Prof. ST Hsieh
Director, US-China Energy Industry Forum
626-376-7460
July 10, 2022
International Energy Agency (IEA) is based in Paris and represents OECD nations. Often, IEA speaks of the “world “but it only means Europe. Specifically, “Natural gas prices are straining economies and industries around the world” means European economies and industries are straining because they can not count on Russian natural gas anymore. Around the “world:” Russia, USA, Canada, Australia, Qatar etc. are natural gas exporter nations, their economies benefited by high natural gas prices.
European nations are suffering from high natural gas prices because their political leaders decided to take on Putin and actively sanctioned Russian energy after the war in Ukraine exploded on February 24, 2022. Sadly, for Ukrainians, after 137 days, absolutely no serious cease-fire effort is on the table. Of course, both Russia and Ukraine bear the blunt of a vicious war of attritions. But, as long as the ground war goes on, destructions will be inflicted on Ukraine every day. It is difficult to image what will be left in Ukraine after a prolonged war.
A report from the International Energy Agency states that sanctions aimed at curtailing funding for Russia’s war in Ukraine. European leaders committed to sanctioning Putin may be aimed at stopping Russian’s war in Ukraine. But, US has the position sanctioning Russia to bankruptcy and/or Putin is toppled. Either way, US led sanctions against Russia has not worked. In fact, the sanctions are hurting Europeans worse than Russians. The attached comments from US readers are to the point: It is a phenomenon called sanctions boomerang. It is a global economy now. You can’t put sanctions on a country the size of Russia and think there will be no blowback.
The truly sad reality is that: The agency (IEA) asserted that a steep falloff in demand for gas is needed to ease price pressures. Put it bluntly, “a steep falloff in demand” means “destruction of demands” caused by a global recession. In that case, no one is spared.
As of now, France is switching from natural gas to oil, German is restarting coal fired power plants: Global Climate Change must wait…Fortunately for our next generations, a severe global recession will also cause significant reduction of CO2 emissions.
It is true that Europe is heading toward a “perfect storm” for a cold winter. It is a “manmade perfect storm,” there should be a human solution! Otherwise, there will be endless cold winters!
Natural gas prices are straining economies and industries around the world, and experts say the global supply crunch won’t get much better
Brian Evans
Sun, July 10, 2022, 5:30 AM
- Natural gas has the power to break world economies and it’s getting more expensive
- High power costs are already forcing companies and industry to re-think future moves
- It isn’t likely to get better, experts say, in light of the turmoil from Russia’s invasion of Ukraine
The natural gas market is still in a state of crisis in response to Russia’s invasion of Ukraine and isn’t likely to get better while war in Europe rages on.
A report from the International Energy Agency states that natural gas is no longer the reliable and low-cost energy source it once was, and that it’s future is uncertain as global powers battle an energy crunch amid sanctions aimed at curtailing funding for Russia’s war in Ukraine.
The situation is exacerbated by a myriad of other factors worldwide: a fire at a liquefied natural gas facility in Texas hobbling exports, US industry output suffering from high energy costs, and European factories shuttering for the same reasons, have all helped paint a bleak picture for global energy flows.
“The European Union’s commitment to speed up the phase-out of Russian imports — historically its largest supplier – is transforming Europe’s gas market, with repercussions for global gas dynamics,” the IEA note says.
While the EU is desperately trying to replace Russian supply with liquefied natural gas, which is cheaper to transport, the move is further straining the market. The US has quickly become a large supplier of the energy source since the beginning of the year, marking a quick shift away from Russian flows. The report added that much of its forecasted uncertainty assumes that Russia will curtail flows to more European countries as it has done to Bulgaria and Poland.
But the US has it’s own supply chain constraints that put a ceiling on flows to Europe, experts say. The fire at the Freeport LNG facility in shuttered the plant for two weeks, and officials said it wouldn’t be back to full capacity until the second half of this year.
“Generally, I do not think that the U.S. can fill the void of Russian gas if it were to be shut off completely,” said Sean Morgan, director at Evercore ISI. “U.S. exports are essentially maxed out already and the recent Freeport fire took about 17% of U.S. exports offline for a prolonged fire.”
Stephen Ellis, energy and utilities strategist at Morningstar, echoed the sentiment, adding that the current trajectory for LNG exports is already operating at full capacity. In the near term, he said, “there’s not much more that they can do.”
