Russia Won’t Restart Nord Stream Pipeline Until Sanctions Are Lifted
Russian natural gas supply via the Nord Stream pipeline to Germany will remain shut until the Western sanctions that impede gas turbine repairs are lifted, Kremlin spokesman Dmitry Peskov said on Monday. The gas crisis in Europe took a turn for the worse at the end of last week, when Russian gas giant Gazprom said after three-day maintenance ended on Friday that Nord Stream would remain shut until “operational defects in the equipment are eliminated,” upping the ante in its gas war against Europe. On Monday, Moscow blamed the difficulties in sending gas to Europe on the Western sanctions. “The problems with gas shipments arose due to the sanctions western countries imposed against our country and several companies,” Peskov was quoted as saying by Russian news agency Interfax today. “There are no other reasons that could have caused this pumping problem,” Vladimir Putin’s spokesman added. “The sanctions bring total confusion in the legal and practical aspect of everything connected with gas turbine maintenance, and Russia now hopes that it could somehow fix the only gas turbine on the Nord Stream route, which malfunctioned last week”, Peskov added. Due to the sanctions, the entire work of the Nord Stream pipeline “depends on just one turbine which needs serious maintenance work,” he said. European governments were largely expecting Russia to not resume flows via Nord Stream once the three-day maintenance period on the pipeline ended on September 2. Most EU countries accuse Russia of weaponizing gas supply, looking to sink European economies and cause a lot of hardships to businesses and households ahead of and during the winter. The indefinite halt of all supply via Nord Stream—which was already operating at just 20% capacity before the complete stop—sent European benchmark gas prices soaring on Monday morning. Europe’s benchmark gas prices at the Dutch TTF hub surged by 30% at opening on Monday to $270 (272 euro) per megawatt-hour (MWh).
Russia Will Send More Oil To Asia After G7 Price Cap
Russia will increase its shipments of oil to Asia after the G7 finance ministers announced a price cap on Russian oil and fuels, to enter into effect from December 5 and February 5, 2023, respectively. “Any actions to impose a price cap will lead to deficit on (initiating countries’) own markets and will increase price volatility,” said Russia’s Energy Minister Nikolay Shulginov on the sidelines of the Eastern Economic Forum in Russia’s Far East, as quoted by Reuters. The G7 foreign ministers announced the price caps on Friday. Earlier that week, Russian Deputy Prime Minister Alexander Novak said that the price cap was ridiculous and that in response Russia would simply stop selling oil to countries enforcing it. A day later Kremlin spokesman Dmitry Peskov echoed the sentiment, telling media that “We simply will not cooperate with them on non-market principles.” “Energy markets are at fever pitch. This is mainly in Europe, where anti-Russian measures have led to a situation where Europe is buying liquefied natural gas (LNG) from the United States for a lot of money – unjustified money. U.S. companies are getting richer and European taxpayers are getting poorer,” Peskov also said on Friday. Peskov also said there would be retaliatory steps but provided no details of their nature. Redirecting crude oil cargos from Europe to Asia is widely seen as Russia’s one good move in this situation. It has already been doing it. The U.S. and the UK banned imports of Russian crude and fuels soon after Russia’s invasion of Ukraine. Canada was never an importer of Russian oil. The European members of the G7 are part of the EU, which greenlit an embargo on Russian oil and fuels, due to kick in later this year. Japan, however, will continue to receive Russian oil from Sakhalin-2 without capping its price because it is critical for its energy supply.
