Biden Says Saudi Arabia Will Face Consequences For OPEC+ Decision
There will be some consequences for Saudi Arabia for its decision together with Russia to steer OPEC+ into a large oil production cut, U.S. President Joe Biden told CNN in an exclusive interview on Tuesday. It is time the U.S. rethinks its relationship with Saudi Arabia after the Kingdom, together with Russia, decided at last week’s OPEC+ meeting to slash oil production by the most since 2020, President Biden said. “I am in the process, when the House and Senate gets back, they’re going to have to – there’s going to be some consequences for what they’ve done with Russia,” President Biden told CNN’s Jake Tapper. Last week, OPEC+ announced the biggest cut to its collective target since 2020. Despite insistence from Russia and all of OPEC+ that the production cut is based on technical market assessments and is aimed at “stability,” many analysts, as well as the White House, saw the move as a political one. Late on Monday, U.S. Democratic Senator Bob Menendez, chairman of the U.S. Senate Foreign Relations Committee, blasted Saudi Arabia for announcing the oil production cut and called for an “immediate” freezing of U.S. cooperation with the Kingdom, including arms sales. Asked about whether he would consider freezing arms sales to Saudi Arabia, President Biden told CNN, “I’m not going get into what I’d consider and what I have in mind but there will be consequences.” President Biden also reiterated his insistence that he didn’t visit Saudi Arabia this summer to beg for more oil. “I didn’t go about oil, I went about making sure that we made sure that we weren’t going to walk away from the Middle East,” he said. The President’s comments come after several prominent Democrats, including Senator Menendez, called for a re-evaluation of the U.S. relationship with Saudi Arabia. The White House has criticized the Kingdom for “aligning with Russia” and for the “disappointing and short-sighted” decision to cut oil production.
IMF Recession Warning Deals Blow To Oil Prices
Crude oil prices extended their slide after the International Monetary Fund reported an update to its global economic projections for this year, which deepened fears of recession. In the latest edition of its World Economic Outlook, the IMF said that global economic growth will slow from 6 percent in 2021 to 3.2 percent this year, while inflation rises from 4.7 percent to 8.8 percent this year. As a result, “Risks to the outlook remain unusually large and to the downside. Monetary policy could miscalculate the right stance to reduce inflation. Policy paths in the largest economies could continue to diverge, leading to further US dollar appreciation and cross-border tensions. More energy and food price shocks might cause inflation to persist for longer,” the Fund said. Central banks’ approach to handling inflation appears to be of particular concern to the International Monetary Fund, with the report suggesting that the “soft landing” promoted so actively by Fed chairman Jerome Powell and other senior officials might not, in fact, materialize. The threat of a recession in the world’s wealthiest economies is a very real one, according to the Fund, with emerging nations suffering a debt crisis as a result of these economic developments. No wonder, then, that oil prices slid fast after the publication of the report, after getting buoyed by the decision of OPEC+ to reduce the supply of oil by about 1 million bpd, formally by 2 million bpd. At the time of writing Brent crude was trading at $93.82 per barrel, after topping $97 per barrel earlier this week. West Texas Intermediate was changing hands for $88.77 per barrel, after trading above $90 per barrel following OPEC+’s decision. That said, as OPEC officials have warned, the supply of oil remains constrained. Inflation and dollar appreciation would no doubt cause demand destruction but with its decision to cut production OPEC+ effectively put a floor under oil so it’s unlikely we’ll see a crash similar to the one we witnessed in the first year of the pandemic.
