Prof. ST Hsieh
Director, US-China Energy Industry Forum
September 8, 2022
Autumn of 2022 begins on September 22, the war in Ukraine is close to seven months old with no end in sight. Europe nations are under the stress of severe energy crisis, especially the lack of natural gas for the winter. Right after the Ukraine war broke out this spring, US led west deployed “unprecedented sanctions” against Russia, specifically Russian energy was targeted. Europe, at the time, was confident and called all the shots. The west thought that Putin would succumb to the sanctions once they were announced. And they would win the Ukraine war quickly, then Russia (Putin) would be cornered forever: a total and complete victory for the west. Then the west would be able to comfortably confront the rising China with full force. Of course, China would also succumb quickly.
But the west never seriously considered the fact that sanctions are not free. Many of the sanction measures against Russian energy backfired and now it is causing a terrible headache for Europeans: an unprecedented energy crisis risking social unrests in the winter. As such all politicians in Europe right now are focused on “emergency measures” to forestall the fall of their governments. They are in the mode of “save their own necks!” The sufferings and the future of Ukrainians are off the screen of Europeans as winter approaches.
It is unfortunate for these politicians that now, each of them, must deal with Putin directly because Putin is the person who controls Russian gas valve to Europe. As the attached report shows that the existing gas pipeline system also affords Putin to distribute his gas to his favored nations. In fact, Putin can use natural gas to divide and conquer Europeans.
It is also clear that the US does not have the energy exporting capacity to provide real relieves for the Europeans this winter. US now is providing unlimited financial and military aids to Zelensky that keeps the ground war going in Ukraine for now, unfortunately there is no sign that Putin will leave Ukraine.
It appears that the war in Ukraine is bifurcated into two battle fronts and parties. On the battle grounds in Ukraine, Russians are fighting with the Ukrainians, man to man. But it is really Russian military hardware against US made equipment. Most EU (and NATO) provided military hardware is made in USA anyway.
On the economic front, it is mostly Russians against Europeans. US energy business is the beneficiary of the war and US is insulated from any real Energy Crisis. It also turns out that China, India, Japan also benefited.
On the other hand, US does not have the capacity to offer any real relief to Europe’s energy crisis. Data showed that from February to August this year, Europe paid US$90 Billion for Russian energy. It is clear that Europe has to quickly make a deal with Putin in terms of natural gas supply. Otherwise, Europe will have a cold winter as well as a recession, that may cause many “regime changes!”
All Eyes Turn to Ukraine Gas Link as Russia Squeezes Europe
Bloomberg News Thu, September 8, 2022 at 12:48 AM
(Bloomberg) — Russia’s move to shut down Nord Stream left just one major pipeline bringing natural gas straight to Europe. And that route is looking increasingly vulnerable.
The link through Ukraine has already had part of its supply knocked out by the war, and could turn out to be the next to close as the conflict drags on and tensions escalate between Moscow and Europe. Even though some nations seen as friendly to the Kremlin are still receiving gas, Russia has progressively reduced flows to Europe’s biggest economies in retaliation for sanctions, plunging the region into crisis.
“There is always a risk of the Ukrainian corridor becoming unavailable as long as combat continues,” said Katja Yafimava, senior research fellow at the Oxford Institute for Energy Studies. “Given that as Nord Stream is switched off, the Ukrainian corridor is effectively the last standing route for Russian gas to Europe.”
Russia’s daily supply via Ukraine has been less than 40% of contracted transit volumes since mid-May after a key crossborder entry point — Sokhranivka — was put out of service. Ukraine’s grid operator said it lost control of the facility because of occupying forces in the east of the country, bordering Russia.
It leaves just one operating entry point in Ukraine via Sudzha. A halt there can’t be ruled out if there is physical damage of infrastructure amid military actions, according to Vyacheslav Kulagin, head of department at the Energy Research Institute in the Russian Academy of Sciences. Alternatively, Ukraine could decide to stop transit if it loses control of the territories that the link crosses, like it happened with Sokhranivka, Kulagin said.
