Prof. ST Hsieh
Director, US-China Energy Industry Forum
April 27, 2022
Ukraine war is entering to no man’s land now. But Russia’s retaliation on gas was expected, it should not surprise anyone. However, it is not a risky gamble for the Kremlin at all. Russia is now fight against the US led coalition in Ukraine suffering from the most serve economic sanctions. US Defenses Secretary Austin has announced the ultimate goal is to “weaken Russia,” so it is not entirely about Ukraine anymore. It also means the Ukraine war will reach a cease fire only when the US is satisfied that Russia is “weakened” enough. So, Putin is playing with his full deck of cards including “nuclear war.”
Then we also recognize that the West has been unilaterally sanctioning Russia energy, which caused global energy price reach record level including US domestic gasoline prices. Europe has singed business contract on energy volume, price, and delivery schedule. But sanction by the West has wiped all the contracts away. It is not the time to call Russia’s retaliation is breaching any contract.
Blinken said on April 27, 2022, that “U.S. had already redirected “significant amounts” of LNG to Europe to help it move away from Russian gas in the midst of the war in Ukraine.” The question is for how long and how much, and what cost?
One alternative is: Ten European companies have reportedly opened accounts at Russia’s Gazprombank.Omar MarquesSome European buyers have already paid Russia in rubles for natural gas supplies
The only good solution for everybody is to stop the war in Ukraine.
The Hill: INTERNATIONAL
Russia’s retaliation on gas raises stakes for U.S.
Russia is taking a retaliatory step the U.S. and its allies have been bracing for — cutting off gas exports to two European nations, a move that escalated tensions and raised concerns about the possibility of Russia widening the stoppage to other nations.
The Biden administration has long warned that Russia would weaponize its energy exports but sought to work in lockstep with European allies on their own timelines to reduce reliance on Russian gas and oil.
“The Europeans have genuinely ambitious plans to move away from this reliance on Russian energy,” Secretary of State Antony Blinken told lawmakers on Tuesday.
“The challenge is to put them into effect, and the other challenge is in some cases this is not — no pun intended — like flipping a light switch. It is a process, and that’s what we’re working with them on implementing,” he added.
Russia’s decision to cut off gas deliveries to Poland and Bulgaria marks a risky gamble for the Kremlin, which is seeking to force Europe to pay for energy imports in rubles instead of dollars or euros to raise the strength of Russia’s domestic currency, which is under intense pressure from global sanctions.
European Commission President Ursula von der Leyen said on Wednesday that neighboring countries were supplying Poland and Bulgaria with gas delivery in the midst of the Russian blockade and warned energy companies against violating European and U.S. sanctions by paying for gas imports in rubles.
“Our guidance here is very clear: To pay in rubles, if this is not foreseen in the contract, to pay in rubles is a breach of our sanctions,” she said.
“Companies with such contracts should not accede to the Russian demands. This would be a breach of the sanctions so a high risk of the companies,” she added.
Russia’s announcement drew renewed condemnation from the West. Von der Leyen accused Russia of blackmail, while White House press secretary Jen Psaki said it was an instance of Russia “almost weaponizing” its energy supply.
“It’s a very definite sign of the escalation of the battle on the energy front,” said Daniel Yergin, an energy expert and author of “The New Map: Energy, Climate, and the Clash of Nations.”
Bulgaria and Poland are heavily dependent on Russian gas, though Yergin noted that Poland is connected to the German market and can import Russian gas from Germany.
Poland had also taken preemptive steps to stock up its gas supply, holding about 76 percent reserves at the end of the heating season in anticipation of Russian retaliation.
“It looks like the Poles certainly, and I think the Bulgarians, are not caught flat-footed,” said Daniel Fried, a former ambassador to Poland and senior fellow with the Atlantic Council.
Experts said the situation could quicken European efforts to impose a stricter ban on Russian energy imports, something officials have already been discussing, which would have a debilitating impact on the already weakened Russian economy.
A German official raised eyebrows earlier this week when he suggested Berlin is days away from independence from Russian oil, in large part by supplying German oil refineries with imports through Polish sea ports.
“I do think this is, if anything, probably going to increase the resolve of many European actors to reduce their reliance on Russian energy,” said Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security. “The challenge is I think it runs the risk of dividing European entities.”
Ziemba said the development would likely spur an increase in natural gas prices, including in the U.S., which is increasing liquified natural gas (LNG) exports to Europe to help wean European nations off of Russian gas.
“Globally, I would think prices are generally heading up from here,” said Ziemba.
On Wednesday afternoon, within hours of the Russian decision, the U.S. Department of Energy announced the authorization of exports from two new liquid natural gas projects based in Texas and Louisiana.
