Prof. ST Hsieh
Director, US-China Energy Industry Forum
July 21, 2022
These headlines are comments from US readers to the following report “EU sanctions tweak to unblock Russian oil.” It is very kind for EU is “aimed at limiting the risks to global energy security.” But it was very unfortunate that before EU imposed their tough sanctions against Russia after the war in Ukraine started on February 24, 2022, EU did not consult with anyone on “global energy security.” Rather EU implored every nation in the world to follow their sanctions. Now these sanctions have backfired on Europe then EU is scrambling to limit the risk to European Energy Security by tweaking the sanctions.
Europe is suffering the dire consequences of their sanctions against Russia energy. German is working stressfully to defuse this manmade energy crisis now. But it is very alarming that:
- The measures include lifestyle changes that are visibly affecting every citizen’s daily routines such as lowering household’s’ heating temperature as well as shortening shower times.
- Government bailing out major energy companies with cash infusion as well as passing the high energy bills to customers.
- Industry and business will suffer higher energy costs and lower productivity/profit.
- European economy will suffer slowing down and spill over to the slowing down of global economy.
Major challenges for EU political leaders are:
1. Take responsibility for this manmade energy crisis, blaming Putin and/or Biden does not work.
2. Convince the public of different member states that this “unified” emergency “energy conservation” plan will work for this winter and beyond.
3. What is the exit strategy? When will all these sufferings and sacrifices end?
EU sanctions tweak to unblock Russian oil deals with third countries
Fri, July 22, 2022, 10:18 AM
BRUSSELS (Reuters) – Russian state-owned companies Rosneft and Gazprom will be able to ship oil to third countries under an adjustment of European Union sanctions agreed by member states this week aimed at limiting the risks to global energy security.
Purchases of Russian seaborne crude oil by EU companies and its export to third countries is allowed, but under tweaks to sanctions on Russia that came into force on Friday payments related to such shipments would not be banned.
“With a view to avoid any potential negative consequences for food and energy security around the world, the EU decided to extend the exemption from the prohibition to engage in transactions with certain state-owned entities as regards transactions for agricultural products and the transport of oil to third countries,” the EU said in a statement on Thursday.
Trading house sources had said EU restrictions would have led to China and India buying oil via smaller private traders and Russian oil trade migrating into grey areas with weak insurance against accidents and being handled by older ships.
Dimmed street lights, shorter showers: Germany leads Europe energy savings drive
Sarah Marsh and Louisa Off Fri, July 22, 2022, 3:54 AM
* Berlin pushes for energy savings to have enough gas for winter
* Some cities already dimming lights, reducing heating/aircon
* Still not enough to ensure steady supply if Russia cuts gas
BERLIN/AUGSBURG, Germany, July 22 (Reuters) – Summer nights in the wealthy Bavarian city of Augsburg this year are eerily dark and quiet: The facades of historic buildings are not illuminated, street lights are dimmed and most of the fountains are not operating.
Augsburg is among many cities around Germany to have rolled out a raft of energy savings measures since the start of Russia’s invasion of Ukraine, which sent oil and gas prices soaring and sparked a cost of living crisis.
Around Europe, countries are looking for ways to cut energy consumption and fill up their gas stores in response to lower Russian gas deliveries and in preparation for a possible total cut-off.
Germany, as one of the countries most heavily dependent on Russian gas, is leading the charge with a nationwide campaign to save gas so that Europe’s largest economy has enough to get it through the winter, although energy experts say additional measures are needed to achieve energy security.
Augsburg mayor Eva Weber told Reuters that the city’s energy bills this year were expected to be almost double from last year’s costs of around 15.9 million euros.
“We want to show the Augsburg citizens that we could be facing really hard times…we all need to look to really save energy,” Weber said.
The city has also lowered the temperature in its public pools and is checking which traffic lights it can turn off. Like other cities, it wants to limit heating in public buildings.
Around half of German households rely on gas for their heating and some 13% of electricity is derived from the fossil fuel. Gas also accounts for a third of industry’s energy. In recent years, half of that gas has come from Russia. Germany’s economy ministry is seeking to fill its gas caverns ahead of winter when demand typically surges so that it could get by with those as well as new alternative gas sources such as floating liquid natural gas terminals.
Any gas saved now can help it reach its goal, the government says, which is why it is re-activating coal-fired power plants and aims to launch a gas auction model to encourage industrial consumers to save gas.
The economy ministry also launched a campaign last month urging citizens to take shorter showers, increase their fridge’s temperature by 1 degree and better insulate their home.
“I have further significantly reduced my own showering time,” said Economy Minister Robert Habeck, a Green, who announced more binding measures on Thursday, including a ban on heating swimming pools in private homes.