India to weigh Russia’s offer on Sakhalin-1 oil project
India maintains a “healthy dialogue” with Russia and will look at what is offered following an announced ownership revamp to the Sakhalin-1 oil and gas project, Petroleum Minister Hardeep Singh Puri has told the Reuters news agency. Russia last week issued a decree allowing it to seize Exxon Mobil’s 30 percent stake and gave a Russian state-run company the authority to decide whether foreign shareholders, including India’s ONGC Videsh, can retain their participation in the project. “We’ll look at what is the state of play and what’s on offer,” Puri told Reuters on Monday following meetings with United States oil executives in Houston, Texas. India is “actively monitoring” Saudi Arabia’s Asia premium over oil prices after OPEC+ last week agreed to cut oil production by 2 million barrels per day beginning next month, Puri said. “At the end of the day, consumers start playing a role when situations like this evolve,” he said referring to the global energy balance and the “unintended consequences” of the OPEC+ decision. Too-high oil prices could exacerbate inflation and tip the global economy into recession, reducing oil demand, he added. On the proposed European Union price cap on Russian oil purchases, Puri suggested it is not yet firm. “If the Europeans come with a plan, let’s see how it evolves,” he said. Puri this week met US Energy Secretary Jennifer Granholm and Energy Security Adviser Amos Hochstein in Washington, DC, where they discussed collaborations on biofuels and clean energy in addition to energy security. “At no stage have we ever been told not to buy Russian oil,” Puri said, referring to talks with officials on global energy supplies. In Houston, he met executives from Exxon Mobil, oilfield service provider Baker Hughes and liquefied natural gas producers after launching a bidding round for offshore oil and gas exploration areas.
Russia’s alternative to Nord Stream 2, a gas pipeline to China
China and Russia are nearing the completion of a new pipeline that would send gas from Siberia to Shanghai. The pipeline on the Russian side is called ‘Sila Sibiri’ or the ‘Power of Siberia’. Russias Energy Minister Alexander Novak earlier this year confirmed Moscows plans to will replace the damaged Nord Stream 2 gas link to Europe with its Asian project with China. Russia began supplying natural gas to China in December 2019, as part of a $400 billion contract struck in 2014 by Russian gas giant Gazprom and China National Petroleum Corp. This contract was signed for a period of 30 years. By 2021, Russia had already supplied 10 billion cubic meters worth of natural gas to China. These gas supplies from Russia had been used in Northeast China’s Heilongjiang Province, Beijing, and Tianjin. Now, China and Russia are nearing the completion of a new pipeline that would send gas from Siberia to Shanghai. The pipeline on the Russian side is called Sila Sibiri or the Power of Siberia. This new pipeline (3,000 km long) will connect East Siberia to Shanghai in Eastern China. The initial test flows will begin on October 25 with the flows being used to pressure test the pipeline connectors. The pipeline goes along the eastern edge of China, via the capital city of Beijing, and all the way to Shanghai. The middle phase began operations in December 2020, while the final southern part is scheduled to begin gas delivery in 2025, according to Chinese state media. While Gazprom and the China National Petroleum Corp. have been partnering since 2014, no one would have prophesied the significance of the line in 2022. Today, Russia is at risk of losing natural gas delivery contracts from the EU (European Union) and the associate countries over the annexation of Ukraine. This may impact 2/3rds of its total gas purchases. On the other hand, China has been having a hard look at sourcing its energy resources from multiple channels and providers. While the gas supplies have been going on since 2019, the volume has only now accelerated, post the Russian war on Ukraine. This looks to be a very gamed strategy by China to leverage Russias weaknesses. China also has the option of importing natural gas from another supplier, Turkmenistan which supplies a higher volume to China. China and Russia have also been in discussions to build another pipeline that will probably run through Mongolia further reducing the overall cost and time of transportation of natural gas. While the Power of Siberia 1 line runs until Vladivostok of Russia (East of China), the new line can bisect the overall region by running through Mongolia. The new dedicated line will start from the Yamal-Nenets region via Mongolia to China and can handle transportation of up to 50 Bcm per annum of gas and will be called Sila Sibiri 2 or Power of Siberia 2. If everything goes well, the construction activities may start at the end of 2024 or early 2025 and may only be completed by 2030.