While the department did not specifically mention Poland or Bulgaria in the announcement, it noted that the U.S. is the biggest exporter of liquid natural gas and said exports will “continue to play a key role in global energy security, particularly due to [Russian President Vladimir] Putin’s invasion of Ukraine.”
Psaki told reporters that the U.S. has been in touch with Bulgarian and Polish officials since Russia shut off gas supplies to their two countries.
Blinken on Wednesday, speaking to the Senate Foreign Relations Committee before Russia announced it was cutting off gas supplies, said the U.S. had already redirected “significant amounts” of LNG to Europe to help it move away from Russian gas in the midst of the war in Ukraine.
“That process is continuing, and we want to make sure that as they do that, there is backfill and there’s significant amounts going to that,” Blinken told lawmakers.
This includes the delivery of 15 billion cubic meter (bcm) of LNG to Europe, which Biden announced in March alongside von der Leyen while establishing a joint U.S.-EU task force aimed at reducing Europe’s dependence on Russian energy.
The U.S. is looking to increase LNG delivery to 50 bcm to Europe each year until at least 2030, according to a task-force statement at the time.
Blinken said the administration is committed to increasing U.S. exports of LNG.
“The president has urged domestic producers to speed up production. There are … thousands of licenses that have gone unused and hopefully they will be used to increase production,” he said.
Approximately 9,000 domestic oil and gas leases are currently unused, and the Biden administration has frequently referenced them to fault the energy industry for high gas prices.
Still, there are limits to what the U.S. can do to assist its European partners, especially those such as Germany that are heavily reliant on Russian energy.
“I feel like they’ve been doing about everything that they can,” said Samantha Gross, director of the Energy Security and Climate Initiative at the Brookings Institution. “The president doesn’t have a lot to say over where oil and gas goes — even U.S. oil and gas.”
Yergin argued that the Biden administration would be wise to deepen its dialogue with energy companies. He pointed to past crises such as the Suez Crisis, during which the U.S. government was more closely coordinating with industry in how to address supply issues.
“That hasn’t happened here yet,” he said.
Four European gas buyers have paid Russia in rubles for supplies, bucking the EU’s urging in the energy face-off
Wed, April 27, 2022, 4:46 AM
Ten European companies have reportedly opened accounts at Russia’s Gazprombank.Omar MarquesSome European buyers have already paid Russia in rubles for natural gas supplies, Bloomberg reported.
- Austria said Wednesday that Russian gas deliveries are continuing unrestricted.
- Russia’s Gazprombank requires companies wanting to buy gas to hold special accounts that convert foreign currency to rubles.
This development emerged as Russia halted gas supplies to Poland and Bulgaria on Wednesday, spurring a 28% surge in European gas prices. Russia’s Gazprom said the reason for the stoppage is that both countries didn’t pay for supplies in rubles, an order President Vladimir Putin put forth last month.
The report didn’t mention which four European buyers have made ruble payments. But Austria, which gets 80% of its gas from Russia, said Wednesday that deliveries are continuing unrestricted, according to Reuters.
Additional cutoffs — as a result of failure to meet Moscow’s rubles-for-gas requirement — are unlikely until the second half of May, Bloomberg said, citing a source close to Gazprom.
Separately, the report said 10 European companies have opened accounts at Russia’s Gazprombank as a means to meet Putin’s payment demands. No company names were mentioned in the report.
Under a special mechanism, a requirement for companies wanting to receive Russian gas is that buyers should open special accounts at Gazprombank. These would allow for foreign currency to be converted to rubles for settlements.
Europe depends on Russia for around 40% of its gas supplies, but Moscow’s demands have changed this trade dynamic. After Russia demanded payment for gas in rubles, some European governments said this would amount to a breach of contract and would avoid sanctions.
Germany is especially reliant on Russian energy, particularly the natural gas that’s shipped directly through the Nord Stream pipeline network. The Bundesbank has warned that cutting out Russian gas would plunge Germany’s economy into recession.
The European Union is considering an embargo on Russian energy, and says it wants to reduce its dependence on the country for imports. EU diplomats have said Gazprombank has been exempt sanctions so far so that gas imports can continue, the Wall Street Journal reported.
The Russian bank has also managed to escape the ban on the financial-messaging infrastructure SWIFT, which was aimed at cutting off Russia’s economy from the rest of the world.
“So far, Russia has halted supplies to relatively small European countries, probably with the intention of sending a message to bigger countries, like Germany and France,” Walid Koudmani, chief market analyst at financial brokerage XTB, told Insider.
“While the sudden interruption of Russian gas exports to Europe will have significant repercussions for the European economy, it will also be a blow to Russia as the country cannot replace exports to the EU with exports to other customers due to inadequate infrastructure,” he added.