Friday, April 18, 2014

*Very* interesting reply of Putin during yesterday's Q&A

Yesterday Putin had a four hour long Q&A on Russian TV.  I will not post it here, but one reply by Putin is really interesting.  See for yourself:

Q: MARIA SITTEL: More from anxious pensioners. “If the West refuses to purchase gas from Russia, how will that affect people’s well-being, especially that of pensioners?” – Lyudmila Budarina, Tambov Region.

A: VLADIMIR PUTIN: I have to say that oil and gas revenues make up a large part of the Russian budget revenue. This is a serious component for us in addressing economic development, budget funding for our development programmes and, of course, and meeting of our social commitments to our citizens.

I’ll tell you what. I am not sure that I’ll get the figures right, but, if my memory serves me correctly, the bulk of oil and gas revenue comes not from gas but from oil. In terms of the dollar equivalent, our oil revenues last year amounted to $191-194 billion and gas revenues to about $28 billion. See the difference? 191 from oil and 28 from gas.

Oil is sold on world markets. Is there any way to do us harm? One may try. But what would be the result for those who would attempt to do it? First of all, how would this be done? Of all the countries in the world, only Saudi Arabia has the real potential to increase production and thus bring down world prices. Saudi Arabia’s budget assumes a price of $85-$90 per thousand cubic metres.

Q: KIRILL KLEYMENOV: President Obama has already visited them.

A: VLADIMIR PUTIN: I’m sorry, I meant oil, not gas. The budget assumes a price of $85-$90 per barrel, and our budget, I think, $90. So, if one goes below $85, Saudi Arabia will be on the losing end and have problems. For us a drop from $90 to $85 is not critical. That is first.

Second, we are on very good terms with Saudi Arabia. We may, for example, differ in terms of our views on Syria, but we practically have identical positions on the development of the situation in Egypt. There are many other things where we see eye-to-eye.

I have great respect for the custodian of the two Muslim shrines, the King of Saudi Arabia. He is a very clever and balanced man. I don’t think that our Saudi friends would make any abrupt changes to harm themselves and the Russian economy.

Furthermore, they are members of OPEC, where we have many supporters. It is not that they have sympathy for us, but that they have their own economic interests and sharply reducing production – which can only be done in a manner agreed upon within OPEC – is a fairly complicated business.

Finally, in the United States, which is developing shale gas and shale oil production, production costs are very high. These are expensive projects. If world prices tumble, these projects may turn out to be unprofitable, loss-making and the nascent industry may simply die.
And one last point. Oil is priced and traded in the world in dollars. If prices fall, demand for dollars will plummet and the dollar will start losing its significance as a world currency. There are very many factors involved. The wish to bite us is there, but the opportunities are limited. That said, some damage can be caused.

Now about gas. We sell gas by pipeline (most of our sales are by pipeline) mainly to the European countries that depend on Russian supplies to cover about 30-35, 34 percent of their needs. Can they stop buying Russian gas altogether? I don’t think that this is possible.

Some of our neighbours, very good neighbours with which we have very sound relations, such as, for example, Finland…Finland gets 90 percent of its gas from Russia. Some countries that used to be called People’s Democracies in Eastern Europe depend on Russian gas if not for 90 percent, then for 60, 50 or 70 percent of their needs.

Can supplies be stopped altogether? I think that this is totally unrealistic. But one can do this at one’s own cost, by hurting oneself. However, I cannot imagine such a situation. Therefore, of course, everyone is keen on diversifying their sources of supplies. Europe is talking about greater independence from Russia as a supplier, and similarly we are beginning to talk and act to become less dependent on our consumers.

However, so far, there is a measure of balance between consumers and suppliers. The only problem is transit countries. And the most dangerous part, of course, is transit via Ukraine with which we have tremendous difficulties in agreeing on energy problems. But I hope that we will be able to bring things back to normal, considering the contracts that have been signed and are functioning.

MARIA SITTEL: Thank you.

Also, FYI, a reader sent me this chart from Zerohedge: