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Prof. ST Hsieh

Director, US-China Energy Industry Forum

626-376-7460

[email protected]

February 27, 2022

War in Ukraine started less than five days ago, it is reported that Russia and Ukraine had agreed to meet on Monday February 28, 2022. Obviously, damages have been terrible, both on the battle ground and global economy. The fire may cease soon, but the consequences will last because the geopolitics around the world have changed to the extent that a new reset has yet to be initiated.

One of the flash points in the current Ukraine war is Russia energy supply to Europe. Europe’s energy security depends on Russia for years. Even the severe sanction against Russia now bypasses the energy sector so that Russian oil and gas will continue the flow to Europe. The latest sanction is to exclude Russia Banks from the international SWIFT will have the untended consequences of future Russian energy trades with Europe.

Now sounds like Europe just realized now their energy security is in big trouble and just now started to “seek alternatives” as the following news reports show. The reality is that energy security measures take political will and need a consistent policy with public support. We have seen Europeans take strong stands against fossil energy, not just for their homelands but also global fossil energy industry starting from financing, production, transportation, and utilizations. Some nations, such as Germany, also take a no-nuke stand rejecting nuclear power plants around the world. These nations also take a very high-moral ground on climate changes.

Unfortunately, when reality hits, these nations and their businesses turn around swiftly. For example,

  1. [E]nergy companies are buying more as the war rages in Ukraine. The cash flow will enhance Russian war chest, who cares?
  2. . Italy said it could reopen some shuttered coal plants and is also considering importing more LNG. Increasing Carbon footprints? Who cares?
  3. Scholz told the parliament in Berlin on Sunday, “We will change course in order to overcome our import dependency on individual energy suppliers. Is this news?
  4. [W]hen it comes to gas, Orsted AS said any decision needs to be made by the European Union at the political level. War is also made at the political level!
  5. European Union energy ministers are meeting on Monday to discuss the bloc’s energy security. There are concerns sanctions could impact the flow of gas to Europe, or that Russia could decide to cut shipments in retaliation.
  6. Berlin is also set to create reserves of coal for power-plant operators, and is planning to force energy companies to store gas before the winter to ensure security of supply. Very smart decision, but where and when the gas and coal will come from?

Energy Firms Snap Up Russian Gas as Europe Seeks Alternatives

Elena Mazneva Sun, February 27, 2022, 1:26 PM

(Bloomberg) — European leaders talking up plans to wean the continent off Russian natural gas are facing a harsh reality: energy companies are buying more as the war rages in Ukraine.

Russian shipments through pipelines crossing Ukraine have surged to near the maximum level allowed under the transit contract, while some gas has started to flow again into Germany via a key pipeline running through Belarus and Poland. The increase in purchases comes as European politicians are discussing how to retool energy policy in the wake of Russia’s invasion.

German Chancellor Olaf Scholz pledged new support for liquefied natural gas terminals just days after shelving the $11 billion Nord Stream 2 pipeline to bring Russian supplies to Europe. Italy said it could reopen some shuttered coal plants and is also considering importing more LNG from the U.S., and gas from Azerbaijan, Algeria, Tunisia and Libya via existing pipelines.

“The events of the last few days and weeks have shown us that a responsible, forward-looking energy policy is not only crucial for our economy and our climate. But also crucial for our security,” Scholz told the parliament in Berlin on Sunday. “We will change course in order to overcome our import dependency on individual energy suppliers.”

Western nations are ratcheting up pressure on Moscow, agreeing to impose new sanctions to further isolate Russia’s economy and its financial system after initial penalties failed to persuade President Vladimir Putin to withdraw forces from Ukraine. But the decision to penalize Russia’s central bank and exclude some lenders from the SWIFT messaging system — used for trillions of dollars worth of transactions around the world — excludes energy.

Political Decision

While some electricity producers have started to halt purchases of a few Russian commodities for their power plants in a largely symbolic move, new orders for gas show no signs of abating. Orsted AS, the world’s top offshore wind developer, said on Sunday it had stopped buying Russian coal and biomass for its power stations. It’s also stopped signing any new contracts with Russian firms, but when it comes to gas, Orsted said any decision needs to be made by the European Union at the political level.

