Wed. Oct 5th, 2022

Prof. ST Hsieh

Director, US-China Energy Industry Forum

626-376-7460

[email protected]

July 11, 2022

The incredible sanctions on Russian energy implemented after the war in Ukraine broke out on February 24, 2022, work wonders:

  1. Europe is already experiencing energy crisis, worse is yet to come this winter. Europe’s economy may collapse.
  2. Putin is doing well with current surplus rocketed to a record of US$70.1 Billion in the second quarter. In the first six months of the year, Russia’s current account surplus hit $138.5 billion.

But wait, was the sanctions designed by western leaders meant to punish Putin so that he would pull his military out of Ukraine asap?

Unfortunately, after 138 days since the war started, Russia is gaining ground in Ukraine even with more than US$ 100 Billion support to Zelensky’s government. Obviously, west sanctions against Russia failed to stop Putin so far. Worse, these sanctions are hurting Europe much worse than Russia! As European leaders are scrambling for non-Russian energy supply to save their economy, now one is taking any responsibility for these failed sanctions! Rather, they try to come up with new unproven schemes including “price-cap” on Russian energy. The idea is that Europe will set “price-cap,” for example Europe will not import Russian gas if Putin’s asking price is higher than the cap set by the west. The fallacy of this idea is:

  1. Putin is the seller who sets the price. It is reported that Putin may completely cutoff Russian gas export to Europe. What will Europe do then?
  2. Russian energy has other markets and is not totally dependent on Europe market. Without Europe market, Russia may suffer some financial loss. But a Europe without Russian energy faces immediate economic crisis, not to mention a cold winter soon. Because global energy supply is limited and does not have the extra capacity to replace Russian energy for Europe.

A major flaw of the existing sanction seems to be grossly underestimating Putin’s staying power. This sanction was announced immediately after the war in Ukraine broke out, but many actions are not in place yet, even now. For example, Britain announced it would ban Russian coal sounded like a very brave stand with Ukrainians. But the “ban” will only take place in August, next month. Europe nations also announced that, as a group, they will ban Russian oil. But again, the oil ban will take place at the end of 2022! The ban of Russian natural gas is even more “dramatic” because it will take place in the next two or three years.

Obviously, Putin called these sanctions a bluff and Europe got caught. Should the west earnestly work on a cease fire now?

Soaring energy prices help Russia push its current account surplus to a record $70.1 billion in the second quarter despite sanctions

Phil Rosen Mon, July 11, 2022, 9:43 AM

  • Russia’s current account surplus hit a record $70.1 billion in the second quarter of 2022, central bank data shows.
  • Exports dipped, but imports saw a steeper decline during the second quarter.
  • In the first six months of the year, Russia’s current account surplus hit $138.5 billion.

In the second quarter of 2022, Russia’s current account surplus hit $70.1 billion, its highest mark since at least 1994, according to Russian central bank data released Monday.

Exports dipped to $153.1 billion from $166.4 billion in the first quarter, but imports saw a steeper decline, falling to $72.3 billion from $88.7 billion. For the first six months of the year, the current account surplus has reached $138.5 billion, the central bank said.

Soaring energy prices and commodity exports propped up Moscow’s finances even as Western nations imposed sanctions amid the war in Ukraine. Meanwhile, imports are down as the US and its allies moved to isolate the Russian economy from the global financial network.

“A ballooning trade surplus says a lot about what’s going right for Russia, from high commodity prices to sustained demand from many export partners,” economist Scott Johnson told Bloomberg. “But it’s also a symptom of distress, with a plunge in imports sowing disruption throughout the economy.”

In May, the IEA said the Kremlin was earning roughly $20 billion per month in oil sales as high crude prices lifted export revenues by 50%.

Meanwhile, Russia’s stringent capital controls have turned the ruble into the top performing currency against the dollar this year, even though it had plunged to less than a penny at the start of the war in Ukraine.

Russia’s War Machine Still Getting Plenty of Cash From Oil

Julian Lee

Mon, July 11, 2022, 8:49 AM

(Bloomberg) — Note to the G-7 and the US Treasury Secretary: Russia is still raking it in from oil, even if its exports are showing signs of ebbing.

An increase in the rate of export duty charged on crude oil shipped out of Russia in July has helped the Kremlin to ride out a slump in flows in the first full week of the month. Duty rates increased by 23% between June and July, delivering an additional $1.42 a barrel to the Kremlin on every cargo shipped out of the country. That boost helped Russia shrug off a 15% drop in crude shipments in the week to July 8, with revenues edging down by just $3 million, or 2%.

