Prof. ST Hsieh
Director, US-China Energy Industry Forum
March 23, 2022
Ukraine war enters the 5th week, global energy market system is already being transformed. Many uncertainties remain!
- Putin has requested that “unfriendly nations” immediately pay Russian energy bill with rubles. By definition, unfriendly nations include EU nations, USA and Japan. How the payment mechanism will be implemented is worth watching. One issue of concern is the conversion ratio of US Dollar vs Russian Rubles. Further, future global energy market may be dominated by multiple national currencies, rather than the US dollars.
- Quote: Leaders may also discuss a demand from Moscow that countries pay in roubles for their Russian gas, a move some EU diplomats said could undermine existing EU sanctions by effectively unfreezing Russian assets. One has to wonder where EU’s bargaining power with Putin on Russian gas supply is.
- EU’s proposal on “joint purchase of gas, LNG and hydrogen” is against the free trade principle and market economy. It may improve EU’s energy security but with a cost and less flexibility due to long-term contracts. It may encourage other major LNG consumer nations including China, Japan and Korea forming another “trading block.”
- Could major gas exporter nations form a gas equivalent OPEC?
- In the name of energy security, EU could start to destroy the global free trade system.
Wed, March 23, 2022, 4:13 PM
By Kate Abnett
BRUSSELS (Reuters) – EU leaders are expected to agree at a two-day summit starting on Thursday to jointly buy gas, as they seek to cut reliance on Russian fuels and build a buffer against supply shocks, but the bloc remains unlikely to sanction Russian oil and gas.
The invasion of Ukraine by Russia, Europe’s top gas supplier, pushed already-high energy prices to records and has prompted the European Union to attempt to slash reliance on Russian fossil fuels by hiking imports from other countries and quickly expanding renewable energy.
In a draft of their summit conclusions seen by Reuters, the leaders will agree to “work together on the joint purchase of gas, LNG and hydrogen” ahead of next winter, and coordinate measures to fill gas storage.
The European Commission said on Wednesday it was ready to lead negotiations pooling demand and seeking gas ahead of next winter, following a similar model to how the bloc bought COVID-19 vaccines.
Leaders will discuss that plan – as well as a proposed law for countries to fill gas storage ahead of winter – on Friday.
Brussels is also aiming to strike a deal with U.S. President Joe Biden, who will attend the Brussels summit on Thursday, to secure additional U.S. liquefied natural gas supplies for the next two winters.
Russia supplies 40% of the EU’s collective gas needs, 27% of its oil imports and 46% of coal imports.
U.S. exporters have shipped record volumes of LNG to Europe for three consecutive months, as prices have jumped to more than 10 times higher than a year ago. Europe is competing in global markets for tight LNG supply, and analysts have warned a jump in demand could inflate prices further and leave poorer nations struggling to afford supply.
Leaders may also discuss a demand from Moscow that countries pay in roubles for their Russian gas, a move some EU diplomats said could undermine existing EU sanctions by effectively unfreezing Russian assets.
Countries remain divided, however, on whether to sanction Russian oil and gas directly, a move already taken by the United States. An EU embargo would require unanimous approval from all 27 member states.
Poland and Latvia are among the countries seeking to halt the hundreds of millions of euros per day Europe pays Russia for fossil fuels. Germany, which receives 18% of Russia’s gas exports, and Hungary are among those opposed, citing the economic damage an oil embargo would unleash.
Soaring energy prices have leapt onto the EU summit agenda, with Spain, Belgium, Italy, Greece and Portugal proposing price caps and measures to decouple the price of electricity and gas, to rein in consumer bills.
Other countries warn capping wholesale prices would cause problems and undermine efforts to shift to green energy. Some diplomats said any EU-wide decisions on this were likely to be delayed until a report due this month from energy regulators on possible EU electricity market reforms.
EU countries are largely responsible for their own energy policies. Governments have already poured billions into national tax cuts and subsidies to curb soaring energy bills in recent months.
