Gazprom Group gas production was up 62 billion cubic meters (bcm) to 514.8 bcm in 2021. These additional volumes have mostly stayed in Russia.
  • Gazprom sales to domestic customers went up 31.9 bcm YoY to 257 bcm. Export to Europe, Turkey and China was up 5.8 bcm YoY to 185 bcm. Injection into Russian gas storage was up an estimated 28 bcm YoY to 61 bcm in 2021. Russian gas storage was 83% full as of 29 December, at 60.2 bcm.
  • In December, Gazprom production might have been close to capacity (47.2 bcm or 1,523 mn cubic meters per day). As in previous three months, the company was sending more gas to domestic consumers and much less gas to export markets compared to last year.
  • There was a significant YoY drop in gas export to Europe (including Turkey) in December (down 5.7 bcm or 185 mn cu m/d). This was offset a reduction in Russian storage withdrawal of 6.9 bcm (225 mn cu m/d) vs last year.
  • Over the next three months we assume that Gazprom output will remain at seasonally high level, domestic demand will be at around three-year average and export will remain tagged to long-term contracts. This would mean that Russian gas storage level might be 34 bcm full at the end of March this year, up 19 bcm compared to 2021.
  • These volumes could be used for additional export, or, in its absence, it could lead to a drop in Gazprom output and sales in 2022.
  • See the report for charts and analysis.
Gazprom_2021_results_3Jan22_FINAL-2Download