IEA Chief: Europe Must Cut Gas Usage 20% To Survive Winter
After calling on all member states to reduce gas consumption by 15% in the face of the threat of a complete Russian gas cutoff, the IEA says the European Union will need to cut even more in order to get through the winter. “Even if there is no single accident… #Europe still needs to reduce its gas consumption about 20% compared to today in order to have safe and normal winter months,” IEA chief Fatih Birol said, issuing what he called a “red alert” for energy markets. The short-term issue with the Nord Stream 1 pipeline may have been resolved, Birol told CNN, but “it’s too early to be happy about this”. The amount Europe is receiving now from Russia is only about one-third of what it was receiving prior to the force majeure, and the IEA chief warned that even that reduced flow “can be cut anytime”. After a 10-day pause for regular maintenance, Russian gas flows via Nord Stream resumed on Thursday morning, with orders for gas set at around 40% of Nord Stream’s capacity, the level from before the maintenance after Russia slashed flows in mid-June. Flows early on Thursday were at around 21.5 GWh, compared to 30GWh prior to the start of maintenance on July 11th, and compared to 70 GWh before Russia reduced supplies by 60% on June 13th. On Wednesday, the European Commission unveiled measures for the bloc to conserve gas to pre-empt a Russian cutoff, asking member states to reduce consumption by 15% until next spring. According to Birol, this won’t be enough to ensure a smooth winter for Europe, and there is no alternative to consumption reductions. Even assuming that the current Russian gas flow is maintained, and considering all the LNG Europe is getting from the United States and elsewhere, plus other natural gas sources, and even if there are no accidents that hamper supply, Europe still needs to reduce more, starting now, Birol said. There is not enough gas around the world for Europe to rely on, the IAE chief said, and there is no choice but to reduce consumption to avoid shortages and rationing this winter. If the bloc waits, and fails to adopt a coordinated method, once we get into the winter months, the measures will be “more drastic”. Birol is calling on Europe to develop an emergency plan, noting that Germany is the most vulnerable, followed by Italy and some Eastern European countries.
Spain, Portugal, Greece Reject EU 15% Gas Usage Cut
Further cracks in a united front to tackle an energy crisis in Europe have arisen Thursday, with Spain, Portugal and Greece rejecting the bloc’s plan to reduce natural gas consumption by 15% between this August and next Spring. Just hours after a dire warning by IEA chief Fatih Birol that Europe would need a 20% cut in consumption to make winter tolerable, officials in Madrid and Lison said they would not support the 15% initiative in the face of a potential Russian gas cutoff. According to both Spain and Portugal, mandatory reductions are unfair, particularly considering that both countries use far less Russian gas than other European Union member states. “We will defend European values, but we won’t accept a sacrifice regarding an issue that we have not even been allowed to give our opinion on,” Spain’s Ecological Transition Minister Teresa Ribera said, as reported by the Associated Press on Thursday. “Not matter what happens, Spanish families won’t suffer cuts to gas or to the electricity to their homes,” the official added, noting that complying with such a mandatory EU measure “would serve for nothing if the gas that could not be used by Spanish industries could not then later be used by the homes or industries of other countries”. Speaking to Xinhua, Spain’s minister for ecological transition, Teresa Ribera, described gas consumption in Spain as reasonable. “We want to help, but we also want to be respected,” Ribera said, adding that “a disproportionate sacrifice cannot be imposed on us”. Likewise, Greece, which relies on Russia for some 40% of its gas, has objected to the EU plan, issuing its own contingency measures. Greece has been spared any disruptions in natural gas supplies, largely thanks to efforts to import large volumes of LNG, Reuters reports. Instead, Greece is proposing a EU cap mechanism on wholesale gas prices and joint gas purchases as a “European solution”, Reuters cited government spokesman Giannis Oikonomou as saying Thursday.
