Prof. ST Hsieh
Director, US-China Energy Industry Forum
July 20, 2022
We ask this basic question because on April 27, 2022, news reported that:
European Commission President Ursula von der Leyen said the EU is working hard on a plan to hit Vladimir Putin’s regime with a new package of sanctions, as the bloc seeks to end its reliance on Russian fossil fuels.
“The sixth package of sanctions will come in due time. We’re working intensively on it,” von der Leyen told reporters in Brussels. “We are working hard not only to get rid of the coal, as we have done already, but also we are working on the topic of oil. And you have seen today the question of gas dependency on Russia.”
But the reality is that now EU has become more reliant on coal for power generation than ever. Germany is importing coal from South Africa. Further, EU will actually ban Russian oil at the end of 2022.
Clearly, her emergency plan for cutting gas usage announced today is the best indication that her sixth package of sanctions against Russian energy has backfired miserably. If so, there is no guarantee that her new gas conservation plan will work out.
Her condemnation on Putin “weaponizing energy” or “blackmailing us” sounded very naïve. First, there is a “real war” going on in Ukraine with human causalities day and night! Except nuclear weapon is excluded for now, west is supporting Ukraine with heavy and precision military equipment as Zelensky is asking more including untested weapons. Was there any agreement before the war that “energy” is excluded? Are all those sanctions improvised by EU against Russia energy not “blackmailing” Russians?
It is very unfortunate that Europe will have a very cold winter, it is a few months away. The war in Ukraine will enter the fifth month next week, is there anyone seriously working on a cease fire deal? Would a cease fire spare an energy crisis?
Europe may be ready to outbid the rest of the world for LNG, but it will NOT be sufficient to replace the supply from Russian at 35% via pipeline in 2020 (see the map below.) Further, Europe along with US, are footing the bill for Zelensky’s government at US$5+ billion every month. Plus, military equipment, ammunitions, personnel training, and refuges: EU’s pocket is not infinitely deep as the energy crisis is already biting. If her plan calls for gas conservation from this August to next March implies that the Ukraine war will last to March, 2023 i.e., for another six months at least, the global economy will go down to recession already.
The following is the comment from a US reader about her announcement:
The European Union are bereft of intelligent leadership… who’s Ursula van der Leyen? She appears like a comedian without an audience!
EU told to prepare for Russian gas shut-off
By Tom Espiner Business reporter, BBC News
The European Commission has urged countries across the bloc to cut their gas use by 15% from August to March amid fears Russia could halt supplies.
It says the target is voluntary but will become legally binding if Moscow turns off the taps this summer.
The key Nord Stream 1 pipeline from Russia to Germany has been offline for maintenance for 10 days and is due to be turned back on this Thursday.
But there are concerns Moscow will not follow through on its promise.
Adding to the uncertainty, Vladimir Putin said on Wednesday that it was not clear whether or in what condition a turbine from the pipeline would be returned in after repairs in Canada.
The Russian president said there was a risk the equipment would have to be switched off at “some point” and Nord Stream 1 would be shut down.
Russia supplied Europe with 40% of its natural gas last year, with Germany the continent’s largest importer in 2020, followed by Italy.
European Commission President Ursula von der Leyen said a Europe-wide cut-off was now a “likely scenario”.
“Russia is blackmailing us. Russia is using energy as a weapon,” she said. “Therefore, in any event, whether it’s a partial, major cut-off of Russian gas or a total cut-off of Russian gas, Europe needs to be ready.”
Energy ‘as a weapon’
The Commission said a full cut-off during winter could have a major impact on EU economies, reducing growth by up to 1.5%.
The International Monetary Fund last week warned it could plunge countries into recession, heightening an energy crisis that has sent consumer bills soaring.
The proposed 15% reduction is compared with average consumption in the same period from 2016 to 2021.
The gas that is saved would be put into storage, Ms von der Leyen tweeted.
“This is a big ask for the whole of the EU – but it is necessary to protect us,” she said.
She said that some member states are “more vulnerable” to gas supply disruption, and that EU states “all need to be ready to share gas”.
The plan has hit resistance from Poland, which has filled its gas storage to 98% of capacity and does not feel the need to cut its use.
Other countries have less stored – Hungary, for example, is at 47% of capacity.
The European Commission suggested measures governments could take to cut gas use, including compensating industries that use less and limiting heating and cooling temperatures in public buildings.
