Prof. ST Hsieh
Director, US-China Energy Industry Forum
January 16, 2023
- European and G7 price-cap sanction on Russian crude oil seems to have limited impacts on Russia finance.
- European and G7 price-cap sanction on Russian fuel (diesel) will be imposed on February 5, 2023. In the short term, global fuel prices may experience some jolts. But who will suffer the most remains to be seen. It is interesting to note that, Europe will import more diesel from Indian refineries using Russian crudes. It is a loophole of European sanction strategy.
- European’s “intention” to start “joint purchase” of natural gas is completely against free trade and market economy. The high risk is that the global LNG market will be very tight for the next few years, collective bargaining will have limited influence. Further, Europe must invest in building LNG receiving terminals, it will take huge investments and significant time.
- Europe LNG is a “captive market” for US LNG exporters. Because Europe depends on US alone for counter balancing Russia after the Ukraine war broke out last February.
Russia’s Seaborne Crude Flows Surge to Highest Since April
Mon, January 16, 2023 at 6:50 AM PST
(Bloomberg) — Russia’s seaborne crude exports soared last week to the highest level since April, suggesting that the country has — for now — overcome an initial hit to flows that followed European sanctions.
Aggregate volumes of Russian crude rose by 876,000 barrels a day, or 30%, to 3.8 million in the week to Jan. 13. Baltic shipments were up by 626,000 barrels a day from the previous week, while those from the Black Sea and the country’s Pacific ports also expanded.
The increase also lifted the country’s four-week average, which smooths out peaks and troughs in what are noisy weekly data. The jump in the four-week average was boosted as a mid-December, weather-related slump that saw weekly flows collapse by more than half fell out of the calculation. Inflows to the Kremlin’s war-chest from crude export duties rose much less sharply. All of the shipments in the latest week attracted duty at the low January rate, while several cargoes that were shipped the previous week were taxed at the December rate, which was more than two-and-a-half times as high. That was due in part to a change in the formula used to calculate duty rates, as the country continues its long shift away from taxing exports by increasing the burden on production.The data are highly volatile, depending on the timings of when individual shipments depart and things like weather conditions and work at ports.
On a four-week average basis, overall seaborne exports rose by 550,000 barrels a day from a revised figure for the period to Jan. 6. At 3.058 million barrels a day, four-week average flows are the highest since November. Shipments to Asia soared, while those to Europe have dried up almost completely.
Four-week average shipments to Russia’s Asian customers, plus those on vessels showing no final destination, which typically end up in either India or China, jumped to a new high of 2.82 million barrels a day in the four-week period to Jan. 13.
Flows to Bulgaria, now Russia’s only Black Sea market for crude, regained the previous week’s loss, rising to 167,000 barrels a day. Bulgaria secured a partial exemption from the EU ban, which should support inflows now that the embargo has come into force.
Aggregate flows of Russian crude rose by 876,000 barrels a day, or 30%, in the seven days to Jan. 13, jumping to their highest on a weekly basis since April.
Inflows to the Kremlin’s war chest from its crude-export duty rose by $3 million, or 4%, to $61 million in the seven days to Jan. 13, while the four-week average income moved in the opposite direction, falling by $1 million to $87 million. The small increase in export duty revenue from such a big jump in flows reflects the fact that several cargoes loading the previous week attracted the much higher rate of export duty charged in December.
Huge Sanctions Are Looming for the Fuel That Powers the World
Alex Longley and Jack Wittels
Sun, January 15, 2023 at 12:00 AM PST
An unprecedented chunk of the global diesel market, the workhorse fuel of the global economy, is just weeks away from being subject to aggressive sanctions.
From Feb. 5, the European Union, the G-7 and its allies will attempt to impose a cap on the price of Russia’s fuel exports — the latest punishment for its invasion of Ukraine. That will coincide with an EU prohibition on almost all imports of Russian oil products.
Prior to its invasion of Ukraine, Russia was Europe’s largest external supplier of the fuel and the continent has continued to buy in big volumes right up to the cutoff. As a result, the sanctions are likely to see a great rerouting of global diesel flows — aided by Russia’s new crude buyers sending fuel back to Europe. In the short-term, there’s a risk of higher prices.
“The loss of Russian barrels is huge and replacing them will be a huge logistical challenge,” said Keshav Lohiya, founder of consultant Oilytics. “But the market is pricing in less panic as markets and trade flows have proven resilient. This will be a new rerouting of diesel.”
The European Union will have to replace about 600,000 barrels a day of diesel imports, and Russia will need to find new buyers for those supplies, store the fuel on ships, or cut production at its refineries.
Shipments into the EU from the US and India have already been on the rise as they produce more than they consume, allowing them to export their surfeit. China is also expected to send more of the fuel into its nearby markets, indirectly pushing cargoes from other suppliers toward Europe.
A big increase in Indian diesel flows would all-but guarantee that Russian crude was being purchased and refined into diesel in India before being sold back to Europe.
Such a trade wouldn’t breach the EU’s rules, but it highlights the inefficiency inherent in the sanctions. Essentially, hydrocarbons will be transported thousands of miles further than would normally be the case — and then back again.
That’s in the context of a European refining industry that’s getting ready for a seasonal round of maintenance work, and also facing disruption.
A threat of renewed strikes in France could shut down some of the nation’s fuelmakers a day after the sanctions on Russia come into effect.
Two oil refineries in eastern Germany — previously supplied with piped Russian crude — are having to make less fuel than they normally would because those flows have halted.
And lying quietly behind all of that, is a host of logistical and technical issues that could flare up at any moment.
“The market will always solve it,” said Eugene Lindell head of refined products at consultant FGE. “It’s just how much pain is it going to incur?”
Europe boosts Russian diesel buying ahead of ban set to rock market
Rowena Edwards, Ron Bousso and Ahmad Ghaddar
Mon, January 16, 2023 at 4:16 AM PST
LONDON (Reuters) – European traders are rushing to fill tanks with Russian diesel as the clock runs down on a Feb. 5 European ban expected to tighten supplies, redraw global shipping routes and increase price volatility.
The ban is likely to create a diesel supply shortfall that Europe hopes to fill with Chinese fuel, some of which will be produced from Russian crude.
EU Commission Wants To Start Joint Gas Purchases “Well Before Summer”
Mon, January 16, 2023 at 9:00 AM PST
The European Commission is aiming for EU countries to start buying gas jointly “well before summer”, in a bid to help countries refill their storage and avoid a supply crunch next winter, European Commission Vice-President Maros Sefcovic has told Reuters.
The EC hopes that the scheme will help Europe refill depleted storage caverns and also negotiate lower prices by using countries’ collective buying power.
Although Europe has managed to fill its gas stores ahead of winter, it has paid a heavy price: the cost of replenishing natural gas stocks is estimated at over 50 billion euros ($51 billion), 10 times more than the historical average for filling up tanks. Luckily, gas prices have plunged since which coupled with high temperatures in Europe might lower gas demand and keep prices manageable.
The price assessment by the Cooperation of Energy Regulators (ACER)–which Europe is switching to as it ditches Russian pipeline gas–is part of the EU’s plan to launch a new European benchmark piece for LNG.