Prof. ST Hsieh
Director, US-China Energy Industry Forum
626-376-7460
July 21, 2022
The future of Europe’s natural gas supply is not secure, but it is not fair to put all the blame on Vladimir Putin alone. The European Commission and regional political leaders should share some of the blame, they should bear the responsibility of this imminent crisis.
Case in mind is how the energy crisis started and why it is getting so desperate so quickly? Putin is labeled as an autocrat or dictator by the west, and the Russian government is supposed to falling apart in front of people’s eyes. While European Commission is a symbol of democracy, and it is a near perfect system. Europeans used to lecture the US, not to mention how proudly they demand the rest of the world to emulate their governance!
So, the BIG question is somehow now Putin as a single person is doing better than all the European politicians combined wisdom? If it is true, should the European Commission resign en masse and let younger generation take over?
Of course, Putin wants to keep Europe in “perpetual panic,” why not? Just look at the EU’s seventh tranche of sanctions being applied to Russia with the intention of kicking Putin out of the Kremlin! But whether and when Europe should build up its gas reserve is European Commission’s call. Specifically, European Commission should have a reasonable road map and convince their member states to agree/accept. Pain sharing is tough!
However, we do not believe Putin will completely cutoff energy supply to Europe. Because the downside would be a collapsed European economy with a severe global recession. It would be a perfect storm for “demand destruction” such that energy price will collapse too. It is obvious that Russia is pocketing huge profit from supplying Europe with expensive energy, which in turn keeps Russian economy floating as well as paying for the war in Ukraine. In addition, Russia can afford to sell energy to Asian market at a deep discount.
The challenges faced by Europeans are not only paying for Russian energy at an elevated price every day, but they also have to pay Ukrainians for keep the war in Ukraine going every day!
Is it time for a cease fire effort?
Brian Evans Thu, July 21, 2022, 7:24 AM
- Russian President Vladimir Putin doesn’t want Europe to build up its gas reserves ahead of winter, a top energy analyst said.
- “He wants to keep the continent in perpetual panic,” Helima Croft, global head of commodity strategy at RBC, told CNBC.
- She expects Russia to make further cuts to European gas deliveries, calling Thursday’s Nord Stream restart a temporary reprieve.
While gas flows through the pipeline have resumed at 40% of capacity, the Kremlin could later cut it to 20% to turn the screws further on Europe, which has accused Russia of weaponizing energy in retaliation for its sanctions after Putin launched a war on Ukraine.
“He wants to keep the continent in perpetual panic,” Helima Croft, global head of commodity strategy at RBC Capital Markets, told CNBC. “He wants to remain in the driver seat of this crisis.”
To be sure, Europe is preparing for reduced gas flows. On Wednesday, the European Commission proposed a 15% cut in EU gas consumption that could become mandatory if the energy situation worsens.
Croft added that Europe will have a difficult time maintaining unity as countries look to ration gas supplies.
She noted that Greece, Spain and Portugal have already raised concerns over the proposed 15% cut, with Spain suggesting it shouldn’t bear as heavy a burden on rationing.
“Germany is going to bear the brunt of this — 50% of German consumers use gas to heat their homes, and so this is going to be a real challenge for Germany when they have to think about rationing,” she said.
EU plan to curb gas use faces opposition from countries
Kate Abnett Thu, July 21, 2022, 5:41 AM
BRUSSELS (Reuters) – A European Union proposal that member countries cut gas use by 15% to prepare for possible supply cuts from Russia is facing resistance from governments, throwing into doubt whether they will approve the emergency plan.
The European Commission proposed on Wednesday that all 27 EU countries use 15% less gas from August to March compared with the average over the last five years. The target would be voluntary, but the EU could make it mandatory if Brussels declares a substantial risk of gas shortages.
At a meeting of EU national diplomats on Wednesday, at least 12 of the 27 member states raised concerns about the proposal, five EU officials with knowledge of the meeting told Reuters.
The main sticking point is whether the EU should have the power to make the targets binding. Denmark, France, Ireland, Italy, Malta, the Netherlands, Poland and Portugal were among the states that said Brussels should not be able to do this without first giving countries a say – and possibly a veto.
“Member states want to have the ability to trigger crisis mechanisms themselves. This is not something they’re very keen on giving away to the Commission,” one EU official said.
Under the proposal, the Commission would consult the bloc’s Gas Coordination Group of country representatives before making the target mandatory.
National diplomats will discuss it on Friday, with the aim that their energy ministers approve it at an emergency meeting on Tuesday. It needs approval from a reinforced majority of at least 15 EU countries to become law.
Yet so far, EU countries have cut their combined gas demand by just 5%, despite months of dwindling Russian supplies and soaring prices, EU energy policy chief Kadri Simson said on Wednesday.
Still, some countries say imposing the same target on every country is not the right approach.
Italy, Poland Raise Concerns About EU Proposal to Cut Gas Use
Jorge Valero and Joao Lima Thu, July 21, 2022, 4:41 AM
(Bloomberg) — Italy, Poland and Hungary have raised concerns about the European Union’s proposal for the bloc to cut its natural gas consumption, adding to Spain and Portugal’s public opposition to the plan.
Italian, Polish and Hungarian envoys had significant reservations about the idea presented by the European Commission on Wednesday to reduce gas use by 15% over the next eight months, according to people familiar with the discussions.
The EU plan would affect all households, power producers and industry, and reflects mounting concern that Russia could halt gas exports to the region in retaliation for sanctions following its invasion of Ukraine. A cutoff would threaten EU efforts to replenish stockpiles ahead of winter, potentially jeopardizing security of supply to key sectors and crippling the region’s economy well into next year.
Portugal is completely against the EU proposal, Secretary of State for Energy Joao Galamba told newspaper Expresso. The country has had to increase natural gas consumption for power generation this year due to low hydropower production amid a drought, and the EU plan is “unsustainable” as it would leave Portugal with no electricity, according to Galamba.
Spain cannot endorse the Commission’s proposal, which ignored key economic and social consequences of Europe-wide rationing, Deputy Prime Minister Teresa Ribera said on Wednesday. She added that cutting gas consumption will force the country to reduce electricity output and halt gas exports to the rest of the continent.
“The commission’s proposal can be the starting point, because it is certainly not the point of arrival,” Ribera said.
LNG Dependence
Portuguese oil company Galp Energia SGPS SA buys LNG from producers including Nigeria, and utility EDP-Energias de Portugal SA gets LNG shipments from Cheniere Energy Inc. in the US and from Trinidad and Tobago through long-term contracts. Spain has also been relying more on LNG shipments, which in June represented almost 77% of its gas imports.