India primed to hand Putin lifeline by replacing US in huge Russian gas deal
India has announced that it is considering plans to invest in Russia’s Sakhalin-1 oil and gas project in the country’s far east, potentially replacing a major US-owned stake. Last week, Russian President Vladimir Putin signed a decree, seizing the project that was previously led by the Exxon Mobil Corp. This decree hands the Kremlin authority to decide whether foreign shareholders can retain stakes in the project. The decree also gave Rosneft, a Russian state-run company, the authority to decide whether foreign shareholders including India’s ONGC Videsh can retain their participation in the project. Experts have previously predicted that as relationships sour between Russia and the West, India may step in and purchase Exxon-Mobil’s stake in Sakhalin- 1.
Russia’s alternative to Nord Stream 2, a gas pipeline to China
China and Russia are nearing the completion of a new pipeline that would send gas from Siberia to Shanghai. The pipeline on the Russian side is called ‘Sila Sibiri’ or the ‘Power of Siberia’. Russias Energy Minister Alexander Novak earlier this year confirmed Moscows plans to will replace the damaged Nord Stream 2 gas link to Europe with its Asian project with China. Russia began supplying natural gas to China in December 2019, as part of a $400 billion contract struck in 2014 by Russian gas giant Gazprom and China National Petroleum Corp. This contract was signed for a period of 30 years. By 2021, Russia had already supplied 10 billion cubic meters worth of natural gas to China. These gas supplies from Russia had been used in Northeast China’s Heilongjiang Province, Beijing, and Tianjin. Now, China and Russia are nearing the completion of a new pipeline that would send gas from Siberia to Shanghai. The pipeline on the Russian side is called Sila Sibiri or the Power of Siberia. This new pipeline (3,000 km long) will connect East Siberia to Shanghai in Eastern China. The initial test flows will begin on October 25 with the flows being used to pressure test the pipeline connectors. The pipeline goes along the eastern edge of China, via the capital city of Beijing, and all the way to Shanghai. The middle phase began operations in December 2020, while the final southern part is scheduled to begin gas delivery in 2025, according to Chinese state media. While Gazprom and the China National Petroleum Corp. have been partnering since 2014, no one would have prophesied the significance of the line in 2022. Today, Russia is at risk of losing natural gas delivery contracts from the EU (European Union) and the associate countries over the annexation of Ukraine. This may impact 2/3rds of its total gas purchases. On the other hand, China has been having a hard look at sourcing its energy resources from multiple channels and providers. While the gas supplies have been going on since 2019, the volume has only now accelerated, post the Russian war on Ukraine. This looks to be a very gamed strategy by China to leverage Russias weaknesses. China also has the option of importing natural gas from another supplier, Turkmenistan which supplies a higher volume to China. China and Russia have also been in discussions to build another pipeline that will probably run through Mongolia further reducing the overall cost and time of transportation of natural gas. While the Power of Siberia 1 line runs until Vladivostok of Russia (East of China), the new line can bisect the overall region by running through Mongolia. The new dedicated line will start from the Yamal-Nenets region via Mongolia to China and can handle transportation of up to 50 Bcm per annum of gas and will be called Sila Sibiri 2 or Power of Siberia 2. If everything goes well, the construction activities may start at the end of 2024 or early 2025 and may only be completed by 2030.
India offers 26 oil, gas blocks in mega offshore round
India is offering 26 blocks or areas for finding and producing oil and gas in a mega offshore bid round, upstream regulator Directorate General of Hydrocarbons (DGH) said on Tuesday. Simultaneously, 16 areas for prospecting for coal-bed methane (CBM) are also being offered in a separate round. The “government announces the offer of 26 blocks covering an area of approximately 2,23,000 square kilometers for exploration and development through international competitive bidding,” the DGH said without giving timelines for bidding. Out of the 26 blocks, 15 areas are in ultra-deepwater, eight in shallow sea, and three blocks are on land. The bid rounds are being held under the 2016 policy, called the Hydrocarbon Exploration and Licensing Policy (HELP), which was promulgated on March 30, 2016. Since then, seven bid rounds of the Open Acreage Licensing Programme (OALP) have been concluded and 134 exploration and production blocks awarded. These blocks cover 2,07,691 square km of area across 19 sedimentary basins.
Will Azerbaijan’s New Gas Pipeline Be Enough To Ease Europe’s Energy Crisis?