And US industry is starting to feel the pain from high energy costs. An aluminum plant in Kentucky slashed its payroll, telling employees that it could no longer afford its high energy tab. The company, Century Aluminum, accounts for 20% of US supply.
Meanwhile in Italy, officials worry that a cutoff in Russian flows could force the Italian economy to contract this quarter. Italy’s central bank chief said that uncertainty over securing energy supplies and the cost of raw materials would push growth forecasts back to 2024.
European industry is dependent on Russian energy, which accounted for 40% of the EU’s natural gas supply last year. The IEA noted that it revised its projection for natural gas demand to 0.8% through 2025 due in large part to decreased economic activity. The agency asserted that a steep falloff in demand for gas is needed to ease price pressures.
“Additional energy transition policies would need to be implemented in mature markets to further accelerate the decline of gas consumption,” the report said.
Some US Readers’ Comment
This is the result of the insane idea of isolating Russia over NATO expansion. It’s going to fail. We are hammering ourselves to try to bring down Putin. It didn’t work in Iran, North Korea, or Venezuela, I can’t understand why these geniuses think it will work against energy rich Russia.
A Better Pundit
It is a phenomenon called sanctions boomerang. It is a global economy now. You cant put sanctions on a country the size of Russia and think there will be no blowback.
Jesse H
Don’t you know how to kill your economy? It’s simple: don’t buy russian gas!
RussianJew
Fearing Russian gas shut-off, France’s industry turns to oil
Sun, July 10, 2022, 7:34 AM By Mathieu Rosemain and Leigh Thomas
AIX-EN-PROVENCE, France (Reuters) – France’s energy-intensive companies are speeding up contingency plans and converting their gas boilers to run on oil as they seek to avoid disruption in the event any further reduction in Russian gas supplies leads to power outages.
Gathered over the weekend at a business and economics conference in southern France, several top executives said they were preparing for possible blackouts.
“What we’ve done is we’ve converted our boilers, so they’re capable of running on gas or oil, and we can even switch to coal if we need to,” said Florent Menegaux, the boss of Michelin, one of the world’s leading tyre-makers.
“The aim is to avoid having to shut down a plant in case we face a shortage,” he added, saying that while a gas shortage in Europe was likely, oil would still be available as an alternative.
It takes days to start up tyre production at a manufacturing plant, Menegaux said, making it essential to maintain a steady energy supply.
Russia in June reduced flows through the Nord Stream 1 pipeline, its main route for shipping gas into western Europe, to 40% of capacity. Politicians and industry are concerned there will be further supply constraints linked to Russia’s invasion of Ukraine, which Moscow describes as a “special military operation”.
Across Europe, industry has been resorting to more polluting fuel than gas as it gives precedence to tackling the cost to the economy of business disruption and surging energy prices, rather than longer-term targets to switch to zero carbon fuel.
French Finance Minister Bruno Le Maire told the top corporate executives attending the conference it would be irresponsible not to prepare for shortages.
“Let’s prepare for a cut-off of Russian gas,” he told them. “Today it’s the most likely scenario.”
France, relies on nuclear power for around 70% of its electricity, meaning it is far less directly dependendent on Russian gas than neighbouring Germany.
However, the state-controlled electricity producer EDF is struggling to meet France’s needs because of outages at its ageing power plants, increasing the strain on the rest of the energy sector.
Energy production at 29 of its 56 nuclear reactors has been halted by inspections and repairs.
The French government is checking company-by-company which ones depend on an uninterrupted energy supply.
It has also sought to reduce the impact of a surge in energy prices by capping retail gas and power prices until the end of the year, which has helped to keep French inflation among the lowest in Europe.
A chairman of another large industrial company, who asked not to be named, told Reuters on the sidelines of the conference he believed all big businesses were looking at a switch to oil.
Automaker Stellantis is weighing options to produce its own energy in case of an energy crunch, Chief Executive Carlos Tavares said at a French factory last month.
These include building its own energy plant or investing in an existing one to secure part of the production.
Poland’s former energy minister Michal Kurtyka, whose country relies on coal for 70% of its energy, told executives at the conference that Europe was headed for a “perfect storm” this winter.
(Reporting by Mathieu Rosemain; editing by Barbara Lewis)