Thu. Sep 29th, 2022

Prof. ST Hsieh

Director, US-China Energy Industry Forum

626-376-7460

[email protected]

July 6, 2022

Headline does not tell the full story! Readers should read the texts and other news carefully before making any conclusion.

  1. The first headline about Uniper talking with German government on a “bailout package” around US$9.4 Billion, it is not finalized yet. But it underscores the energy crisis faced by German. Further, some of the costs will be passed onto customers. It means that German is losing the “war in Ukraine” badly. It is difficult to say that “Moscow punishes Europe” because German is a major player of the US led sanctions against Moscow after the war started on Feb. 24, 2022.
    Obviously, the US led sanctions have not been effective because they were targeted to topple Putin rather than ending the war. German will have a bad winter if the Ukraine war does to end soon. More so, Europe will suffer serious “structure” damage to her economy even the war ends now.
  2. On the other hand, the second headline tells the story that Russia, so far, enjoys the fringe benefit of the war in Ukraine in US$20 Billion windfall tax. Russia is said to be earning more than $100 million every day from the gas it sells to Europe despite the slashed deliveries, because Europe has to pay the full price. Should Europe devote some “energy” focused to stopping the war in Ukraine now? Note that US and Europe are also supporting Ukraine with military equipment as well as cash!
  3. The third headline saying that “China and India funnel US$24 billion to Putin” implies that China and India are financing the war in Ukraine for Putin. But look at the breakdown: China spent $18.9 billion on Russian oil, gas and coal in the three months to the end of May, latest customs data show. Meanwhile, India shelled out $5.1 billion in the same period. China and India still trail Europe as a bloc in terms of overall sales this year. But China and India do have a better deal than Europe from Russia, because Russia energy have been heavily discounted for China and India: they get more bang on the same buck!

Uniper in Bailout Talks to Plug $9.4 Billion Hole; Shares Jump

Birgit Jennen, Vanessa Dezem and Arne Delfs Tue, July 5, 2022, 12:26 AM

(Bloomberg) — German gas giant Uniper SE is in talks with the government over a potential bailout package of as much as 9 billion euros, ($9.4 billion) according to a person familiar with the situation.

The government is looking at applying a set of measures, including loans, taking an equity stake and also passing part of the surge in costs onto customers, said two people familiar with the talks.

The shares rose as much as 9.5%, after sinking almost a third on Monday in a move that took the company’s market value to about 4 billion euros.

Uniper declined to comment. The company, which is one of the biggest importers of Russian gas, said last week it was in talks with the government to secure liquidity.

Germany, which has built its economic model on cheap Russian gas, is wrestling with a squeeze in supplies and surging fuel prices as Moscow punishes Europe for its support for Ukraine. German Economy Minister Robert Habeck has warned the gas crunch risks triggering a collapse in the market, similar to the role of Lehman Brothers in the financial crisis.

As part of its plan, the government is preparing legislation that would enable the state to take stakes in struggling energy companies, according to two senior officials. It will also allow for at least part of the cost of rising gas prices to be passed on to consumers. Analysts estimate that curbed Russian flows are costing Uniper 30 million euros a day.

The cabinet is set to approve the bill on Tuesday, followed by the upper and lower houses of parliament on Friday.

Officials are moving fast ahead of the next milestone: the key Nord Stream pipeline is due to shut for maintenance on July 11, adding pressure to already fraught markets. German officials have raised the prospect that Moscow may never reopen the pipe after the maintenance, leaving the country without its main source of gas.

While Uniper represents the most urgent concern, the broader economy is also in peril as the government is trying to contain the fallout for consumers and industry. Plans have been drafted for rationing, with Germany’s vast industry poised to suffer shortages. Habeck has warned that worse is to come.

We aren’t dealing with erratic decisions but with economic warfare, completely rational and very clear,” Habeck said on Saturday. “After a 60% reduction, the next one logically follows.”

