Tue. May 21st, 2024

Prof. ST Hsieh

Director, US-China Energy Industry Forum

626-376-7460

[email protected]

May 6, 2023

The war in Ukraine is essentially a proxy war between Russia and the US led allies in Europe. While the US has been at odds with Soviet Union after the end of WWII, now US has identified Russia as the number 2 villain, behind China, for the future global leadership.

The Europe joined the US in supporting Ukraine’s war with Russia is for energy independence. Specifically, after more than 50 years of purchasing large quantity of Russian fossil energy annually, politicians in Europe felt Russia is not a trustworthy trade partner anymore. Many of them claimed that Russia weaponized energy so Europe had to fight back. Ukraine was in the crosshair because much of the Russian gas to the European market had been piped thru Ukraine. Of course, Russia felt a critical threat as Ukraine requested to join NATO asap.

After the war broke out on February 24, 2022, EU along with the US quickly imposed unprecedent sanctions on Russian energy export to Europe. Unfortunately, these sanctions backfired, and Europe’s energy security was severely impacted, especially during the winter. Energy prices in Europe skyrocketed because Europe had to replace cheap Russia gas supplied via pipelines with expensive LNG. Therefore, the European economy has suffered greatly.

Politicians in Europe under stress come up with the following scheme. But it is really one giant step backwards from the free-trade market economy. It is creating a natural gas buyer’s club with the hope that buying quantity may lower the cost. But the practice requires a large number of buyers from different economies to agree on a fixed price and delivery schedule. The purchase agreement will be difficult to negotiate and much less flexible.

Other risks are:

  1. Other group of buyers, say China, Japan, India, and South Korea may decide to form another buyers’ club. Their demands are higher than the Europeans and may get a better price anyway.
  2. The LNG exporters may decide to form a sellers’ club to enhance their bargain positions.
  3. Commodities other than LNG may follow the EU’s approach and re-invent a non-free market.

The consequence of Ukraine war on the global market system may not be reversible even after the guns were silenced.

EU Wants Global Gas Sellers to Join Its Matchmaking Platform

John Ainger and Maria Tadeo

Fri, May 5, 2023 at 1:13 AM PDT

(Bloomberg) — The European Union wants international gas suppliers to offer to sell gas on its newly created purchase platform in order to prevent spiraling prices from battering industry again this year, according to Commission Vice President Maros Sefcovic.

The EU is in the middle of its first round of joint gas purchases, a plan to make sure that the region’s storages are filled, without the kind of extreme price rises seen last summer. A window to capture demand from buyers closed this week and will now be aggregated to match it with buyers’ offers. There has been skepticism over whether the plan would actually result in gas deals being signed.

“All international suppliers of gas should come and bid,” Sefcovic said in an interview with Bloomberg TV. “We have to be vigilant, the situation is still very fragile,” he added, referring to Europe’s energy security this year.

Goldman Sachs warned this month that Europe’s gas market crunch could return next winter, with prices potentially more than doubling. It comes of the back of similar warnings by the International Energy Agency that global demand could pick up, especially from China, leaving Europe competing for scarce supplies.

It remains to be seen if major buyers — such as Germany’s Uniper SE or France’s Engie SA — will actively use the mechanism and how big the collective buying might be. The EU plans to organize more joint purchases every two months, mandating that buyers pool demand for 15% of their storage-filling obligations. That target equates to roughly 13 billion cubic meters this year, or about 3% of the EU’s total demand for the fuel.

More than 100 companies are participating on the platform, with 65 wanting to buy gas, according to Sefcovic. The goal is to help push prices lower, he added. They have already fallen significantly in recent months.

“Prices are still too high, this is clearly not acceptable for us,” he said. “Last year was the year of survival. We want to go back to normal.”

Russia Used Energy as a Weapon. Now Europe Can Turn the Tables.

Borys Dodonov

Fri, May 5, 2023 at 1:00 AM PDT

Russia has lost the leverage it once had. Europe has an excellent opportunity to retaliate, writes Borys Dodonov.

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