Prof. ST Hsieh
Director, US-China Energy Industry Forum
December 6, 2022
It is a complex world now, every issue is affected by many other issues, yet the challenge is to anticipate the result from the “interactions” of these many issues at the same time. There is also a limited time-space for making a good adjustment, otherwise a crisis happens. The risk is that one crisis leads to another crisis…
But we firmly believe that Geopolitics is the driving force of any crisis, and not the other way around. Specifically, the current Europe’s Energy Crisis is shaped by geopolitics. The broke out of the Ukraine war on February 24, 2022, was due to Geopolitics, it did not happen out of the blue and it was an unfortunate event which many politicians born responsibilities. The ensuing sanctions/embargos initiated by the west and follow up retaliations by Russia are the only reason of this Europe’s Energy Crisis. There is absolutely no other reason for the Europeans to suffer this Energy Crisis!
Of course, Europe’s Energy Crisis has ramifications all over the world and no end is insight. In one way, one may say that “Europe’s Energy Crisis Is Reshaping Geopolitics” but in reality, Geopolitics or politicians are the only ones who call the shots on resolving any and every crisis, including energy crisis!”
Editor OilPrice.com Mon, December 5, 2022 at 12:59 PM
Europe’s energy crisis is about far more than just energy. It’s also the impetus for a major geopolitical reconfiguration at a global scale. No one knows exactly what the world’s energy and political landscapes will look like when the dust settles (which, by the way, will be years from now) but it’s guaranteed that it will be markedly different than it was the day before Russia – historically the largest exporter of oil and natural gas to the European Union by a long shot – illegally invaded Ukraine.
This year’s annual energy outlook from the International Energy Agency (IEA) warns that we are currently living through a “global energy crisis of unprecedented depth and complexity,” and that “there is no going back to the way things were” before the unprecedented dual shocks of the novel coronavirus pandemic and Russia’s war in Ukraine. Together, these events have already reconfigured the energy trade worldwide, but the shockwaves to the global economy are just getting started.
Many look at Europe’s current energy deficit as a kind of heroism, as the European Union has taken a huge economic hit in order to impose energy sanctions on the Kremlin – the one kind of sanction that could really cripple the Russian economy in the hopes of ending the war in Ukraine. “In the struggle to help Ukraine and resist Russian aggression, Europe has displayed unity, grit and a principled willingness to bear enormous costs,” the Economist recently reported.
It’s not only Europe that has to bear those costs. The financial vulnerabilities emanating out of Europe threaten to destabilize not only some of the more indebted European countries, but also developing nations and net energy importers around the world. As always, it’s the poor who will lose out the most, and the global south will inevitably bear an enormous burden from an energy war they had nothing to do with in the first place. While the devastating consequences of the pyrrhic energy war between Russia and Europe are already weighing heavily on consumers around the world, it’s only going to get worse in the next year.
The OECD’s recently released flagship annual forecast foresees “a significant slowdown” for the global economy in 2023, decreasing to 2.2%, and then a “little bit of a rebound in 2024” to about 2.7%. For the United States economy, which has been relatively sheltered from the crisis up until now, the outlook is even more grim. The OECD projects that the U.S. economy will grow by just 1.8% this year (compared to 2.2% for the global economy), and a paltry 0.5% next year before ‘recovering’ slightly to achieve a lackluster 1% growth in 2024. We’re clearly headed toward a “brutal economic squeeze” that will be a major stress test for Europe, its allies, and its enemies.
“There is a growing fear that the recasting of the global energy system, American economic populism and geopolitical rifts threaten the long-run competitiveness of the European Union and non-members, including Britain,” the Economist reports of the enduring effects of the crisis. “It is not just the continent’s prosperity that is at risk, the health of the transatlantic alliance is, too.” Many European leaders have sharply criticized the United States’ protectionist and nationalist energy strategies, including the recent Inflation Reduction Act, which earmarks $400 billion in incentives for U.S.-made energy, manufacturing and transport.
