Prof. ST Hsieh
Director, US-China Energy Industry Forum
March 25, 2022
A major achievement of Biden’s summit in Europe is the following announcement. Even though Biden and EU meant to discuss the ending of Ukraine war which entered the 5th week: the war goes on.
The root-cause of the Ukraine war is EU’s dependence of Russian energy. It is also a well-known fact, and it should not be a surprise. With the bloody war, the dominance of Russian energy becomes a front-line red-hot issue. On the one-hand, US-led alliance sanctions on Russia as a punishment of the war with the intention of collapsing Russian’s economy as soon as possible and as long as possible. On the other hand, EU can’t afford to completely cutoff Russian energy in the near term. In fact, the sanctions applied to Russia do not include energy sectors and Russian oil and gas still flow to Europe as the war goes on.
The announcement of a “US-EU partnership” on energy is factual than many headlines that “US and EU sign a deal on energy!” There is no deal because there is now quote on price as well as delivery schedule. It is nothing but a plan or a letter of intent at most.
In fact, many infrastructure projects will need investments as well as construction schedule such as LNG receiving terminals, distributing pipelines etc. The most significant challenges are:
- Oil and gas production capacity, transportation capacity, all take time to assembly.
- Global supply and demand balance: cost which is dynamic no one can predict the future with precision.
- Energy security is not an overnight issue or one-on-one deal. There is also no free lunch.
Biden and allies announce partnership to cut Europe’s dependence on Russian oil.
ETFirst Published: March 24, 2022 at 3:54 p.m.
Analysts say Biden administration is ‘combining voluntary actions with some potentially creative legal authority’
U.S. President Joe Biden and European officials on Friday announced a new partnership to increase shipments of natural gas from the U.S. and its partners to Europe, as they aim to reduce that continent’s reliance on Russian energy products.
The move comes as Biden this week took part in a range of meetings in Europe that are focusing on responses to Russia’s ongoing invasion of Ukraine.
Under the plan announced by Biden and European Commission President Ursula von der Leyen in a statement, the U.S. will boost its liquified natural gas shipments (LNG) to Europe and source other gas from partner nations to total a 15-billion- cubic-meters increase for 2022, with “expected increases going forward.”
The partnership would also see both sides aim to stay on track with climate goals, by cutting greenhouse gas intensity of all new LNG infrastructure and associated pipelines. Those efforts would include using clean energy to power onsite operations, cutting methane leakage and building clean and renewable hydrogen-ready infrastructure.
Von der Leyen said it plans to work with member states towards a goal of ensuring, at least until 2030, demand for around 50 billion cubic meters per year of additional LNG. Prices would reflect long-term fundamentals and stability of supply and demand.
Jake Sullivan, Biden’s national security adviser, told reporters on Wednesday that the subject of cutting European dependence on Russian natural gas “has been the subject of intense back and forth over the course of the past few days and weeks.”
Analysts had their own ideas ahead of that announcement on what kind of new measures could be announced in natural gas NG00, +2.41%.
“We suspect that the Biden Administration is combining voluntary actions with some potentially creative legal authority to introduce some near-term shipments of U.S. LNG while much larger efforts are finalized,” said analysts at Height Capital Markets in a note on Thursday. “For several months, the Biden Administration has been reaching out to global suppliers and importers of LNG for ways to redirect cargos to Europe if needed.”
Analysts at Evercore ISI said their sense is the new effort will be “building on some organic moves by private parties to redirect gas shipments to Europe to take advantage of higher prices, even when it means breaking existing contracts.”
“We also see growing signs that the EU’s move to sanction or punitively tax Russian oil may come sooner rather than later, even as Germany holds the line for now against any similar move on gas,” the Evercore team added.
EU signs gas deal with US, but hefty bill for European taxpayers
By GT staff reportersPublished: Mar 25, 2022 09:54 PM
The European Union (EU) on Friday struck a major deal on liquefied natural gas (LNG) with the US, a move that will come with a hefty bill for European taxpayers, while huge profits for US LNG producers who have long been seeking buyers amid intense competition from Russia.
Observers said since the US LNG cannot cover the gap Russia gas has left in the short term, it’s possible that some European countries may need to turn to other options such as coal to meet winter demand.
According to a White House statement, the US and the European Commission will immediately establish a joint Task Force on Energy Security to set out the parameters of this cooperation and execute its implementation. The US will provide the EU with at least 15 billion additional cubic meters of LNG by the end of the year.
The statement did not specify how much the EU will pay the US for the LNG, while saying the European Commission will work with EU member states toward ensuring a stable demand for additional US LNG until at least 2030 of approximately 50 bcm/annum, on the understanding that the price formula of LNG supplies to the EU should reflect long-term market fundamentals.
Industry players warned that for EU countries, higher costs may come from everywhere.
US LNG is not an ideal option for the EU. It’s a forced choice that the bloc has to resort to in the current situation, Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University, told the Global Times on Friday.
Observers said the logistics cost of LNG within the EU is also a problem. The existing LNG terminals are largely distributed in Spain, and the degree of interconnection between countries is not high. Urgent actions are needed to strengthen existing facilities and immediate investment.
Belgium-based Bruegel, an economics research institute, estimates that the short-term cost of reducing the EU’s energy dependence on Russia may reach 100 billion euros ($110.05 billion) – 50 billion euros for replenishing natural gas reserves, 25 billion euros for additional costs of importing non-Russian gas, and 25 billion euros for internal distribution costs in the EU.