Russia To Hit Gazprom With $20 Billion Windfall Tax

By Michael Kern – Jul 05, 2022, 4:30 PM CDT

Russia’s lower house of parliament approved on Tuesday amendments in the country’s tax code that would slap a windfall tax on Gazprom of the equivalent of $20 billion between September and November, which will boost Russia’s tax revenue income.   

The amendment still needs to be approved by the upper house of the Russian Parliament and President Vladimir Putin before becoming law.

Under the plans, gas giant Gazprom will pay $6.5 billion (416 billion Russian rubles) per month for three months, on top of its other taxes. For September to November, this means that Gazprom will have to pay an additional $20 billion (1.25 trillion rubles) for those three months. 

Gazprom and Russia are seeing a windfall of revenues from gas sales as the Russian invasion of Ukraine sent energy prices soaring. Gazprom’s recent reduction of gas supply to Europe has also pushed up European prices higher amid concerns that the EU will face a winter of recession and rationing if it doesn’t have its gas storage at least 80% full by October.

Russia is said to be earning more than $100 million every day from the gas it sells to Europe despite the slashed deliveries to major EU consumers in recent weeks, according to data from Independent Commodity Intelligence Services (ICIS) cited by Bloomberg at the end of last month.

Due to the rallying natural gas prices, Russian revenues from gas exports are believed to be equal to the revenue last year, when Moscow wasn’t limiting gas flows to Europe and wasn’t (yet) on a collision course with the EU.

Despite the EU embargo on Russian seaborne oil, to take effect by the end of the year, and the drastically reduced pipeline gas supply, Russia continues to benefit from the high oil and gas prices. Despite Western sanctions designed to hurt Russia’s oil revenues and war chest, Moscow is still getting a lot of additional billions of U.S. dollars in oil and gas revenues.

By Michael Kern for Oilprice.com

China and India Funnel $24 Billion to Putin in Energy Spree

Dan Murtaugh and Debjit Chakraborty

Wed, July 6, 2022, 2:12 AM

(Bloomberg) — Russia has pocketed $24 billion from selling energy to China and India in just three months following its invasion of Ukraine, showing how higher global prices are limiting efforts by the US and Europe to punish President Vladimir Putin.

China spent $18.9 billion on Russian oil, gas and coal in the three months to the end of May, almost double the amount a year earlier, latest customs data show. Meanwhile, India shelled out $5.1 billion in the same period, more than five times the value of a year ago. That’s an extra $13 billion in revenue from both countries compared to the same months in 2021.

“China is already buying essentially everything that Russia can export via pipelines and Pacific ports,” said Lauri Myllyvirta, lead analyst at the Centre for Research on Energy and Clean Air, who has been tracking Russian energy flows since the war broke out. “India has been the main buyer of the cargoes out of the Atlantic that Europe doesn’t want anymore.”

That spree is unlikely to end anytime soon, with energy prices much higher than they were at this time last year, even accounting for the steep discounts to global benchmarks Russia is offering to entice purchasers. On a volume basis, China’s imports continued a slow uptick in June, while India may have incentive to boost purchases even further in the coming months as a European Union ban on Russian oil takes effect, Myllyvirta said.

China and India still trail Europe as a bloc in terms of overall sales this year, according to Myllyvirta’s research. Europe’s purchases will continue to shrink, though, as import bans on coal and oil come into effect and as Russia cuts off gas supplies to some European buyers.

India’s increase in spending after the war has been far more dramatic, as it doesn’t share a land border with Russia and its ports are normally too far away for cost-efficient shipping. The country spent $8.8 billion on petroleum and coal imports from Feb. 24 to June 30, more than it doled out for all Russian goods for the entire year in 2021, according to a trade ministry official, who requested anonymity as the data is not public. India’s trade ministry spokesperson did not comment.

In addition to big jumps in oil and coal, India also imported three cargoes of Russian liquefied natural gas since the war began, compared to one in the same period last year, according to Bloomberg ship-tracking data.

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