Prof. ST Hsieh
Director, US-China Energy Industry Forum
May 27, 2022
It is well known that energy security is also a major component of national security, of course each nation has its own strategy for ensuring energy security: balancing supply and demand ensuring an affordable cost. Energy security is also a long-term issue, any “perfect” strategy without risk just does not exist, risk management is essential. EU as a group collectively determined and executed the energy security policy: it depends on Russian energy for years. But NATO as a group collectively determined and executed the national (defense) security policy: count on the US and oppose Russia. This conflict between national security and energy security is obvious and it should not be a surprise to anyone, especially those political leaders in Europe. This conflict existed and had been managed well till the Ukraine war started on February 24, 2022.
The Ukraine war forced EU, under the leadership of US, to confront Russia with direct and severe sanctions. We only can speculate that the US-EU strategy is to cripple Russia and stop the Ukraine war quickly. Or the other way around, Ukraine war is a proxy war, so US-EU’s purpose is intended to “take out” Russia. It may explain the reason why the US and EU supplying almost unlimited military equipment and money, in fact fund the war. It also explains why US and EU are pressing China and India etc. to condemn Russia.
Unfortunately, the destructive Ukraine war is still on, and no end is near. Because there is no serious attempt from both sides to arrange a cease fire. But the war in Ukraine, a nation in Europe, is threatening a major global crisis. EU is working hard on terms of further sanction on Russian oil, but it is still divided. The reality is that the immediate impact of such a sanction is on EU, if it lasts then a global recession. No one is spared including the US which is now a bona fide energy exporter nation. (It should be alarming to note that US congress is considering a proposal to ban US energy export!)
Oil is only one factor of the energy security mix, but it already threats a global recession, if EU can agree on an instant Russian oil ban. Of course, EU economy would be the first to suffer. There is no way EU or any nation in the world could cutoff natural gas usage instantly. But EU is risking the gas supply being cutoff by Russia anytime.
The world is already facing multitude and significant challenges, including recovery from COVID-19 pandemic and climate change threat, ending the Ukraine war will not solve all the challenges instantly. But Ukraine war should be ended as soon as possible! What is the purpose of continuing the war?
A deeper drop in Russian oil supply is likely to trigger a global recession and a full-blown energy crisis, Bank of America warns
Harry Robertson Fri, May 27, 2022, 8:25 AM
- A further decline in Russian oil supply is likely to spark a global recession, Bank of America said Friday.
- The bank warned oil prices could hit $150 a barrel, and an energy crisis could ensue, if supplies fall sharply.
- Russia’s oil production has fallen by around 1 million barrels per day in 2022, as sanctions have hit the country.
Any further drop in Russian oil supply is likely to lead to a global recession and could even trigger a full-blown energy crisis that pushes prices past $150 a barrel, strategists at Bank of America have warned in a note.
Russian oil production has fallen by roughly 1 million barrels per day (bpd) in 2022, according to a BofA team led by Francisco Blanch. The fall has come as countries and traders cut their purchases of the country’s energy following its invasion of Ukraine.
They said Friday they expect supply from Russia to fall from 11.4 million barrels a day in the first quarter of 2022, to an average of 10 million barrels a day in 2023.
“That’s probably just about as much as the world can handle without triggering a major negative economic outcome,” Blanch and his colleagues wrote.
The bank’s strategists warned that a deeper fall could wreak havoc on energy markets.
“We believe that a sharp contraction in Russian oil exports could trigger a full-blown 1980s style oil crisis and push Brent well past $150 a barrel,” they said. That’s well above the roughly $110 current level that has driven a spike in fuel prices.
The 1970s and 1980s were decades in which energy markets were chaotic and global growth suffered.
Bank of America said global economic growth and energy demand are tightly correlated, with demand increasing in line with rises in gross domestic product.
Yet the bank noted that energy stocks are currently very low, with the crude oil stocks-to-use ratio at around its lowest ever level. Therefore if global growth is to continue, supplies need to rise.
The problem is, output is unlikely to tick up sharply, due to Russia’s supply problems and other issues, including weak investment in oil. The situation could also worsen if the European Union agrees upon a total ban of Russian oil.
