Prof. ST Hsieh
Director, US-China Energy Industry Forum
February 6, 2022
Any war is a human tragedy! The Ukraine risk of war is not “imminent” anymore, but the potential conflict will cause significant human sufferings. The US government recently estimated that a large-scale invasion of Ukraine could leave up to 50,000 civilians killed or wounded, decapitate the government in Kyiv within two days, in addition to tens thousands of soldiers would be killed and wounded from Russia and Ukraine. But the aftermath of a full-scale war in Ukraine could launch a humanitarian crisis with up to 5 million refugees fleeing the resulting chaos. Europe nations will have to absorb these refugees and cause economic hardships for decades. Not to mention the animosities that will ensure between Russia and the West, cause a major global crisis that will persist decades.
Ukraine war is not inevitable, but it takes sincere diplomacy and teamwork. Here we quote two recent news headlines:
BBC: Ukraine crisis: Macron says a deal to avoid war is within reachPublished, February 6, 2022
Before talks in Moscow with Russian President Vladimir Putin on Monday, he called for a “new balance” to protect European states and appease Russia.
February 1, 2022
Hungary’s prime minister lobbied for larger shipments of Russian natural gas Tuesday during a meeting with President Vladimir Putin in Moscow amid high tensions over Russia’s buildup of troops along Ukraine’s borders. (The news report is at the end of this article.)
On the verge of a disastrous war, the tension is already taking economic tolls around the world due to high fossil energy cost. Around Europe, Consumer prices have jumped 5.1 per cent from January last year, up from 5 per cent in December and surpassing the estimates of analysts.
Energy is at the forefront of the rise, as prices soar across the continent and many households struggle to cope with the added cost. Prices rose by 28.6 per cent in January in the 19 eurozone countries.
Inflation in the US, along with the COVID-19 pandemic are two factors of great concern to President Biden. A major index of inflation is the consumer gasoline price which hurts the pocket of everyone. Worse, there is no immediate sign of any relief. The worst case is that, unfortunately war in Ukraine erupts, then inflation in the US will skyrocket.
High energy cost hurts everyone, especially major energy importers like China, Japan, South Korea, and India. A global economic downturn will hurt the energy producers like members of OPEC+.
If the ground war in Ukraine, as estimated by the US government, should conclude in a few days, the aftermath will be a global disaster that last for decades if not generations. The US has promised that “severe economic sanctions’ will be imposed on Russia. The punishments will be so strong that Russia and China alliance will not be able to compensate. That could mean a new cold war with two major camps, the West Camp leads by the US and the Eurasia Camp, co-leads by China and Russia. The future of the world, who know?
Speculating what might happen if Ukraine does become a bloody battlefield, the US led sanctions against Russia (and China) the following news report illustrates some highlights: everybody gets burned. Some highlights:
- It concludes that Russia will not, in retaliation to US led sanctions, completely shut-off energy supply to Europe. Which makes sense because Putin has consistently denied there is any plan to invade Ukraine. Putin’s stated intention is always a written security guarantee from the west (NATO).
- Europe is heavily dependent on Russia for energy supply, so any Western sanctions would likely avoid directly targeting Russian energy supplies.
- Russians are almost certain to cut off gas transiting Ukraine on the way to Germany,” said former U.S. diplomat Dan Fried, who as State Department coordinator for sanctions policy helped craft 2014 measures against Russia when it invaded and annexed Ukraine’s Crimea peninsula. That move will reduce about 25% of gas supply from Russia.
- Russia could then offer to make up the lost gas if Germany approves the contentious new Nord Stream 2 pipeline, whose operators could face potential U.S. sanctions even though a recent vote to that effect failed. Nord Stream 2 pipeline is completed but not licensed to operate by German yet. It is already a major political hot-potato between the US and German, before the Ukraine crisis heated up. German Chancellor, Scholz will visit President Biden on Monday (February 2, 2022.) The US has to work with German for a unified position against Russia.