Governments should also decide the order in which they would force industries to shut down in the event of a supply emergency.
Households are classed as “protected consumers” under EU rules and would be shielded from such curbs.
EU member states will vote on the Council’s rationing plan at a meeting of energy ministers on 26 July.
Germany has already been taking steps towards gas rationing. In June the country triggered the “alarm” stage of an emergency gas plan to deal with shortages.
On Monday the International Energy Agency (IEA) called on European countries to further reduce gas consumption, saying Russia’s latest moves to restrict gas flows, along with other supply disruptions, are a “red alert” to the EU.
Fatih Birol, executive director of the IEA, said that despite efforts to reduce reliance on Russian gas, it hasn’t been enough to prevent Europe “finding itself in an incredibly precarious position today“, adding that the next few months were “critical”.
Europe is ready to outbid the rest of the world for natural gas in the race to secure winter supply
Christiaan Hetzner Wed, July 20, 2022, 8:15 AM
Europe is prepared to drive up the cost of everyone’s heating bills further if necessary in order to secure its supply of natural gas for the upcoming winter.
According to European Union officials, whatever the world market can pay for a tanker transporting a super-cooled form of the fossil fuel across international waters, Europe will be willing to top it.
So far the plan to secure a greater share in the global scramble for liquified natural gas by paying through the nose is working, said one senior figure in Brussels speaking on background.
Since suppliers around the world get a better deal with Europe over countries that either could not or would not match its bid—for example those in Asia—EU member states gobbled up an additional 21 billion cubic meters (bcm) of global LNG supply over the past six months.
Non-Russian pipeline imports over land into the EU, primarily originating from Norway, the UK, North Africa and the Caspian Sea, grew by just 14 bcm in comparison.
“Understand that we’re in the context of very high prices in Europe, and this is what is making us able to attract record levels of LNG in the first half of this year,” the person with knowledge of the plan said on Wednesday.
With colder months approaching, Brussels aims to ensure households do not need to forego on heating during the winter. The industry is expressly warned that it may be affected, however.
Currently benchmark Dutch TTF future contracts for next month delivery are trading for around $46.50 per million British thermal units (MMBtu). Europe’s willingness to dig deeper into its pockets than others around the world will likely buoy prices going forward.
“The assumptions we have for the second half of the year is this will not change,” the EU official said. “All in all, the baseline scenario is that we continue to be able to attract LNG at record levels also in the second half of the year, albeit at higher prices,” the official said.
A problem starts to arise however when other countries aren’t willing to be priced out of the market.
Nippon Steel Corp. purchased LNG for delivery in September that represents Japan’s most expensive ever cargo, traders with knowledge of the matter told Bloomberg on Tuesday. The rising cost of fossil fuels has been a key driver of inflation across the world.
Earlier this week, International Energy Agency executive director Fatih Birol urged European leaders “to do all they can right now to prepare for a long, hard winter.”
Cuts voluntary…for now
Facing what it believes is a likely total gas embargo by Russia to weaken support for Ukraine, the EU Commission proposed on Wednesday a bloc-wide reduction in demand of 15% from August through to the end of March.
Initially participation is voluntary and designed to redirect some 45 bcm of incoming supply towards the bloc’s assorted caverns, beefing up EU-wide storage levels towards its 80% target by November 1st from just 64% at present.
If at some point however there is a substantial risk of severe shortage in the gas supply or exceptionally high demand that endangers the target, then a mechanism in the EU treaty can be triggered to make it binding.
“In that case we will request the same 15% is done by all member states on a mandatory basis,” said another EU official briefed on the plans.
The aim is however to never let it get that far. Even those member states like Portugal least exposed to Russian state-owned energy giant Gazprom are deeply connected with the rest of the internal market.
EU officials believe every national government understands it and therefore has a vested economic interest in ensuring cross-border supply chains do not collapse.
This sense of shared destiny is a key lesson the bloc took away from the COVID health crisis, according to EU Commission president Ursula von der Leyen.
Today a dozen EU member states have been hit by a partial or total cut-off of Russian gas, and overall, the flow is now less than one-third of what it used to be.
“Russia is blackmailing us, Russia is using energy as a weapon,” von der Leyen told reporters on Wednesday.
To ensure EU member states unite to face down Russian president Vladimir Putin together, she added, “we have to keep the vivid memory of the pandemic alive.”