The commissioning of a new Greece-Bulgaria Interconnector (IGB) gas pipeline has been heralded by Baku and Brussels as a step toward getting Europe less dependent on Russian gas. Meanwhile, other signs have emerged suggesting that Azerbaijan may not be able to deliver on even the modest increase they promised the European Union earlier this year. The IGB was inaugurated on October 1 at a ceremony in Sofia, with Azerbaijan President Ilham Aliyev in attendance, along with leaders from the European Union and several of Bulgaria’s neighbors – Serbia, North Macedonia, and Romania – who also stand to gain. “The IGB project will play an important role in strengthening energy security of Europe and diversification of gas supplies,” Aliyev said in his speech. “This pipeline is a game changer. It is a game changer for Bulgaria and for Europe’s energy security,” said President of the European Commission Ursula von der Leyen. “It means freedom. It means freedom from dependency on Russian gas.” Supplied by gas from the three pipelines that make up the Southern Gas Corridor from Azerbaijan through Georgia and Turkey to Greece, the IGB pipeline will initially carry only the one billion cubic meters (bcm) per year of gas that Azerbaijan has contracted to supply to Bulgaria. That will go some way towards meeting Bulgaria’s annual demand of roughly three bcm, most of which had been supplied by Russia. Moscow halted those deliveries in April in retaliation for EU sanctions imposed on Russia for its invasion of Ukraine. At full capacity, the IGB line could currently carry up to three bcm per year and could be expanded to ship up to five bcm per year. That raises the potential for Azerbaijan, using Bulgaria’s existing gas pipelines to neighboring countries, to supply energy further into the Balkans and Central Europe, as well as Moldova and even Ukraine. Russia has already cut gas exports to most of Europe, and on October 4 threatened to do the same to Moldova. “In the long term, we are trying to find alternative supplies with our partners, such as Azerbaijan,” Moldova Deputy Prime Minister Andrei Spinu said in September. The IGB was planned long before the current crisis, and its construction had been delayed by the COVID pandemic. Its completion now will likely allow Bulgaria, combined with the liquefied natural gas it can get from Greece and Turkey, to make it through the coming winter without complications. But its broader impact on Europe’s energy independence from Russia remain unclear. Azerbaijan’s reserves are limited: In July, Azerbaijan and the EU signed a Memorandum of Understanding under which Baku is “expected” to deliver 12 bcm of gas to the EU this year – up from the 10 bcm that has been contracted. Those figures already included the gas planned to be supplied through the IGB, and represent a small fraction of the roughly 150 bcm that Russia supplied to Europe annually. And there are indications that Baku will not even reach that modest target. In his address at the IGB commissioning ceremony Aliyev said that Azerbaijan’s gas exports this year will increase and “11.5 billion cubic meters will go to European consumers.” That echoed a previous estimate by Energy Minister Parviz Shahbazov. No reason has been given for the decreased projection, but given the looming winter energy crisis in Europe, interest in even small volumes of gas has been intense. It’s not clear whether the issue has been with the BP-operated Shah Deniz gas field that produces all the gas that Azerbaijan exports; or in some part of the Southern Gas Corridor pipeline network that leads from the Caspian Sea through Georgia, Turkey, Greece, Albania and Italy; or for some other reason. Earlier this year BP, which also is a shareholder in two of the pipelines to Europe, suggested that capacity of both the field and the pipelines could be expanded to 11 bcm per year from the previous ten. The company has not responded to queries from Eurasianet as to how it would be possible to further boost capacity to 12 bcm, or why the target has now slipped to 11.5 bcm. Adding to the mystery: sales contracts for gas from Shah Deniz to Europe currently remain at just ten bcm per year with no new supplies announced, an industry source told Eurasianet. Meanwhile, it appears that Azerbaijan has lately been exporting more gas to Turkey and less to Europe. In August, Azerbaijan’s gas exports to Europe dropped 27 percent from the figure in July, while exports to Turkey rose by 20 percent, according to data from Azerbaijan’s Energy Ministry. The volume difference does not account for the full 0.5 bcm gap, and it’s not clear whether it is related. While Turkey has not been cut off Russian gas, it is having its own gas problems. Mindful of potential shortages it has been striving to fill its 5.8 bcm of underground storage capacity ahead of winter. The lack of clarity on the EU deal also raises questions about longer-term plans for expanding the pipeline network and boosting Azerbaijani gas exports to Europe by “at least” 20 bcm by 2027, as the two sides agreed in July. In his speech in Sofia at the commissioning of the IGB pipeline, Aliyev confirmed that Azerbaijan has “started consultations with our partners” over the pipeline expansion plans, noting that without such efforts “it will be difficult to provide additional supplies.” Aliyev didn’t elaborate on where he expects the extra gas will come from, however. BP has said publicly that its Shah Deniz field cannot supply all the additional 10 bcm per year that Azerbaijan and the EU have agreed on, and Azerbaijan’s other fields do not appear able to make up the difference. Turkmenistan has been repeatedly mentioned as a possible source, but there is no visible movement on that issue.