Who will pay the costs and how they would be shared also remain a problem within the EU, observers said.
But for the US, it’s a great deal since it now has “defeated” its biggest competitor Russia, and found a solid buyer for its LNG products, making it again the biggest beneficiary of the crisis, Zhao Junjie, a research fellow at the Chinese Academy of Social Sciences’ Institute of European Studies, told the Global Times on Friday.
“Through the pact, the US now successfully ‘kidnapped’ the EU to take on its boat, and paid the cost for the crisis it created,” Zhao said.
US exporters have shipped record volumes of LNG to Europe for three consecutive months, as prices have jumped more than 10 times than a year ago. Europe is competing in global markets for tight LNG supply, according to a Reuters report.
The pact, announced during a visit by US President Joe Biden to Brussels, follows a day of three summits in the city where leaders lambasted Russia on the Ukraine crisis. “We’re coming together to reduce Europe’s dependence on Russia’s energy,” Biden told reporters.
The US has also been lobbying the EU to sanction Russian oil and gas directly. European countries still remain divided on the “suggestion.” Poland and Latvia are among the countries seeking to halt the hundreds of millions of euros per day Europe pays Russia for fossil fuels. Germany, which receives 18 percent of Russia’s gas exports, and Hungary are among those opposed, citing the economic damage an oil embargo would unleash.
Russia supplies 40 percent of the EU’s collective gas needs, 27 percent of its oil imports and 46 percent of coal imports.
“It’s hard for the EU to say farewell to Russia’s gas supply,” Zhao said.
OPEC officials tell EU of unease about proposed ban on Russian oil, sources say
Thu, March 24, 2022, 5:18 AM
By Alex Lawler
LONDON (Reuters) – OPEC officials believe a possible European Union ban on oil from its partner Russia over the invasion of Ukraine would hurt consumers and the group has conveyed its concerns to Brussels, OPEC sources said.
Major OPEC members, such as Saudi Arabia and the United Arab Emirates, have tried to navigate a neutral course between the West and Moscow, while OPEC+, a grouping that includes Russia, has steered clear of the Ukraine issue in its policy meetings.
The EU, which relies heavily on Russian crude, has already imposed tough sanctions on Russia, including freezing its central bank’s assets. The bloc has been discussing whether and how to put sanctions on Russia’s energy industry.
OPEC officials including Secretary General Mohammad Barkindo met EU Energy Commissioner Kadri Simson on March 16 to discuss the “extraordinary times” for the energy market, Simson said on Twitter.
One of the OPEC sources said the group’s concerns were made clear to the EU. “They are very well informed,” said the source, declining to be identified.
Asked for comment on the March 16 meeting, an EU official said: “OPEC presented their analysis of the oil market situation and informed us of their plans in terms of oil production.”
“As we have consistently said, nothing is off the table in terms of future sanctions,” the EU official said.
OPEC’s headquarters in Vienna did not immediately respond to a request for comment.
EU’s biggest economy Germany blocked Russian coal ban, sources say
Francesco Guarascio Fri, March 25, 2022, 6:23 AM
BRUSSELS (Reuters) – In the early stages of sanctions drafting against Moscow, one idea gained traction in Brussels – a ban on the import of Russian coal – until the European Union’s biggest economy Germany struck it down, two sources told Reuters.
Before Russia invaded Ukraine, but was amassing troops, EU policymakers began in December to work on new sanctions and presented a first list of possible measures to EU countries in January.
It avoided most energy imports because of the EU’s dependency on Russian fossil fuels, especially gas and oil.
But it included a ban on coal, two European diplomats familiar with the plan told Reuters on condition of anonymity.
The aim was to show Moscow the EU was serious about energy sanctions, which are the most divisive because they directly hit the EU economy as well as the Kremlin, one of the officials said.
The measure would also have been in line with EU climate policy, which has long targeted coal as among the most polluting energy sources that must be phased out.
But Germany, the EU country most reliant on coal imported from Russia, objected, the officials said.
Germany’s permanent representation to the EU, which directly handles negotiations on EU sanctions, declined to comment on the matter.
When a first round of sanctions was approved on Feb 24, the day Russia began the invasion it describes as a “special military operation”, there was no sign of a coal ban.
It has also been absent from three successive rounds of EU sanctions that targeted Russian banks, oligarchs, steel and defence.
As the EU edges towards securing alternative energy supplies, including through a deal on U.S. gas, Germany could be shifting its position.
Germany’s economy ministry Robert Habeck said on Friday that Berlin had reduced its dependence on Russian coal and hoped to cease all coal imports by the autumn..
EU leaders have also discussed a ban on Russian oil, but countries, including Germany, have criticised that idea too and opposition to halting Russian gas imports, which provide around 40% of EU needs, is even less popular, officials have said.
In 2020, Berlin was by far the EU’s largest importer of coal from Moscow, especially thermal coal used to generate electricity, data from the EU think tank Bruegel based on statistics from Eurostat show.
The sources said that the idea for a coal ban was in its early stages when Germany blocked it. There had not been a formal document detailing import restrictions, but the issue had been made “crystal clear” to Germany, one source said.
In the bilateral talks that followed, Germany said it could not support that plan, the officials said.
“It was not a clear veto” from Berlin, one diplomat said, but “that was enough to keep it out of the proposed packages”.