UP TO TENFOLD PRICE RISES
Price rises of up to tenfold for new end consumers have already incentivised energy savings, said Thorsten Lenck at think tank Agora Energiewende. Those still on old one- or two-year contracts though have yet to feel the pain.
Private landlords worry about the exorbitant year-end bills for extra energy costs facing tenants that they might not be able to afford to pay. As such, Germany’s largest residential landlord Vonovia has said it will reduce heating for tenants in many of its apartments at night.
“We are some way on the path to saving enough energy, but we’re still not there yet,” said Lenck.
Adjusted for temperature differences, gas consumption was 6.4 % lower in the first five months of the year, and 10.8 % less in May, according to Germany’s power industry association BDEW.
The European Union told member states on Wednesday they needed to cut gas usage by 15% until March.
But that’s an average – Germany needs to cut its usage by 30% given its gas reliance, said Simone Tagliapietra, senior fellow at think-tank Bruegel.
“Politicians don’t like to ask people to sacrifice and they postponed this because they still wanted to believe Russia might not play too much with gas,” he said. “But they will now have to … otherwise Europe simply will have to close down factories because they cannot curtail gas to families.”
PREPARING FOR WORST CASE SCENARIO
Germany’s emergency plan prioritizes gas for households and critical institutions like hospitals, whereas industry would be the first to face rationing.
Nonetheless, across Germany, nervous citizens are stocking up on wood for fireplaces or electric heaters in reaction to rising prices and to brace for a worst case scenario in the winter when temperatures can drop as low as -20 degrees.
“It was driven firstly by the rising energy prices … and also clients’ desire to be autonomous and prepared for emergencies,” said spokesperson Florian Preuss, noting that consumers in other European markets were not behaving in the same way.
“We have an energy crisis that needs to be solved as a society,” said Augsburg resident Christoph Kleine-Vennekate. “And if (tackling that) is about such irrelevant things as lighting up buildings, we can manage it easily.”
Germany Moves to Prevent Energy Collapse With $17 Billion Rescue
Vanessa Dezem, Arne Delfs and Josefine Fokuhl Fri, July 22, 2022, 6:20 AM
(Bloomberg) — Germany agreed to provide a 17 billion-euro ($17.3 billion) rescue package for struggling utility Uniper SE in its biggest move to date to prevent the collapse of its energy network in the wake of Russia’s moves to slash gas deliveries.
While consumers will soon start to bear the cost of the fallout of lost supply, Chancellor Olaf Scholz vowed to contain the impact of the energy crunch on the wider economy as the country prepares for potential gas rationing in the coming months.
“We will do all that is necessary to ensure that together we will succeed and we will continue to do so for as long as it takes,” Scholz said Friday in Berlin, interrupting his vacation to announce the bailout. “We will overcome the difficult times together.”
Uniper became the first major corporate casualty of Europe’s unfolding gas crisis when it asked for a government bailout earlier this month. Germany’s biggest buyer of Russian gas was pushed to the brink as President Vladimir Putin squeezed supplies in retaliation over European sanctions against Russia’s invasion of Ukraine.
Decades of increasing reliance on cheap energy from Russia made Germany vulnerable to pressure from Moscow. German authorities have warned consumers to brace for energy bills to double or triple in the coming months, deepening the pain from surging cost-of-living increases.
“I’m pleased and relieved that today’s agreement stabilizes Uniper financially as a system-critical energy partner,” Chief Executive Officer Klaus-Dieter Maubach said. “We now have a clear perspective on how the costs, which arise due to the interrupted gas supplies from Russia can be shared by many shoulders.”
As part of the bailout, Uniper can pass on 90% of the additional costs for replacing missing Gazprom supplies and it said the government would cover the losses on gas sold in Germany.
After the transaction closes, the government will control about 30% of Uniper, a holding big enough to give it veto rights on important strategic decisions. The total bailout package is worth more than four times the company’s current market value, and it could just be the beginning.
Despite the financial risk, Germany couldn’t afford to let Uniper fail as the fallout would ripple through the economy, hitting industrial companies and local utilities. While flows on a key gas link with Russia have resumed after 10-day maintenance, deliveries remain significantly reduced and storage levels are low.
Germany’s gas storage stands at about 65%. To reach the 95% level targeted for Nov. 1, the country would need nearly three months at the average fill rates in the week before the Nord Stream pipeline was halted
“In this crisis, the state must do everything possible to prevent the system from collapsing,” said Michael Vassiliadis, head of the IGBCE union, acknowledging that higher energy bills needed to be part of the package. “Waste needs to be combated through price.”