(Reporting by Kate Abnett; Editing by John Chalmers)
EU looks to US to help curb reliance on Russian natural gas RAF CASERT
March 23, 2022, 6:56 AM
BRUSSELS (AP) — The European Union is looking to the United States to help reduce its reliance on Russian energy and will be discussing major shipments of liquefied natural gas over the next two years during a meeting with President Joe Biden on Thursday.
EU Commission President Ursula von der Leyen told EU lawmakers Wednesday that she will talk with Biden about “how to prioritize LNG deliveries from the United States to the European Union in the coming months. We are aiming at having a commitment for additional supplies for the next two winters.”
She proposed that all natural gas storage facilities in the 27-nation bloc be topped up to at least 80% capacity for next winter and hopes that U.S. fuel will be a big part of it.
On the eve of a two-day summit of EU leaders and her meeting with Biden, the European Commission said the bloc must quickly revamp its energy policy before next winter and another price crisis leaves millions of EU citizens with bills they cannot pay.
Energy experts say filling reserves when the natural gas market is tight will mean higher prices for consumers. That highlights the need for more U.S. supply.
EU leaders have already vowed to wean the bloc off its dependence on Russian energy by 2027, but tangible measures still have to be put in place. On top of mandatory high storage levels, the commission also wants EU nations to agree to the joint purchase of natural gas and LNG that would be similar to its system of buying COVID-19 vaccines in huge quantities for equitable distribution.
The draft conclusions of the summit obtained by The Associated Press include that “with a view to next winter, Member States and the Commission will urgently … work together on the joint purchase of gas, LNG and hydrogen.” The details would still need to be worked out.
“We are stronger when we use the power of our single market and deliver solidarity,” von der Leyen said. “Instead of outbidding each other and driving prices up, we should pull our common weight and stop buying gas together as … 27 different member states.”
The EU imports 90% of the natural gas used to generate electricity, heat homes and supply industry, with Russia supplying almost 40% of EU gas and a quarter of its oil.
Currently, up to 30% of gas consumption during a winter comes from storage. After demanding a level of 80% storage capacity this year, the commission wants it to go to 90% next year.
To ensure the storage facilities could not be controlled by foreign interests that could manipulate prices and volume, the commission wants a certification system “to address essential security interests.”
In Germany, for example, Russia’s Gazprom owns several storage facilities. The German government is in the process of passing a law requiring the storage facilities to be filled to capacity by the winter, to prevent any manipulation with volumes.
To deal with runaway energy prices, several nations are looking at imposing price caps on gas, saying the market conditions have become unhinged from reality. But Germany and the Netherlands have raised objections, fearing suppliers would simply sell elsewhere.
“I say this quite openly,” German Chancellor Olaf Scholz told the German parliament, “there will be no removal of market mechanisms or permanent subsidies, particularly for fossil fuels. This would not be fiscally sustainable, and ecologically it would give the completely wrong incentives.”
However, a high-level French official who spoke on condition of anonymity in line with government policy said Paris considered it an option “we are looking into with interest.”
The EU commission said such capping “can give an important signal that the EU will not pay any price for gas but such an intervention should only be envisaged as last resort, as it entails some drawbacks in terms of security of supply of gas flows.”
Associated Press journalist Frank Jordans contributed from Berlin and Sylvie Corbet from Paris.
NHK: Russian President Vladimir Putin has disclosed plans to demand that countries Russia deems “unfriendly” pay for natural gas exports only in rubles.
The move is seen as an effort to stop the volatile Russian currency from plummeting further.
At an online meeting with his Cabinet on Wednesday, Putin criticized the West and its allies for having frozen Russia’s foreign currency reserves.
Putin said it “makes no sense whatsoever” to supply Russian commodities to the European Union and the United States and receive payment in dollars, euros and other currencies.
He said he made the decision to implement as soon as possible measures to transfer payments for Russia’s natural gas supplied to the so-called unfriendly nations to rubles.
Russia earlier released a list of countries and territories that had taken what it called “unfriendly” action against Moscow following its invasion of Ukraine.
Japan, the United States and European Union member states are included on the list.