Why Europe’s Dependence On U.S. LNG Is Risky
In the current year, the United States boasts status as the world’s biggest liquefied natural gas (LNG) exporter as deliveries to both Europe–in the throes of a severe energy crisis–and Asia surge. So far in 2022, five developers have signed over 20 long-term deals to supply more than 30 million metric tons/year of LNG or roughly 4 Bcf/d, to energy-starved buyers in Europe and Asia. Europe’s desperate attempt to rid itself of Russian gas became even more urgent this week, as Moscow announced that flows through Nord Stream 1 to Germany would remain cut off until the West lifted sanctions. That desperation has resulted in Europe displacing Asia as the top destination for U.S. LNG. In fact, Europe now receives 65% of total U.S. LNG exports. But there are growing concerns that trading one dependency for another carries another kind of risk. Putting all your eggs in the U.S. LNG basket means banking on Mother Nature. U.S. LNG supplies might not be vulnerable to Russia, but they are vulnerable to extreme weather and harrowing hurricane seasons that disrupt output and exports. Europe cannot afford any more disruptions. Vulnerability in the Gulf of Mexico The bulk of LNG export facilities in the United States–including proposed facilities–are housed along the Gulf Coast, and much of the gas that feeds those facilities comes from nearby inland reserves, from New Mexico and Texas to Louisiana, and beyond. This is a region prone to hurricanes, meaning that when hurricanes come roaring inbound, everything from liquefaction to shipping and extraction to processing is at risk of disruption. It has happened before–and recently. In recent years, multiple hurricanes have resulted in varying degrees of disruption for the LNG market, with impacts stretching across the supply chain from brief outages to long layoffs of processing and shipping. Hurricane Laura in 2020 resulted in a two-week disruption at the Sabine Pass LNG export facility and well over a month at Cameron LNG. Last year, Hurricane Ida resulted in a major and long-lasting curtailment of offshore gas production. This year, a June explosion at the Texas-based Freeport LNG facility knocked nearly 20% of US LNG export capacity offline, sending LNG markets into a tailspin. Scientists say the Gulf coast hurricanes are becoming increasingly severe, causing record-breaking compound flooding and placing critical infrastructure at risk. Meanwhile, whereas the United States has the world’s largest lineup of new LNG projects in the works, there are also limits to how far this can go without more pipeline capacity to accommodate this wildly expanding energy segment. In the Appalachian Basin, the country’s largest gas-producing region churning out more than 35 Bcf/d, environmental groups have repeatedly stopped or slowed down pipeline projects and limited further growth in the Northeast. This leaves the Permian Basin and Haynesville Shale to shoulder much of the growth forecast for LNG exports. Indeed, EQT Corp. (NYSE: EQT) CEO Toby Rice recently acknowledged that Appalachian pipeline capacity has “hit a wall.” Analysts at East Daley Capital Inc. have projected that U.S. LNG exports will grow to 26.3 Bcf/d by 2030 from their current level of nearly 13 Bcf/d. For this to happen, the analysts say another 2-4 Bcf/d of takeaway capacity would need to come online between 2026 and 2030 in the Haynesville. “This assumes significant gas growth from the Permian and other associated gas plays. Any view where oil prices take enough of a dip to slow that activity in the Permian and you’re going to have even more of a call for gas from gassier basins,” the analysts have said. Mozambique To The Rescue Though it may be rather late in the game, Europe is beginning to seriously consider Africa for its future energy supplies. Most notably, Mozambique is poised to ship its first cargo of liquefied natural gas (LNG) to Europe at this critical time. This, too, is fraught with vulnerabilities in the form of political instability and insurgency. French TotalEnergies’ Mozambique LNG project has been sidelined by insurgency. Italian Eni’s Coral-Sul FLNG is safe from the violent flashpoint and on track to help serve Europe, with BP already having inked a deal to buy all of the output for 20 years from the $7-billion Coral-Sul project, designed to produce 3.4 million metric tons of LNG. The Italian company is already planning a second floating export platform in the southern African country that could be completed in less than four years. But nothing is certain here. In the heart of the insurgency, TotalEnergies has announced plans to resume its massive $20 billion project toward the end of the year, with the terminal expected to churn out 13.1 million tons of LNG annually. That is, if it ever gets past the insurgency that led to a declaration of force majeure. The project hopes to restart in the first half of next year. Optimism runs high, despite all. ExxonMobil says it will make a final decision for an even larger project in the near future. Meanwhile, the European Union has planned a five-fold increase in financial support to $15 million to fight militants near Mozambique’s gas projects. The EU has already pledged to provide the country’s army with an additional 45 million euros ($45 million) of financial support, and has so far given a SADC mission in the country 2.9 million euros of funding. Over the short-term, Europe is making headway in filling up its gas storage, and is now nine weeks ahead of where it was this time last year–even if it has come at a hefty premium. European gas storage levels are above 70%, and have even surpassed the 5-year average, according to data from Gas Infrastructure Europe (GIE). By November 1st, the EU will likely hit 80% natural gas storage capacity–just in time for peak winter demand. Germany is even aiming for 95% capacity, and is already at 85%. “The EU already surpassed its September 1 interim filling target in early July and is still on pace to reach the November 1 target,” Jacob Mandel, senior
Russia Has Earned $158 Billion From Energy Exports Since Invading Ukraine
Of the 158 billion euros ($157.6 billion) in energy exports that Russia has earned in the past six months, over half of it has been funded by the European Union, according to a report released on Tuesday by a Finnish-based think tank. The think tank’s data shows that the European Union was the top importer of Russian fossil fuels since the invasion, accounting for over 85 billion euros during that period. The organization puts China’s contribution at just under 35 billion euros, and Turkey’s at nearly 11 billion euros. “Fossil fuel exports have contributed approximately 43 billion euros to Russia’s federal budget since the start of the invasion, helping fund war crimes in Ukraine,” the Centre for Research on Energy and Clean Air (CREA) said. CREA, which keeps a running ticker on money the EU is paying for Russian energy, is calling for more effective sanctions, noting that Moscow’s “current revenue is far above previous years’ level, despite the reductions in this year’s export volumes”. While Russia’s exports are down 18% (as of August 24th) compared with a record level in February and March, with piped gas, oil product and coal exports all down, it’s not enough, says CREA, which notes that “only a small fraction of the coming impact of the EU ban on Russian oil has been realised”. The think tank notes that moves to shut out Russian coal from Europe have been effective, leaving Moscow with no alternative buyers that could fully replace the losses. However, the gradual ban on Russian oil is simply allowing Moscow to take advantage of soaring crude prices, CREA suggests. At the same time, the organization notes that no restrictions have been set on Russian natural gas. Instead, Moscow holds all the cards here over a highly dependent Europe that is at this moment grappling with the most recent move by the Kremlin to cut flows through Nord Stream 1 to Germany.