- The US has limited capacity to provide natural gas to Europe if Russia takes any action. The US now has the largest LNG export capacity in the world but in the short term under emergency case, US and his allies outside Europe will not be able to make up the lost supply from Russia. If Russia stopped sending just the gas that goes through Ukraine, it would take the equivalent of about 1.27 shiploads of additional LNG per day to replace that supply, said Luke Cottell, senior LNG analyst at S&P. Even if all Europe’s LNG import facilities were operating at capacity, the amount of gas would only be about two-thirds of what Russia sends via pipelines, Jaffe said. And there could be challenges distributing the LNG to parts of Europe that have fewer pipeline connections. Even now, high energy price in Europe is already hurting the economy, consumers are feeling the crunch in higher electric and gas bills. European governments are rolling out subsidies and tax breaks to ease the financial stress on households.
- As the U.S. ramped up LNG exports, domestic prices of natural gas also rose. U.S. gas prices spiked by more than 30% in the last week of January, primarily because of an approaching winter storm in New England, Williams-Derry said. But prices also were affected by tighter U.S. supplies amid uncertainty over Russia, he said.
EXPLAINER: What happens to Europe’s energy if Russia acts?Sat, February 5, 2022, 11:30 PM
Ukraine Tensions Energy ExplainerCATHY BUSSEWITZ, DAVID McHUGH and MATTHEW DALY
Sat, February 5, 2022, 11:30 PM
FRANKFURT, Germany (AP) — Fears are rising about what would happen to Europe’s energy supply if Russia were to invade Ukraine and then shut off natural gas exports in retaliation for U.S. and European sanctions.
The tensions show the risk of Europe’s reliance on Russia for energy, which supplies about a third of the continent’s natural gas. And Europe’s stockpile is already low. While the U.S. has pledged to help by boosting exports of liquefied natural gas, or LNG, there’s only so much it can produce at once.
It leaves Europe in a potential crisis, with its gas already sapped by a cold winter last year, a summer with little renewable energy generation and Russia delivering less than usual. Prices have skyrocketed, squeezing households and businesses.
WILL RUSSIA CUT OFF GAS SUPPLIES TO EUROPE?
No one knows for sure, but a complete shutoff is seen as unlikely, because it would be mutually destructive.
Russian officials have not signaled they would consider cutting supplies in the case of new sanctions. Moscow relies on energy exports, and though it just signed a gas deal with China, Europe is a key source of revenue.
More likely, experts say, would be Russia withholding gas sent through pipelines crossing Ukraine. Russia pumped 175 billion cubic meters of gas into Europe last year, nearly a quarter of it through those pipelines, according to S&P Global Platts. That would leave pipelines under the Baltic Sea and through Poland still operating.
“I think in the event of even a less severe Russian attack against Ukraine, the Russians are almost certain to cut off gas transiting Ukraine on the way to Germany,” said former U.S. diplomat Dan Fried, who as State Department coordinator for sanctions policy helped craft 2014 measures against Russia when it invaded and annexed Ukraine’s Crimea peninsula.
Russia could then offer to make up the lost gas if Germany approves the contentious new Nord Stream 2 pipeline, whose operators could face potential U.S. sanctions even though a recent vote to that effect failed.
U.S. national security adviser Jake Sullivan said Sunday on NBC’s “Meet the Press” that the Biden administration has coordinated with its allies and that “if Russia invades Ukraine, one way or another, Nord Stream 2 will not move forward.”
Interrupting gas supplies beyond the Ukrainian pipelines is less likely: “If they push it too far, they’re going to make a breach with Europe irreparable, and they have to sell the oil and gas someplace,” Fried said.
WHAT CAN THE U.S. DO?
It’s a major gas producer and already is sending record levels of liquefied natural gas, or LNG, by ship worldwide. It could only help Europe a little.