“The next negative energy supply shock will have to be accommodated by a mirroring energy demand growth (or GDP growth, if you like) contraction or by supply growth elsewhere,” the strategists said.
At $102 a barrel so far this year, Brent crude oil prices are currently close to their highest average levels ever, of $112 a barrel in 2012, BofA said.
Brent crude was little changed Friday at $114 a barrel, up around 47% since the start of January.
The Ukraine war has underscored just how differently the US and Europe are positioned with energy security — and it’s sparking a rethink of the push into renewables
Thu, May 26, 2022, 11:32 PM
- The US was a net importer of natural gas just seven years ago. Today, it’s a top exporter.
- In contrast, Europe is now facing an energy crunch in part due to under-investment in fossil fuels.
- The crisis is sparking a rethink of the world’s transition to green energy.
For decades, Europe has been able to keep the lights on by relying on cheap natural gas piped in from Russia.
Today, Europe’s energy security is under threat. The continent is under pressure to cut Russian natural gas amid criticism that it’s funding the war in Ukraine. Russian President Vladimir Putin has also threatened to cancel existing energy contracts if payment isn’t made in rubles, a move that could be a breach of sanctions.
But US President Joe Biden in March promised to deliver more liquefied natural gas (LNG) to Europe this year to help with the energy crisis — a move that could potentially provide some relief to Europe and solidify America’s role as a leading natural gas exporter in today’s market.
America’s position of strength in the gas industry stands in contrast to Europe’s vulnerability in the continent’s energy security. Here’s how the two got there.
US turned to shale as Europe turned to renewables
It wasn’t too long ago that the US had to import much of its natural gas. In 2007, America’s natural gas imports peaked, according to the US Energy Information Administration.
Less than two decades later, the US has become a net exporter of LNG, the supercooled version of the fuel that can be transported on ships. The shift can largely be attributed to the US’ large-scale deployment of fracking technology, which led to a revolution in shale gas production. The US is now jostling for position with Qatar and Australia as the world’s top LNG exporter.
The US’ development of the natural-gas market came amid a worldwide shift from coal to cleaner fuels. Even though natural gas is a fossil fuel, it’s seen as a relatively clean one when compared to coal and oil.
In contrast, natural gas output from Europe and the UK fell by more than half from 2010 through 2020 due to depletion and a conscious effort to phase out the fossil fuel. Environmental concerns also contributed to a fall in exploration activity in the North Sea and against fracking, which has been banned in some countries.
“At the same time, Russian natural gas was easily available and inexpensive so as these countries began turning from coal and nuclear, they increased their natural gas usage,” Matthew Pitzarella, a coleader of the energy industry team at law firm Buchanan Ingersoll Rooney, told Insider.
Europe is using natural gas as a bridge to full renewables
Europe wasn’t going to depend on Russian natural gas — or any other fossil fuel — forever.
The continent has vowed to be carbon neutral, producing net-zero greenhouse gas emissions, by 2050. It was looking to natural gas as a transition fuel in its trek to generating all of its energy from renewable sources like sun and wind.
At the same time, there was a global shift away from fossil fuels due to climate concerns. So energy companies became increasingly wary about long-term projects, Saudi Aramco CEO Amin Nasser told Reuters on May 23.
This led to underinvestment in traditional fuel sources to adequately ensure energy security during the transition to renewables — and that was without the Ukraine war factored into the equation.
“What happened in Russia-Ukraine masked what would have happened,” Nasser told Reuters.
Before the war in 2021, Europe was facing an energy supply crunch due to a season of weak winds last summer, Davide Oneglia, a senior economist at London-based consultancy TS Lombard, told Insider.
Europe’s energy crisis sparks rethink of transition to renewables
The supply shock from the war in Ukraine is sparking a rethink of the transition to renewable fuels.
“You always have to rely on something that can produce energy under any condition,” said Oneglia.
In a document on May 18, the European Commission said the EU would now have to burn coal for longer.
Some big investors like pension funds and endowments are also starting to look at putting money into the sector after years of shunning it.
“The energy transition is going to be more complicated,” said energy historian Daniel Yergin at the World Economic Forum in Davos on May 24, per Bloomberg. “The amnesia we had about energy security has been put aside.”