U.S. Officials Promised Saudis It Wouldn’t Let Oil Market Collapse
U.S. officials told Saudi Arabia prior to the OPEC+ meeting that it would help stave off a collapse in the oil market by buying oil at $75 per barrel to replenish the nation’s Strategic Petroleum Reserves, Wall Street Journal sources said on Tuesday. In the runup to last week’s OPEC+ meeting, Wall Street Journal’s sources suggest that the rift between Saudi Arabia and the United States grew wider over oil markets. The Wall Street Journal sources—who remain anonymous but are cited as OPEC+ delegates—paint an ugly picture of the state of relations between the two. A state of relations that might be so damaged as to be beyond repair. WSJ sources suggest that Saudi Arabia accused the United States of playing politics with oil, pinning the Biden Administration’s drive to keep oil production up on the effect it could have on mid-term elections. That accusation is “categorically false” according to National Security Council spokeswoman Adrienne Watson, who in turn referred to the OPEC+ decision to cut production as “shortsighted.” The U.S. has unleashed a flurry of vocal barbs about the group’s decision since it was made—Watson’s is but one. Sources inside the Saudi government said that Biden’s trip to Saudi Arabia didn’t help—in fact, it made the situation even worse. The Kingdom maintains, however, that its decision was entirely based on the needs of the oil market, and wasn’t made with the intent of hurting the United States. But the anonymous OPEC+ delegates also said that the oil price cap proposed by the West was perceived by Saudi Arabia as an attack on crude oil producers. “It’s us against them,” Prince Abdulaziz told two Gulf oil ministers on phone calls, according to the sources. When OPEC+’s plans to cut production were leaked prior to the meeting, the United States set out to change what was about to happen. They sent out numerous officials to speak on behalf of the United States to keep OPEC+ from cutting production. But Saudi officials told the United States of the impending collapse that would take place if production wasn’t curbed. According to sources, the Saudis told US officials that oil could fall even to $50 per barrel unless it cut production. The United States, for its part, vowed to replenish its SPR if Brent fell to $75 to keep prices from falling below the group’s comfort level. WSJ sources said that the Saudis refused.