The current crisis has thrown Europe’s economic vulnerabilities into stark relief. A long-held reliance on cheap fossil fuels from a volatile and aggressive authoritarian turned out to be a dangerous dynamic, unsurprisingly. But the move away from Russian influence is already pushing many nations further into China’s arms, risking the same kind of vulnerabilities and future energy shocks should that nation decide to wield its power over the numerous rare Earth minerals and other clean energy supply chains that it controls almost entirely. The West has allowed China to out-compete and out-innovate them in terms of clean energy technology, and transitioning to clean energy cheaply will be all but impossible in the near term without cozying up to Beijing.
As both the United States and China circle the wagons and lean into protectionist, domestic-first policies, the Economist notes that Europe, “with its quaint insistence on upholding World Trade Organisation rules on free trade, looks like a sucker.”
By Haley Zaremba for Oilprice.com
Europe Can’t Count On U.S. Shale To Make Up For Russian Crude
Mon, December 5, 2022 at 2:00 PM
OPEC+ yesterday decided to leave its production quotas where they are, at 2 million bpd lower than they were in October, which is an effective cut of 1 million bpd of production.
Three days earlier, the European Union reached an agreement to set a price cap on Russian crude oil at $60 per barrel—lower than market prices but not as low as some EU members, such as Poland and Estonia, would have liked the cap to be.
Russia responded by reiterating that it will not sell oil to countries enforcing a price cap. According to Reuters, a decree to that effect is already being prepared.
Amid all this, U.S. oil production growth is slowing down. The shale revolution, as we knew it until a few years ago, is no longer in full-growth mode. And it may never return to it.
On the face of it, all looks good. U.S. output has rebounded from a low of 9.7 million bpd, which was recorded in May 2020, to 12.3 million bpd this September, Reuters’ John Kemp wrote last week, noting that this year’s high was still below the pre-pandemic record of 13 million bpd, hit in late 2019.
What’s more, oil production in the country was not rising steadily. For two of the last seven months, it has actually declined, according to EIA data. And the rate of growth when it grew was half the growth rate recorded during the boom years in U.S. shale.
Yet oil companies are also rearranging their priorities under an administration that is much less favorable to their industry than previous ones. Returning cash to shareholders has become priority number one, replacing production growth.
There have also been lingering problems from the pandemic lockdowns, such as shortages of things like frac sand and steel tubing, as well as a labor shortage. On top of all that, the industry has had to deal with the same inflation that has hit all other industries, pushing costs up by some 20 percent.
All this means that as it curbs its own supply of Russian oil with the price cap and its oil embargo on the commodity, the European Union cannot really rely on higher oil imports from the United States as it has relied on stronger gas imports.
The outlook is not very encouraging, either. According to a Reuters report from last week, spending in the shale oil industry in the U.S. is far from what it was during the boom years.
“Shale can’t come back to become a swing producer,” said the former head of Parsley Energy, Bryan Sheffield, echoing a very similar statement by Hess Corp.’s John Hess that he made last month.
“Shale was thought of as a swing producer, the Saudis and the OPEC have waited this out. Now, really OPEC is back in the driver’s seat where they are the swing producer,” Hess said at an investor conference.
Meanwhile, the EU has become the biggest export market for U.S. crude oil, taking in more than Asia since the start of the year, Bloomberg reported in July, in a repeat of the redirection of natural gas flows.
But with U.S. oil output growth on the wane, if OPEC is back in the driving seat, that’s even worse news for Europe than the production growth slowdown in the United States. OPEC has signaled repeatedly in recent months that it has its own agenda, and it is not the same as the EU’s agenda.
On the contrary, the two agendas are very much at odds with the EU’s transition plans and OPEC’s plans to continue marketing hydrocarbons for as long as possible. In the immediate term, however, the two groups’ interests are aligned: the EU will need more oil from OPEC, and OPEC will probably be only too happy to supply it. At market prices, of course.