It is time to set the doomsday clock back one full generation. Historic events of that magnitude don’t come along every week, so one would think that the world’s financial markets would breathe a sigh of relief, instead we got the ‘flash crash’ and some hand ringing about a peripheral economy called Greece.
Last week, Russia and the Ukraine reached an historic agreement. The Ukraine agreed to give the Russians continued use of the Port of Sevastopol for the Black Sea Fleet through 2042 in return for natural gas at (you choose): (1) market prices or (2) subsidized rates. I choose market prices because $100 per million cubic meters is the equivalent of $3.55 per million cubic feet which is the equivalent of $3.70 per million British Thermal Units or MMBTU. The spot price for MMBTU at the Henry Hub in Louisiana was $4.27 on Friday, May 14, 2010. If the Ukrainians would have kicked the Russians out of Sevastopol in 2012, it probably would have started World War III.
With the emergence of unconventional gas, first in the United States and then in the rest of the world, in shale formations in places like Poland and China or from coal-bed methane projects in places like the United States, Germany and China or in the form of liquefied natural gas from Qatar, Algeria, Canada and Australia, the world is awash in natural gas and its spot price is dropping to its marginal cost of production which in the United States has dropped to $1.50 per MMBTU (according to Chesapeake Energy). If the natural gas producers do not get their act together and form the equivalent of OPEC to control supply and maintain prices, natural gas will be the cheap energy source of the next couple of generations, even crowding out crude oil and gasoline. Saudi Arabia is worried about natural gas.
In addition to the landmark Black Sea Fleet for natural gas swap, Medvedev is credited amongst the Russian elite for “getting things done” [in contract to Vladimir Putin who just got the international community pissed off – even if George Bush could see into his soul]. In casual dinner conversation, Dmitry Anatolyevich is credited with a resolution of the Norwegian border, a nuclear arms treaty with the United States that involved the Americans backing down and giving up a forward missile defense system in Eastern Europe on the Russian border and the Victory in Europe/May Day Parade propaganda coup.
Last week, American, English and French troops marched on Red Square to celebrate the 65th anniversay of the Allied victory over Hitler for the first time. Angela Merkel, the German Chancellor attended the event; Barack Obama was invited but could not attend for obvious domestic political reasons – a black American President attending the May Day Parade in Moscow on Red Square, just imagine. Dmitry Anatolyevich won’t allow pictures of Stalin to be displayed for the first time, because ‘Stalin wasn’t a good man’.
The whisper amongst Russia watchers is that Vladimir Putin will remain as Prime Minister and Dmitry Anatolyevich will seek a second term as Russian President with greatly enhanced power. Russian politics continue to surprise. Reform is in the offing.
P.S. Dmitry Anatolyevich uses an Apple MacIntosh computer, no wonder.