Europe’s Energy Crisis May Not End Until 2024
The worst energy security fears of spring and summer as regards the coming winter in the European Union-EU, have been somewhat allayed. Earlier this year when war broke out in Ukraine and it became clear that the conflict would drag on for months, if not years, the EU appeared perilously in danger of a winter “Polar-Geddon,” as cold air gripped the continent. Largely forgotten and retired gas storage caverns, that hadn’t been filled in the expectation of a steady supply from Russia via the Nordstream I and II pipelines, suddenly were thrust front and center into the public eye. Troubles often come in twos. The next shoe to drop was the deflation of expectations of much of the EU electric grid base load being met by wind and solar farms, when the elements refused to cooperate. Beginning in the middle of last year, it was noted that the wind wasn’t blowing and the output of solar farms was less than predicted. These two events appeared ready to converge upon the EU and presenting it with a stark, and chilly future for the winter of 2022-23. As is often the case, the fullness of time alleviated the worst fears as energy leaders in the countries that make up the EU, sprang into action. They turned to Norway for an additional 90 bn cubic meters of gas to begin filling the storage caverns. The infrastructure was in place, it was just a matter of price. The also U.S. responded with a massive sealift of billions of cubic feet of LNG, mostly from the Gulf Coast Cryo plants, and little by little the starkest fears of early spring were put to rest. Now the WSJ reports that EU gas caverns are largely filled, thanks to U.S. LNG exports. Europe’s population is now in Nature’s hands as winter approaches. “Storage facilities of gas for heating and power generation are almost full, consumption is down and liquefied natural gas tankers are steaming in. Europe is in a stronger position than feared in recent months, after Moscow slashed gas deliveries in retaliation for Western sanctions over the invasion of Ukraine. However, much could go wrong. One long cold spell or a busted pipeline could upset the region’s preparations, threatening emergency rationing, blackouts and a deeper economic recession. Officials and analysts say the willingness of consumers to cut back on gas use will be key for getting through the winter.” The focus of the rest of this article will be on what indeed could go wrong, and put the citizens of the EU in jeopardy. Asian demand, energy cutback compliance, and the weather in the U.S. could make the difference While seemingly out of the woods for the early part of this season, with full storage caverns, several challenges lie ahead for this energy beleaguered continent. The first is that Asian demand, and in particular Chinese demand is expected to resurge in the coming months. The focus on the Eastern Hemisphere is understandable as its growing economies are the product of this regions ascendancy as manufacturing and distribution hubs for nearly everything. This relentless demand, should it occur will challenge the import hubs of the EU, as they begin discharging stored gas this winter and begin looking for new supplies to address the winter of 2023-24. Bloomberg noted in an article recently, that China which had been reselling cargoes of U.S. LNG to the EU for a profit, was no longer doing so. “China told its state-owned gas importers to stop reselling LNG to energy-starved buyers in Europe and Asia in order to ensure its own supply for the winter heating season.” If this action signals a turn in China’s outlook, then EU buyers will face increased competition for U.S. supplies, of which over the summer they received the Lion’s Share. Loaded LNG cargoes are very fungible and it is common for the final destination of an LNG carrier to change after it departs port. The second is making it through this winter without the draconian cutbacks discussed in the WSJ article. Compliance with the urgent conservation directives will determine if EU energy security is at the mercy of the weather this winter. “Europe is probably as well prepared as it could be. The infrastructure is pretty much maxed out,” says Michael Bradshaw, professor of global energy at Warwick Business School. “We are up against the hard reality that there are physical limitations to the ability to replace Russian gas in the short term. That means that doubling down on the demand-reduction side of the equation is vital.” “A lot could go wrong. If freezing weather jacks up demand, stockpiles could drain and prices could shoot to levels that hammer companies and government finances. Low temperatures could also spark a contest between North America and Europe for LNG supplies.” And that leads us to our third point in this macro thesis. It is only pure serendipity that things aren’t much worse in the U.S. than they are. Sky-high prices for coal have kept U.S. utilities burning gas this summer for electricity generation. That should have kept prices higher than they were. What happened? You perhaps remember that fire in the Freeport LNG plant near Galveston in June? It had the effect of putting 2-BCFD back on the market, and available for injection vs export. Hence we are only ~4% under 5-year averages in our storage. This week. It will be interesting to see what sort of draws are seen in next week’s report as a big chunk of the nation feels winter’s first blast. Nor am I optimistic, absent a big surge in gas drilling, that we will be able to do anything to materially impact this tight supply scenario. The trend isn’t encouraging for mid to long term new supplies as noted in the chart above. This is compiled from data put out by the EIA and only measures a running average between production noted in various reports and the number of rigs turning to
Russia Accuses The British Navy Of Blowing Up Nord Stream Pipelines
Moscow has pointed the finger at London for the explosions that put the Nord Stream 1 and 2 pipelines out of commission. London has denied any involvement, Reuters reported this weekend. “According to available information, representatives of this unit of the British Navy took part in the planning, provision and implementation of a terrorist attack in the Baltic Sea on September 26 this year – blowing up the Nord Stream 1 and Nord Stream 2 gas pipelines,” the Russian defense ministry said. “To detract from their disastrous handling of the illegal invasion of Ukraine, the Russian Ministry of Defence is resorting to peddling false claims of an epic scale,” the Foreign Office said in response. Four leaks, two in each of the Nord Stream 1 and 2 pipelines, were discovered in early October after gas started leaking earlier this week from the infrastructure just outside Swedish and Danish territorial waters in the Baltic Sea. An investigation launched by the Swedish authorities concluded that the leaks were the result of detonations, likely the result of “serious sabotage”. The Swedish side refused to share the conclusions of its investigations with Russia but it said this week it will continue the investigation. The preliminary one did not end with naming a party responsible for the blasts. Stockholm also declined a joint investigation of the blasts with Denmark and Germany, citing national security concerns. The lead prosecutor on the case said Sweden was already cooperating with its two neighbors on the matter. Russia, meanwhile, started its own investigation of the blasts, with the company that operates the infrastructure saying at the end of last week that “After carrying out calibration works, the specialists will be ready within 24 hours to start the survey of the damaged area that would take three to five days according to current estimates,” Upstream reported.