Why The Russian Oil Price Cap Won’t Work
The chances of a G7 price cap on Russian oil being remotely effective are perhaps best summed up by a recent tweet from a Bloomberg energy and commodities columnist: “My friends and I have agreed to impose a price cap on our local pub’s beer. Mind we actually do not plan to drink any beer there. The pub’s owner says he won’t sell beer to anyone observing the cap, so other patrons, who drink a lot there, say they aren’t joining the cap. Success.” First floated by U.S. Treasury Secretary Janet Yellen, the idea of capping Russian crude oil exports had a dual aim: keeping Russian oil flowing abroad, which would set a ceiling on prices, and at the same time reducing Russia’s oil revenues, which make up a sizeable portion of GDP and, according to G7, are what Russia is using to finance the war in Ukraine. The price cap idea was taken up by the G7 leaders at their meeting in June where the seven vowed to find a way to enforce it. From the beginning, the most plausible way to apply price pressure on Russia was by reducing the availability of insurance for its oil tankers unless it agreed to sell its oil at a certain price. In addition to the fact that 90% of the insurance market is in the hands of Western companies, the fact that Western companies are also some of the biggest players in the maritime shipping business was also going to be crucial for the price cap if the G7 wanted it to have any chance of success. “Today we confirm our joint political intention to finalise and implement a comprehensive prohibition of services which enable maritime transportation of Russian-origin crude oil and petroleum products globally,” the G7 finance ministers said in a statement, as quoted by Reuters. These services will be made available to Russian oil companies only if they agree to sell their oil at a price “determined by the broad coalition of countries adhering to and implementing the price cap.” And this is where the problems begin. The first problem is that Russia, contrary to what the G7 were apparently expecting, did not take this latest attempt to “defund” it lying down. Russia said plainly—twice last week—that it would not sell oil to countries with a price cap in place. “In my opinion, this is utterly absurd. And this is an interference in the market mechanisms of such an important industry as oil,” said Deputy PM Alexander Novak, who represented Russia at OPEC+. “Companies that impose a price cap will not be among the recipients of Russian oil,” a Kremlin spokesman said on Friday, adding “We simply will not cooperate with them on non-market principles.” The proponents of the price cap argue that Russia will have no choice but to comply with the price caps because of that 90% of the insurance market and because of the “broad coalition”. The truth is that the coalition is simply not broad enough to make the cap work. The coalition, despite the G7’s best efforts, does not include either China or India—Russia’s two biggest oil clients. The coalition itself is not a big importer, and two of its members—the United States and the UK—banned oil imports from Russia early on. A third one, Japan, would be quite hard pressed to enforce the price cap, too, given its dependence on any and all sorts of energy imports. It was not a surprise, therefore, that while Japan’s finance minister Shinuchi Suzuki celebrated the G7 decision, on Friday, media noted, citing a Finance Ministry official, that oil from Sakhalin-2, the Russian project, which is exported to Japan, will be excluded from the price cap. The proponents’ argument is that Russia cannot afford to stop selling oil to the G7 price cap enforcers. A skeptic might point out that Russia has already raked in much higher than normal revenues from its oil and gas exports because of the havoc wreaked on markets by Western sanctions. It could then afford to sit back and watch prices top $100 and more once again. Especially, with OPEC+ today deciding to cut production by 100,000 bpd for October in response to the price slide. But here’s the thing. Russia was reportedly not on board with a production cut. According to unnamed sources who spoke to the Wall Street Journal, Moscow sees the decision to cut output as a sign for buyers that there is plenty of oil to go around, which could “reduce its leverage with oil-consuming nations that are still buying its petroleum but at big discounts”. The G7 price cap is entering into effect on December 5 for crude oil and on February 5, pending the finalization of the price caps “based on a range of technical inputs”.