The Companies Taking Advantage Of America’s LNG Boom
Over the past few years, dozens of U.S. midstream companies have set their sights on natural gas pipelines and export terminals as the U.S. natural gas and LNG markets explode while crude oil pipeline capacity continues to exceed production. Natural gas projects are expected to be the fastest growing pipeline sector as production rises and shippers find new customers in Europe and Asia. Now, as analysts tell Reuters, it’s all about boosting U.S. capacity and adding new pipelines to transport natural gas to LNG export terminals. “Everybody has pretty much given up on ever doing another long-haul pipeline anywhere outside of Texas and, maybe, Louisiana,” Bradley Olsen, lead portfolio manager for Recurrent Investment Advisors’ midstream infrastructure strategy, has told Reuters. Europe’s natural gas demand has skyrocketed as the EU tries to lower its reliance on Russian natural gas following its invasion of Ukraine. Europe has displaced Asia as the top destination for U.S. LNG, and now receives 65% of total exports. The EU has pledged to reduce its consumption of Russian natural gas by nearly two-thirds before the year’s end, while Lithuania, Latvia, and Estonia have vowed to eliminate Russian gas imports outright. The European gas crisis has only deepened after Russia cut off the gas supply to Poland and Bulgaria, ostensibly for failing to pay for gas in roubles, sending European gas prices soaring. The move marks a ratcheting up of tensions and could reduce supplies to Europe, as many pipelines pass through Poland en route to the rest of the continent. Adding to supply woes, Russia’s Nord Stream 1 pipeline that supplies Germany has gone offline for scheduled maintenance. While it partially resumed operations on July 21st, Europe feared that it could be delayed for political leverage. Not surprisingly, Europe has become the top importer of U.S. LNG, taking about 65% of U.S. exports. The U.S. Energy Information Administration (EIA) has forecast that the United States will surpass Australia and Qatar to become the world’s top LNG exporter this year, with LNG exports continuing to lead the growth in U.S. natural gas exports and average 12.2 billion cubic feet per day (Bcf/d) in 2022. The United States currently ranks second in the world in natural gas exports, behind only Russia. According to the EIA, annual U.S. LNG exports are set to increase by 2.4 Bcf/d in 2022 and 0.5 Bcf/d in 2023. The energy watchdog has forecast that natural gas exports by pipeline to Mexico and Canada will increase slightly, by 0.3 Bcf/d in 2022 and by 0.4 Bcf/d in 2023, thanks to more exports to Mexico. In contrast to natural gas, crude oil pipeline capacity continues to far exceed production. Currently, there are ~8 million barrels per day of Permian crude pipeline capacity, significantly more than the 5.5 million bpd of production, according to EIA and Morningstar figures. Natural Gas and LNG Projects The pivotal Permian Basin is preparing to unleash a torrent of gas and gas projects to meet exploding LNG and natural gas demand – coming just in time, given that limited takeaway capacity is expected to start being keenly felt in 2023, which could lead to negative pricing in the basin. Energy Transfer LP (NYSE: ET) is looking to build the next large pipeline to transport natural gas production from the Permian Basin. Energy Transfer has also started building the Gulf Run pipeline in Louisiana to move gas from the Haynesville Shale in Texas, Arkansas, and Louisiana to the Gulf Coast. Energy Transfer is expected to report Q2 earnings on 3rd August 2022. The consensus EPS forecast for the quarter, based on five analysts as per Zacks Investment Research, is $0.28 compared to $0.20 for last year’s corresponding period. Back in May, a consortium of oil and natural gas firms, namely WhiteWater Midstream LLC, EnLink Midstream (NYSE:ENLC), Devon Energy Corp. (NYSE: DVN), and MPLX LP (NYSE: MPlX) announced that they had reached a final investment decision (FID) to move forward with the construction of the Matterhorn Express Pipeline after having secured sufficient firm transportation agreements with shippers. According to the press release, “The Matterhorn Express Pipeline has been designed to transport up to 2.5 billion cubic feet per day (Bcf/d) of natural gas through approximately 490 miles of 42-inch pipeline from Waha, Texas, to the Katy area near Houston, Texas. Supply for the Matterhorn Express Pipeline will be sourced from multiple upstream connections in the Permian Basin, including direct connections to processing facilities in the Midland Basin through an approximately 75-mile lateral, as well as a direct connection to the 3.2 Bcf/d Agua Blanca Pipeline, a joint