Thu. Sep 29th, 2022

Prof. ST Hsieh

Director, US-China Energy Industry Forum

626-376-7460

[email protected]

January 28, 2022

Today, the world is watching closely: would the Ukraine Crisis flare up and would there be imminent war in Europe? The US has been actively engaged with Russia diplomatically and President Biden hopes to take full charge of the situation. But it appears that President Putin is making the calls.

Further, news reports are confusing. It is credible that Russia has massed 100,00 troops in Russia near the Ukraine border. But President Putin has insisted that there is no plan to invade Ukraine.

President Biden’s latest strong response was to put 8,5000 US troops in highest alert and indicated that he will make the decision soon to deploy US troops to Europe, but not in Ukraine. The fact is that Ukraine is not a member of NATO and there is no defense treaty between the US and Ukraine. But the US has sent major armaments to Ukraine, along with some NATO allies. EU and NATO by and large have been on Ukraine’s side against Russia. But the claimed US alliance is far from unified on how to respond when Russia enters Ukraine if it ever happens. Ukraine is a sovereign nation, unless Ukraine Government officially calls for foreign military participation, no foreign forces should enter Ukraine even if Russia invaded.

The US is beating the war drum very hard, the top US military general, Chairman of the Joint Chiefs of Staff Gen. Mark Milley, warned a Russian invasion of Ukraine would be “horrific” for the country and would result in “significant” casualties as he urged Russian President Vladimir Putin to choose a diplomatic path instead. But the frontline response of the current tension is striking: On January 28, 2022,

  1. Russia insists it won’t start a war as Ukraine seeks to tone down the invasion rhetoric from the U.S.

“If it depends on the Russian Federation, there will be no war,” Russian Foreign Minister Sergey Lavrov said. “We do not want wars, but we will not allow our interests to be rudely attacked, we will not allow our interests to be ignored.”

Ukraine president tells West: Don’t create panic

Ukraine’s president is urging the West to not create panic over the buildup of Russian forces along its border, saying the talk of an imminent invasion is hurting his country’s economy. Despite the soaring tension, President Zelenskyy has consistently urged the Ukrainian people to remain calm. His government knows that panic — people clearing out supermarket shelves or trying to flee the country — would be massively destabilizing.

Besides the cold war mentality or the NATO vs Russia rivalry, the very challenging issue is that European energy supply depends on Russia. Even during the height of cold war, German imported natural gases from USSR. Broadly speaking, 30% of European gas supply came from Russia. German imports 50% of her gas from Russia.

Ukraine was the gateway of Russian gas to Europe for years, even after the breakup of USSR. Ukraine government used to be controlled by pro-Russian politicians so there were no important disagreements between Russia and Ukraine. But during the “color revolution” era, Ukraine government became pro-Western and aggressively asks to join NATO. Then Moscow and Kiev challenged each other especially focus on gas transit fees etc. Putin took over Crimea in 2014, US led strong sanctions against Russia till now.

After the successful shale revolution in the US a decade or so ago, the US became a net energy exporter in terms of crude oil and natural gas. This new US status fundamentally changed the landscape of global energy markets. US has been exporting limited amount of LNG to Europe. Because LNG import terminals are expensive and takes time to construct. The US has been advocating the low cost and mobile ship-based LNG receiving terminals with limited success in Europe. The fact is that LNG market is quickly maturing and very cost sensitive.

Another paradox is the fate of the Nord Stream 2, the construction is completed but it is only waiting for German’s certification before it is operational. It could be anytime. But Ukraine is opposing Nord Stream 2, mostly because it will cut down Russian Gas to Europe passing thru Ukraine and cost Ukraine financially. Some in US also strongly opposes the Nord Stream 2, arguing that it will further European’s dependence of Russian gas. At least, German does not mind, because there are no viable alternatives now.

As a precaution of a potential Russia military action in Ukraine with the US promised severe sanctions against Russia and then Russia could completely cut off her gas supply to Europe, the US is making plan for securing short term gas supply from the world to support European allies. But it is a difficult challenge for the US, because the demand could be very significant that no single source can support. It is also could be a short-term crisis which could be over in days. It is impractical to expect global energy companies to make full commitment with so much uncertainty. Biden’s strategy is already being criticized, see the following news report from HAWAKEYE REPORT on January 26, 2022.

  • President Joe Biden’s administration has sought ways to secure energy supplies for European allies in the event that the Kremlin abruptly cuts off flows of oil and gas exports in retaliation for sanctions.
  • Governments have a really hard time manipulating markets, and I think that’s what you’re seeing here,” Perry told CNBC’s Hadley Gamble on Wednesday. The former Texas governor stood down from his role as former President Donald Trump’s top energy official in December 2019.
  • “Biden’s decision to get on the phone and call around and say: ‘Hey, will you guys crank up your LNG exports?’ It just doesn’t work that way,” Perry said, referring to liquefied natural gas.
  • I think that is the sadness of this administration. Either their lack of understanding of just pure economics or their naivety when it comes to the decisions that they’ve made about the energy sector [and] about climate change,” he added.

It is winter season in the North Hemisphere, natural gas is in high demand for home heating. The Ukraine case is already causing global natural gas market uneasiness. It ripples thru major LNG importer nations including China. The US is poised to have the largest LNG export capacity in the world in 2022. But US is a market economy and US government has limited control on where and when LNG companies decide to do business. Further, LNG has a global market and pricing mechanism. If the US government directs US LNG export to Europe, then it is weaponizing energy. For which, the US condemns the Russia for contemplating cut-off energy supply to Europe as weaponizing energy.

Any war is a crime against humanity, whether the war is fought with firearms or energy, should be stopped. Peace and prosperity should prevail.

STH

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