Europe’s LNG Spending Could Undermine Its Renewable Ambitions
Europe is importing record volumes of liquefied natural gas (LNG) this year, looking to replace pipeline gas supply from Russia and wean itself off Russian energy in the wake of Putin’s invasion of Ukraine. The record LNG imports, however, come at a high cost for European governments, which are spending billions of euros to help vulnerable customers with soaring energy bills and to save struggling utilities that are bleeding money to procure alternative gas supplies. Europe’s LNG import bill—coupled with rescue packages for consumers—could leave the continent with smaller budgets for renewable energy, Reuters columnist Gavin Maguire notes. Sure, the EU doubled down on renewables in the REPowerEU Plan it unveiled in May. The plan sets out a series of measures to rapidly reduce dependence on Russian fossil fuels and fast forward the green transition, while increasing the resilience of the EU-wide energy system. “REPowerEU will speed up the green transition and spur massive investment in renewable energy. We also need to enable industry and transport to substitute fossil fuels faster to bring down emissions and dependencies,” the European Commission says. Additional Investments Needed To Cut Off Reliance On Russian Energy Financing the phase-out of Russian fossil fuel imports will require additional investments of $203 billion (210 billion euros) between now and 2027. Those imports are currently costing European taxpayers nearly $97 billion (100 billion euros) per year, according to the Commission. That comes on top of the billions of euros necessary to roll out more wind and solar power generation capacity. While Europe looks to accelerate the energy transition, it is paying billions of euros more to import LNG. Its LNG imports are at record highs, at higher prices than in previous years, and are set to become even more expensive this quarter during the seasonal peak in power and heating demand in the winter. So far this year, Europe has offset the sharp fall in Russian gas supplies by importing much more LNG and boosting alternative pipeline supplies from Norway and North Africa. Energy Security Has A High Price Europe’s demand for LNG surged by 65% in the first eight months of 2022 compared to the same period a year earlier, the International Energy Agency (IEA) said in its latest quarterly Gas Market Report. Soaring demand “has drawn supply away from traditional buyers in the Asia-Pacific region, where demand dropped by 7% in the same period as a result of high prices, mild weather and continued Covid lockdowns in China,” the IEA noted. In June, for the first time ever, the European Union imported more LNG from the United States than gas via pipeline from Russia, as Moscow slashed its supply to Europe. In September, as much as 70% of all U.S. LNG exports were headed to Europe, up from 63% in August, per Refinitiv Eikon data cited by Reuters earlier this month. But this influx of LNG supply to secure Europe’s winter comes at a cost. The EU, most of which is now deprived of any gas supply from Russia, is doing relatively well with stocking up on alternative supply. The prices, however, are high, and so is the price that industries, residential consumers, and governments must pay. Gas and energy prices are now so high that energy-intensive industries are shutting down production lines or whole factories, while households are constantly being asked to conserve gas and electricity to avoid rationing and/or blackouts this winter. Governments are splashing billions of euros to help consumers with the soaring prices and avoid the collapse of energy firms. Europe’s LNG import bill could be as much as $90 billion this year, assuming all purchases are made at Brent-indexed prices, according to estimates by Reuters’ Maguire. The bill would be double the one Europe paid for LNG imports back in 2019, and almost triple the sum paid in 2021. Demand destruction due to high gas prices has helped the market somewhat, but its cost is deindustrialization in the longer term as energy-intensive industries struggle to keep production going. “Europe’s gas consumption declined by more than 10% in the first eight months of this year compared with the same period in 2021, driven by a 15% drop in the industrial sector as factories curtailed production,” the IEA said in its quarterly report. Revenue Cap On Power Producers Could Cap Clean Energy Rollout The EU’s recently proposed market intervention policies, as well as high energy prices, risk stalling the efforts to accelerate renewable energy capacity buildout, according to research from Rystad Energy. The proposed temporary revenue cap on inframarginal electricity producers sends out a negative signal to the sector, the energy research firm said last month. “The renewable industry is Europe’s best shot at producing affordable and secure power, but this policy reduces the private sector power providers ability to invest,” said Victor Signes, analyst renewables at Rystad Energy. “If renewables are to take their proper place in Europe’s power mix, they will need support in turn in the not-too-distant future,” Signes added. In addition, Europe’s soaring electricity prices “are damaging the continent’s attempts to build a reliable low-carbon supply chain and reach its decarbonization targets, as solar and battery manufacturers face mounting costs,” Rystad Energy said in separate research earlier this month. As much as 35 gigawatts (GW) of solar PV manufacturing and more than 2,000 gigawatt-hours (GWh) of battery cell manufacturing capacity could be mothballed unless power prices quickly return to normal levels, according to the analysts. “Building a reliable domestic low-carbon supply chain is essential if the continent is going to stick to its goals, including the REPowerEU plan, but as things stand, that is in serious jeopardy,” said Audun Martinsen, Rystad Energy’s head of energy service research.