venture between WhiteWater and MPLX.” Matterhorn is expected to be in service in the second half of 2024, pending regulatory approvals. WhiteWater CEO Christer Rundlof touted the company’s partnership with the three pipeline companies in developing “incremental gas transportation out of the Permian Basin as production continues to grow in West Texas.” Rundlof says Matterhorn will provide “premium market access with superior flexibility for Permian Basin shippers while playing a critical role in minimizing flared volumes.” Matterhorn joins a growing list of pipeline projects designed to capture growing volumes of Permian supply to send to downstream markets. Early this month, WhiteWater revealed plans to expand the Whistler Pipeline’s capacity by about 0.5 Bcf/d, to 2.5 Bcf/d, with three new compressor stations. Although the companies have not divulged the cost and revenue estimates of the Matterhorn, a project of that magnitude is likely to provide years of predictable cash flows to these producers–which, incidentally, are all high-dividend payers. Oklahoma-based Devon, one of the Permian’s top producers, recently said it expects Permian production to reach nearly 600,000 boe/d in the second quarter. The new pipeline will help support the company as it increases its production in the Permian in the coming years. DVN stock currently yields (Fwd) 7.3% and has returned 54.3% year-to-date. MPLX has several other expansion projects under construction. The company says it expects to finish construction on two processing plants this year, and recently reached
India Sees Renewables Boom Amid Global Energy Crisis
Rising clean energy investments and an expanding offshore wind sector are pointing toward a new renewable energy boom in India, as the falling cost of clean technologies paired with the global energy crisis siphons investment away from fossil fuels. “The Russia-Ukraine war has driven up the prices of imported coal and gas and is adding strain to the dispatchability of high-cost power,” writes energy economist Vibhuti Garg for the Institute for Energy Economics and Financial Analysis (IEEFA). “Renewable energy combined with energy storage systems such as battery storage and pumped hydro have become a cheaper source of electricity to meet electricity demand round the clock.” That shift “will actually hasten the energy transition,” India’s Power and Renewable Energy Minister Raj Kumar Singh told Bloomberg Green. “Once you have round-the-clock renewables, that’s renewables plus storage, that are viable, then that’s the end of the story for fossil fuels.” A report released by Garg in June showed a record US$14.5 billion in renewable energy investment in India for the 2021-22 fiscal year—a rise of 125% from the year before, and a 72% increase from pre-pandemic levels. Acquisitions accounted for 42% of total investments, and most of the other big deals were packaged as bonds, debt, joint ventures, equity investment, and mezzanine funding—a hybrid of debt and equity financing. General renewable energy accounted for 54% of the investments and solar comprised 42%. The remaining money was directed to rooftop solar (2%), green energy finance (1%), and wind (1%). Garg expects renewables to maintain their current growth trend in India, but she says government action is necessary to decarbonize “hard-to-abate sectors” like fertilizer production and petroleum refining, where green hydrogen consumption could be accelerated. The government could also hasten growth in key areas like energy storage by setting time-based targets. Garg adds that India’s ministry of renewable energy has revived its 2015 offshore wind power goals with a roadmap to install 30 gigawatts by 2030. “With offshore project costs falling globally, it’s the right time for this move,” she writes. Globally, offshore wind is emerging as a new and viable clean energy solution. China alone installed 16.9 gigawatts of new capacity in 2021, amounting to 30% of the global total. So far, the high cost of offshore wind compared to onshore wind and solar has held back progress in India, says the Financial Express. But offshore turbines will play an important part in decarbonizing India’s power sector, managing peak demand, and adding resource diversification benefits. As offshore wind emerges as a viable energy source worldwide, successful development of other renewable energy projects in India would give investors confidence to invest more to expand the sector. Rising investment in offshore wind would, in turn, help the country sustainably address its rising electricity demand. “Even with higher tariffs today, offshore wind power provides energy security against shocks from the price volatility of fossil fuels,” the Financial Express writes.