Should supplies through Ukraine be shut down, it would cut in half Russia’s current total pipeline exports to the continent, which amount to some 80 million cubic meters per day. That would leave Gazprom sending gas via one leg of the TurkStream pipeline to a handful of European nations that didn’t severe business ties with Russia despite sanctions.
“If geopolitical considerations prevail, the TurkStream at first glance looks to be in a more privileged position than other pipelines,” said Sergei Kapitonov, a gas analyst at Skoltech Project Center for Energy Transition and ESG. “Its first and main target market is Turkey, viewed as a ‘friendly state’ in current Russian policy, and sales markets in Europe including Serbia and Hungary.”
The situation is already dire in Europe and politicians are rushing to cushion the fallout with drastic market interventions. EU energy ministers are meeting this Friday to hash out plans, which may include a proposal to put a price cap on Russian gas.
Such as move would risk further inflaming tensions with the Kremlin. Russian President Vladimir Putin warned on Wednesday that energy supply would be cut off to those that cap prices. German Chancellor Olaf Scholz again accusing Moscow of blackmail by shutting down supplies via Nord Stream and Putin saying it was “nonsense.”
Resumption of supplies via Nord Stream, the undersea pipeline to Germany, remains unclear. Gazprom has said the link can’t operate again until equipment malfunctions are fixed. But Siemens Energy, the manufacturer of turbines for the Portovaya compressor station, said that didn’t justify halting supplies, a view shared by Germany’s grid operator.
Even before the full stoppage, Nord Stream was only operating at 20% of capacity as four turbines were out of action because they need either major repairs or some servicing on site, according to Gazprom. Another turbine is currently stranded in Germany after maintenance in Canada. Gazprom has said “sanction entanglement” have stymied Siemens from providing maintenance.
The third major route, Yamal-Europe that runs through Belarus and Poland to Germany, has been out since May when Russia prohibited Gazprom from any cooperation with EuRoPol Gaz, the owner of the Polish section of the link. Not long before that the Russian gas producer halted supplies to Poland, as the country was among the first ones to reject Kremlin’s order to pay for pipeline gas in rubles.
China Is Aggressively Buying Up Cheap Russian LNG
Editor OilPrice.com Thu, September 8, 2022 at 12:45 AM
Russia is selling liquefied natural gas from the Sakhalin-2 project in the Far East to China at a 50-percent discount and still making a profit on it, Bloomberg has reported, citing unnamed traders.
“Russian supply is still making its way into the market, just with a reorganization of trade flows via market participants who don’t take issue with accepting Russian cargoes,” Saul Kavonic, an energy analyst at Credit Suisse, told Bloomberg.
The other two big buyers of Sakhalin-2 LNG, Japan, and South Korea, according to Bloomberg, stopped buying the commodity after Russia’s invasion of Ukraine. Japan, however, continues to receive Russian LNG from Sakhalin-2 under other contracts.
Despite the discount, LNG prices this year have soared so high that the operator of Sakhlin-2 is still making a profit. This operator, by the way, is a new state-owned entity that replaced the previous consortium.
Speaking of Europe, Poland this week suggested the European Union introduce a price cap on all gas imports, including LNG, as the costs of this alternative gas supply contribute to the energy price inflation cross the bloc.
For now, the European Commission, however, has only proposed a gas price cap on Russian imports following the same logic as the one employed by the G7 in imposing an oil price cap on Russian exports.
By Irina Slav for Oilprice.com
China and India bought $9 billion worth of additional Russian crude in the 2nd quarter, undercutting the West’s attempt to squeeze Moscow’s finances
Phil Rosen Thu, September 8, 2022 at 8:22 AM
- The two nations bought $9 billion in additional Russian crude in the second quarter compared to the first quarter, a Financial Times report says.
- China and India together imported 11 million additional tonnes during that span.
- India alone imported 8.42 million tonnes in the second quarter, up from 0.66 million tonnes in the first.