Petroleum dealers write to Centre seeking hike in commissions
The Consortium of Indian Petroleum Dealers (CIPD), a body representing over 65,000 retail fuel outlets in the country, has urged the Centre to increase dealer margins. The last revision was in August 2017 and more than five years have passed since then, said K. Suresh Kumar, CIPD Honorary General Secretary. The CIPD has written to the Union Minister for Petroleum and Natural Gas Hardeep Singh Puri urging him to implement an agreement signed in November 2016 between the dealer associations and the three public sector undertaking oil marketing companies (OMCs). “In the meeting held in Mumbai it was agreed to revise dealer margins based on All India Consumer Price Index and operating cost, every six months. But that agreement has been kept on hold,” Mr. Suresh said. The cost of operations, including salaries, interest on loans, electricity charges, imposition of various costs by OMCs like E- locking, automation network, point of sale machine (debit/credit card swiping machine), and many times, the dumping of branded fuels and lubricants with low offtake has made dealers struggle to sustain their operations. A dealer in the city said that around 75% of dealers across the country were those who ran outlets that witnessed low sales volumes. “They are struggling to break even and barely managing to keep their outlets running. There have been two reductions of excise duty since our margins were revised. And on both occasions, dealers suffered heavy losses,” he said.
India, GCC Group Likely To Start Free Trade Pact Negotiations Next Month
India and the Gulf Cooperation Council (GCC) member countries are expected to start negotiations for a free trade agreement next month with an aim to boost economic ties between the two regions, an official said. GCC is a union of six countries in the Gulf region — Saudi Arabia, UAE, Qatar, Kuwait, Oman and Bahrain. “Terms of reference for the agreement are being finalised and we expect to launch the negotiations next month,” the official said. India has already implemented a free trade pact with the UAE in May this year. According to experts, the GCC region holds huge trade potential and a trade agreement would help in further boosting India’s exports to that market. Rakesh Mohan Joshi, Director, Indian Institute of Plantation Management, Bangalore, said the GCC market is unexploited by domestic exporters and it holds huge potential. “GCC is a major import dependent region. We can increase our exports of food items, clothing and several other goods. Duty concessions under a trade agreement will help in tapping that market. It will be a win-win situation for both sides,” Joshi said. Mumbai-based exporter and founder chairman of Techno-craft Industries India, Sharad Kumar Saraf said the GCC has emerged as a major trading partner for India and there is huge potential for increasing investments between the two regions. “FTA will have a major benefit for both the sides,” Saraf said. Sharing similar views, Federation of Indian Exports Organisation (FIEO) Vice Chairman Khalid Khan said sectors like chemicals, textiles, gems and jewellery and leather will get a major impetus by this agreement. India imports predominately crude oil and natural gas from the Gulf nations like Saudi Arabia and Qatar, and exports pearls, precious and semi-precious stones; metals; imitation jewellery; electrical machinery; iron and steel; and chemicals to these countries. India’s exports to the GCC increased by 58.26 per cent to about USD 44 billion in 2021-22 against USD 27.8 billion in 2020-21, according to data of the commerce ministry. The share of these six countries in India’s total exports has risen to 10.4 per cent in 2021-22 from 9.51 per cent in 2020-21. Similarly, imports rose by 85.8 per cent to USD 110.73 billion compared to USD 59.6 billion in 2020-21, the data showed. The share of GCC members in India’s total imports rose to 18 per cent in 2021-22 from 15.5 per cent in 2020-21. Bilateral trade has increased to USD 154.73 billion in 2021-22 from USD 87.4 billion in 2020-21. Besides trade, Gulf nations are host to a sizeable Indian population. Out of about 32 million non-resident Indians (NRIs), nearly half are estimated to be working in Gulf countries. These NRIs send a significant amount of money back home. According to a November 2021 report of the World Bank, India got USD 87 billion in foreign remittances in 2021. Of this, a sizeable portion came from the GCC nations. Saudi Arabia was India’s fourth-largest trading partner last fiscal. From Qatar, India imports 8.5 million tonnes a year of LNG and exports products ranging from cereals to meat, fish, chemicals, and plastics. Kuwait was the 27th largest trading partner of India in the last fiscal, while the UAE was the third-largest trading partner in 2021-22.