“Shortfalls in gas supplies will, as opposed to stopping supply of other types of products, have severe human and societal consequences and therefore need to be coordinated at EU and national levels rather than decided by individual companies,” Mads Nipper, Chief Executive Officer of Denmark’s Orsted AS, said Sunday. “Therefore, the dependency on Russian gas and any ban on import of gas from Russia need to be decided and enforced by clear political sanctions.”

European Union energy ministers are meeting on Monday to discuss the bloc’s energy security. There are concerns sanctions could impact the flow of gas to Europe, or that Russia could decide to cut shipments in retaliation.

Russian gas orders started to surge the very same day of invasion. Europe’s top energy companies rushed to buy because there were concerns supplies would get disrupted. But more importantly, the 62% rally that day meant Russian fuel under long-term contracts became cheaper than buying at European hubs, according to BloombergNEF and BCS Global Markets analysts.

Volumes of gas crossing Ukraine remain high after hitting the limit in Russia’s gas-transit contract of almost 109.6 million cubic meters per day on Friday, while some extra supplies were sent to Germany overnight on Friday and Saturday via the Yamal-Europe pipeline, which had been halted for more than two months. Gazprom PJSC had previously justified the absence of flows by saying there had been no requests from European buyers.

LNG Terminals

Politicians are concerned about Europe’s deep dependency on Russian energy. Germany, which relies on Russia for more than 50% of its gas, said it would move “quickly” to build two LNG terminals. Berlin is also set to create reserves of coal for power-plant operators, and is planning to force energy companies to store gas before the winter to ensure security of supply.

Italy said it will work to streamline the approval process for new green energy sites. The country is also preparing “exceptional” measures to boost the incentive to store gas given potential risks to supplies, a move that comes on top of national storage requirements. Poland has called for shutting down the Nord Stream pipeline to Germany, which runs parallel to the second link currently shelved.

Nuclear, coal, LNG: ‘no taboos’ in Germany’s energy about-face

Sun, February 27, 2022, 3:58 AM

By Christoph Steitz, Riham Alkousaa and Maria Sheahan

BERLIN (Reuters) -Germany signalled a U-turn in key energy policies on Sunday, floating the possibility of extending the life-spans of coal and even nuclear plants to cut dependency on Russian gas, part of a broad political rethink following Moscow’s invasion of Ukraine.

Europe’s top economy has been under pressure from other Western nations to become less dependent on Russian gas, but its plans to phase out coal-fired power plants by 2030 and to shut its nuclear power plants by end-2022 have left it with few options.

In a landmark speech on Sunday, Chancellor Olaf Scholz spelled out a more radical path to ensure Germany will be able to meet rising energy supply and diversify away from Russian gas, which accounts for half of Germany’s energy needs.

“The events of the past few days have shown us that responsible, forward-looking energy policy is decisive not only for our economy and the environment. It is also decisive for our security,” Scholz told lawmakers in a special Bundestag session called to address the Ukraine crisis.

“We must change course to overcome our dependence on imports from individual energy suppliers,” he said.

This will include building two liquefied natural gas (LNG) terminals, one in Brunsbuettel and one in Wilhelmshaven, and raising its natural gas reserves.

These plans will likely be a boon for Germany’s top utility RWE, which has been backing efforts by German LNG Terminal, a joint venture of Gasunie, Oiltanking GmbH and Vopak LNG Holding, to build an LNG terminal in Brunsbuettel.

Separately, the German government has asked RWE’s smaller rival Uniper to revive plans to build an LNG terminal in Wilhelmshaven, Handelsblatt newspaper reported on Sunday, after the company scrapped such plans in late 2020.

Uniper was not immediately available for comment and the Economy Ministry declined to comment.

Earlier this week Germany halted the $11 billion Nord Stream 2 Baltic Sea gas pipeline project, Europe’s most divisive energy project after Russia formally recognised two breakaway regions in eastern Ukraine.