India Likely Selling Refined Russian Oil to West, Study Says
India’s fast-rising Russian oil imports are being matched by its rising oil exports suggesting it may be reselling Russia’s oil to the West, a Petro Logistics study claims. India exported an estimated 308 kb/d (thousand barrels per day) of products to nations meaning they are likely to have used Russian crude oil, it said. “Over a third of these products are being imported by countries with some form of sanctions on Russia,” the study said. “The top five countries are South Korea, Singapore, the USA, Australia, and the Netherlands.” India Ditches US Oil for Russian “Since the invasion of Ukraine in February, Indian refiners have taken advantage of steep discounts to make the country one of the largest importers of Russian oil,” the study said. Indian imports of Russian crude soared to an average of 583 kb/d from April to June 2022 following the war in Ukraine, said the study, 16 times more than 36 kb/d in 2021. In doing so, Indian companies have avoided the US dollar and are using Asian currencies to pay for Russian coal imports to avoid being tied up in sanctions. India’s trade has come at the expense of US oil sellers, it added, who sold 166 kb/d less oil to India since the war in Ukraine, a steeper decline than any other country. Biden’s Warning President Joe Biden previously told Indian Prime Minister Narendra Modi that buying more oil from Russia was not in India’s interest and could hamper the US response to the war in Ukraine. It is hard to draw any strong conclusions on which Indian imports can be precisely attributed to Russian crude, the Petro study said. Petro’s estimates suggest that America is importing Indian gasoline, Singapore is buying gasoil and South Korea purchasing nahptha, all which are likely made using Russian crude.
Reliance-BP to get ‘Ruby’ from South Korea to boost KG-D6 gas output
Ruby, a floating production storage and offloading vessel destined for Reliance Industries Ltd’s MJ deep-water oil and gas development project in KG-D6 block, has set sail from South Korea, partner BP plc’s CEO Bernard Looney said. MJ is the third and last of a set of discoveries that Reliance and its partner BP of UK are developing in the eastern offshore block. The two will use a floating production system at high-sea in the Bay of Bengal to bring to production the deepest gas discovery in the KG-D6 block. “‘Ruby’ has just set sail for the 5000-km journey from South Korea to Kakinada, India where she’ll help ramp up domestic gas production. “I’ve been in this industry for many (many) years but the sheer size and engineering genius of vessels like this still amazes me. A big thanks to the teams at bp and Reliance Industries Limited, for making this happen safely and efficiently,” Looney wrote in a LinkedIn post. The MJ-1 gas find is located about 2,000 metres directly below the Dhirubhai-1 and 3 (D1 and D3) fields — the first and the largest fields in KG-D6 block. MJ-1 is estimated to hold a minimum of 0.988 Trillion cubic feet (Tcf) of contingent resources. The field also has oil deposits which would be produced using a floating system, called FPSO. “It is indeed a big achievement for the JV and we will not only increase gas production for the people of India, we will help the nation save close to USD 10 billion in import costs! “On full operations we will be close to 30 per cent of India’s gas production. This is a true proud moment for me and my extended RIL-bp team in India,” Sashi Mukundan, bp India head, said replying to Looney’s post. The Ruby was built by South Korea’s Samsung Heavy Industries, with the engineering, procurement, construction and installation contract awarded in 2019. The double-hulled vessel has a crude production capacity of 60,000 barrels per day and about 12.7 million cubic metres per day of gas. Reliance and BP are spending about USD 5 billion on further development of KG-D6 through three different projects in block KG-D6 — R Cluster, Satellite Cluster and MJ — which together are expected to produce around 30 million standard cubic metres per day of natural gas by 2023. R-Cluster started production in December 2020 and the Satellite Cluster came onstream in April last year. MJ is expected to come on stream before the end of the year. While R-Cluster has a plateau gas production of about 12.9 mmscmd, Satellite Cluster will have a peak output of 6 mmscmd. The MJ field will have a peak output of 12 mmscmd. Combined gas output from the R-Cluster and Satellite Cluster stood at more than 19 mmscmd during April-June quarter, according to Reliance. Oil-to-telecom conglomerate RIL has so far made 19 gas discoveries in the KG-D6 block. Of these, D-1 and D-3 — the largest among the lot — were brought into production from April 2009 and MA, the only oilfield in the block, was put to production in September 2008. While the MA field stopped producing in 2019, the output from D-1 and D-3 ceased in February 2020. Other discoveries have either been surrendered or taken away by the government for not meeting timelines for beginning production. Reliance is the operator of the block with a 66.67 per cent participating interest and BP holds a 33.33 per cent stake.