“We’re talking about small increases to the size of U.S. exports, whereas the hole that Europe would need to fill if Russia backed away or if Europe cut Russia off would be much larger than that,” said Ross Wyeno, lead analyst for Americas LNG at S&P.
The Biden administration has been talking with gas producers worldwide about whether they can boost output and ship to Europe, and it has been working to identify supplies of natural gas from North Africa, the Middle East, Asia and the U.S.
The administration also is talking with buyers about holding off.
“Is there some other country that was planning to get an LNG shipment that doesn’t need it and could give it to Europe?” said Amy Myers Jaffe, managing director of the Climate Policy Lab at Tufts University, mentioning Brazil or countries in Asia.
Over the past month, two-thirds of American LNG exports went to Europe. Some ships filled with LNG were heading to Asia but turned around to go to Europe because buyers there offered to pay higher prices, S&P said.
IS THERE ENOUGH LIQUEFIED GAS WORLDWIDE TO SOLVE THE PROBLEM?
Not in the event of a full cutoff, and it can’t be increased overnight. Export terminals cost billions of dollars to build and are working at capacity in the U.S.
And there could be challenges distributing the LNG to parts of Europe that have fewer pipeline connections.
If Russia stopped sending just the gas that goes through Ukraine, it would take the equivalent of about 1.27 shiploads of additional LNG per day to replace that supply, said Luke Cottell, senior LNG analyst at S&P. Russia also could reroute some of that gas through other pipelines, reducing the need for additional LNG to about a half-shipload per day, he said.
IS RUSSIA ALREADY SUPPLYING LESS GAS?
Russia has been fulfilling its long-term contracts to supply gas to Europe, but it’s been selling less on the spot market and hasn’t been filling the storage containers it owns in Europe, experts say.
“It’s already happened. It’s not theoretical,” Jaffe said.
Russian cutbacks to spot gas supplies have contributed to sharply higher natural gas prices in Europe. They went as high as 166 euros ($190) per megawatt hour in December, more than eight times their level at the start of 2021. Prices have fallen to under 80 euros per kilowatt hour as more LNG arrives.
IS THERE IMPACT IN THE U.S.?
As the U.S. ramped up LNG exports, domestic prices of natural gas also rose. More than 10% of gas produced in the U.S. last year was exported, said Clark Williams-Derry, analyst at the Institute for Energy Economics and Financial Analysis.
U.S. gas prices spiked by more than 30% in the last week of January, primarily because of an approaching winter storm in New England, Williams-Derry said. But prices also were affected by tighter U.S. supplies amid uncertainty over Russia, he said.
“Russia is disturbing European gas markets, with the U.S. talking about exporting basically the next ‘Berlin airlift’ for natural gas to Europe,’’ he said.
If the U.S. pushes for increased LNG exports, prices at home would likely rise, Williams-Derry added.
Ten Democratic senators, led by Jack Reed of Rhode Island and Angus King of Maine, recently urged the Energy Department to study the effect of higher exports on domestic prices and pause approvals of proposed terminals. They said they understood “geopolitical factors” give rise to sending more gas.
“However, the administration must also consider the potential increase in cost to American families,’’ the senators said.
JUSTIN SPIKETue, February 1, 2022, 11:49 AM
BUDAPEST, Hungary (AP) — Hungary’s prime minister lobbied for larger shipments of Russian natural gas Tuesday during a meeting with President Vladimir Putin in Moscow amid high tensions over Russia’s buildup of troops along Ukraine’s borders.
During a news conference following their meeting in the Kremlin, Hungary’s right-wing nationalist leader Viktor Orban said he had requested the expansion of Hungary’s 15-year gas contract with Russian energy company Gazprom to ensure larger-volume deliveries amid ballooning energy prices in Europe.
While no formal agreement was reached, Orban’s request underscored the close economic and diplomatic ties that Hungary — a member of both the European Union and NATO — has pursued with Moscow. Those actions have raised eyebrows in some European capitals where Russia is viewed as a malign actor and threat to the security of the whole 27-nation EU.