Russia has since invaded Ukraine, prompting the West to slap further sanctions on Moscow and making the energy supply issue even more pressing.

The revamp of energy priorities comes alongside a paradigm shift in German foreign and defence policy, with Scholz also announcing a dramatic hike in military spending.

‘NO TABOOS’

Germany last year embarked on an ambitious shift towards solar and wind power and Greens member Oliver Krischer on Sunday said a draft law to ensure renewables will account for 100% of Germany’s power supply by 2035 already was completed.

Germany will also increase the volume of natural gas in its storage facilities by 2 billion cubic metres (bcm) via long-term options and will buy additional natural gas on world markets in coordination with the European Union, Scholz said.

Germany has 24 bcm of underground caverns of gas storage, which are currently around 30% full, according to industry group Gas Infrastructure Europe data.

Germany is also weighing whether to extend the life-span of its remaining nuclear power plants as a way to secure the country’s energy supply, the country’s economy minister Robert Habeck, a member of the Greens, said.

Asked by German broadcaster ARD whether he could imagine allowing nuclear plants to run longer than planned under Germany’s exit plan, which foresees shutting the country’s three remaining plants by the end of 2022, he said: “It is part of my ministry’s tasks to answer this question … I would not reject it on ideological grounds.”

Isar 2, Emsland and Neckarwestheim 2 are the last remaining nuclear plants producing power in Germany after the country a decade ago decided to phase out the fuel in the wake of Japan’s Fukushima disaster.

The three plants are owned by German energy firms E.ON, RWE and EnBW, respectively.

Habeck also said letting coal-fired power plants to run longer than planned was an option, throwing into doubt Germany’s ambitious exit from coal, which is planned for 2030.

“There are no taboos on deliberations,” Habeck said, adding that it was Germany’s goal to ultimately choose which country will supply its energy.

“Being able to choose also means, in case of doubt, saying goodbye to Russian gas, coal or oil. And should Russia wilfully cut off this supply, then the decision has of course been made,” Habeck said.

“In that case they will never be rebuilt. I think the Kremlin knows that, too.”

Germany Backs New LNG Plants to Cut Russian Gas Dependence

Iain Rogers and Vanessa Dezem

Sun, February 27, 2022, 5:49 AM

(Bloomberg) — Germany pledged new support for liquefied natural gas terminals, the latest sign it’s willing to retool its energy policy in the wake of Russia’s invasion of Ukraine.

Just days after shelving an $11 billion pipeline project to bring Russian gas to Europe, Chancellor Olaf Scholz said Germany would move “quickly” to build two LNG terminals. So far proposed projects have been left to the private sector alone, and are facing headwinds without government support.

“The events of the last few days and weeks have shown us that a responsible, forward-looking energy policy is not only crucial for our economy and our climate. But also crucial for our security,” Scholz told the parliament in Berlin on Sunday. “We will change course in order to overcome our import dependency on individual energy suppliers.”

The move — announced as Scholz said he would also bolster defense spending in a dramatic step-change for Germany — signals that Europe sees the invasion of Ukraine as a turning point and wants to finally address its longstanding addiction to Russian gas. Germany relies on Russia for more than half its natural gas, and a decision to phase out nuclear power before enough renewable capacity has been built to replace it has left the country particularly vulnerable.

Berlin is also bolstering gas and coal storage, and Scholz said the government would push for a faster rollout of renewables too.

He didn’t give details of the plan for the LNG plants, but last week the government said it was considering financial support and incentives to drive interest from investors and potential clients.

Until now, wild price swing and strict rules have deterred potential clients and investors, and the industry has been asking for help. The energy transition and the fight against climate change also raise the risk that new projects will end up as stranded assets, putting off investors.

While several countries are talking up the need to accelerate renewable investments to wean off Russian gas, some of the alternatives being proposed will be even more damaging to the environment. Italy said last week it may re-open coal mines as part of its plan to reduce its dependence on Moscow — which has even grown in the last decade.

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