The relative moves in Russia’s overseas crude shipments and the Kremlin’s immediate income from them will not make comfortable reading for the Group of Seven industrialized countries. They are under pressure to find a way to hurt Russia without spiking oil prices. In an attempt to do that, US Treasury Secretary Janet Yellen is pushing a plan to cap Russian oil prices in order to preserve export volumes while hitting the government’s revenues.

The US administration will use talks with nations including India and Japan to rally support for the price cap, which would see buyers able to access insurance and transportation services needed to ship Russian crude only if the oil is purchased below an agreed price. There is no guarantee, though, that Russia would agree to ship its oil under such terms, even if buyers sign up to the plan.

Aggregate crude flows from Russian ports were down week-on-week by 555,000 barrels a day, or 15%, with shipments lower from all four of the country’s exporting regions.

Overall, Russia’s seaborne shipments fell to 3.12 million barrels a day in the week to July 8, following the previous week’s jump (see chart below).

The data are still tentative, but using a rolling four-week average of exports indicates that Russia’s seaborne flows have been on a downtrend since mid-June, according to tanker tracking data monitored by Bloomberg. Gauging exports through vessel movements is very noisy because of loading schedules, maintenance, weather and other things that can influence flows. Taking longer-running averages can smooth out some, but not all, of that noise.

On a four-week rolling average basis, flows have dropped to 3.38 million barrels a day in the period to July 8, falling in each of the past three weeks. They are now down by 325,000 barrels a day, or 9%, since mid-June.

Asian countries, dominated by China and India, are still taking more than half of all the crude shipped from the Russia, but that share is edging lower. In the most recent four-week period, flows to Asia accounted for 52% of Russia’s total seaborne exports. That figure includes volumes on tankers heading from Baltic and Black Sea ports to the Suez Canal and is down from a high of 63% in the four weeks to April 15.

Shipments to China averaged 628,000 barrels a day in the most recent four-week period, with flows to India at 522,000 barrels a day. But both those figures are expected to rise, once destinations become known for about 210,000 barrels a day of crude on tankers yet to signal final discharge locations. Shipments to Asian countries other than China and India have virtually dried up, with rare cargoes heading to Japan and South Korea from Pacific terminals.

With an EU ban on imports of Russian oil still almost five months away, the volume that Moscow is shipping to northern Europe has stabilized in a range between 400,000 and 450,000 barrels a day since the end of April. Most of that is going into storage tanks at Rotterdam in the Netherlands, with small volumes going to Poland and Finland.

Four-week average shipments of Russian crude to the Mediterranean soared after the invasion of Ukraine but have been drifting lower since peaking in mid-June. In the period to July 8, they were the lowest in 12 weeks.

Lukoil’s ISAB plant on the Italian island of Sicily is a key buyer of Russian crude, while Turkey has also boosted purchases. It remains to be seen what ISAB will do when the EU ban on seaborne Russian crude comes into force in December. Until then, with no legal impediment to its purchases and few, if any alternatives to its diet of Russian crude, shipments are unlikely to fall much.

The Mediterranean picture is repeated in the Black Sea, again driven by increased shipments to a Lukoil-owned refinery in Bulgaria. While flows to Romania are little changed since the start of the year, those to Bulgaria are two-and-a-half times as big as they were in January and early February.

Combined shipments to Bulgaria and Romania averaged just below 300,000 barrels a day since mid-April, although they have retreated from the peak seen in the week to June 17. Four-week average shipments to July 8 were unchanged from the previous week.

Moscow’s revenue from export duty fell much less sharply than crude flows in the week to July 8, slipping by just $3 million, or 2%, to $159 million. Higher per-barrel duty rates payable in July cushioned the drop.

Crude shipments in July will earn the Kremlin $55.20 a ton (about $7.53 a barrel), up from $44.80 a ton ($6.11 a barrel) in June. That is the highest duty rate charged by the Russian government since April, reflecting an increase in Urals prices between mid-May and mid-June compared with the month earlier.

The number of shipments from each of the four regions — the Baltic, the Black Sea, the Arctic and the Pacific — was down by one in the week to July 8.

Crude flows from Russia’s three eastern oil terminals — Kozmino, De Kastri and Prigorodnoye — fell week-on-week at 838,000 barrels a day.

Eight tankers loaded ESPO crude at Kozmino, unchanged from the previous week. Two cargoes are heading for India, where they are due to arrive at Sikka on July 22 and Mundra on July 27.

There were no shipments for a ninth week from De Kastri, which handles Sokol crude from the Sakhalin 1 project. Two shuttle tankers remain anchored empty off the terminal.

No cargoes of Sakhalin Blend crude were loaded in the week to July 8.

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