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.
India’s imports of Russian oil jump fivefold, helping war efforts
Russian fossil fuel exports to China and India have risen significantly since Moscow invaded Ukraine early this year, helping to replenish the Kremlin’s war chest even as shipments to the U.S., Europe and Japan fall sharply. The value of Russia’s energy exports to China increased 17%, or 30 million euros ($29 million), in the July-August period compared with February and March, according to an analysis of data from the Center for Research on Energy and Clean Air, a Finnish think tank. Coal exports jumped 53%, while oil shipments rose 16%. Exports to India increased by a factor of 5.7, or 40 million euros, during the same period, marking the largest increase in the world. Russia was the second-largest supplier of crude for India in June, jumping from 10th place in 2021, according to Indian trade statistics. Russia’s overall daily exports of oil, coal, and natural gas in July and August were down 18% from February and March. Natural gas sent via pipeline sustained the largest decline of 56%, followed by a 34% drop in petroleum products and a 29% fall in coal. Crude oil, on the other hand, increased 19%. Energy is a key industry for Russia, with oil and gas accounting for about 40% of government revenue. To starve Moscow of funds to finance its war in Ukraine, the U.S., Japan and the European Union have imposed a series of sanctions on Russian oil and coal. As a result, Russia’s fossil fuel exports to the EU fell 35%. The U.S. and the U.K. saw plunges of roughly 90%, and Japan a drop of around 70%. The decrease in exports to these countries totals about 250 million euros per day. But the overall decrease in Russia’s energy exports is much smaller, at about 170 million euros because of Moscow’s successful efforts to sell to countries not participating in the sanctions, such as China and India, at a discount. Exports to the Middle East also expanded, with shipments to the United Arab Emirates and Egypt increasing by factors of about nine and three. They are reportedly processing Russian crude oil into petrochemical products for export to the rest of the world. For example, the Port of Fujairah in the UAE is considered a “major hub” for the export of petroleum products mixed with Russian products. As the sanctions on Russian gas and oil take root in Europe and the U.S., Russia’s oil is reaching global customers through third-party processors. The value of exports to Turkey increased about 20%. The country is a NATO member and has criticized the Russian invasion of Ukraine, but it is also cautious about economic sanctions. U.S. Treasury Secretary Janet Yellen revealed in September that Russia is heavily discounting oil for emerging economies, adding that she has confirmed a 30% price reduction to several countries. Indonesian President Joko Widodo did not rule out the possibility of importing Russian oil, telling the Financial Times that “we always monitor all of the options.” Soaring energy prices are also blunting the impact of economic sanctions. According to CREA, Russia earned a total of 158 billion euros from fossil fuel exports in the six months following the invasion of Ukraine. It estimates Russia’s war costs for the same period to be around 100 billion euros. To exact a bigger toll on Russia’s finances, finance ministers from the Group of Seven major economies agreed in September to introduce a price cap on Russian oil imports, starting in December. The arrangement bars insurance companies from insuring marine transportation of oil above the cap. EU member states agreed to the cap on Wednesday. According to the Russian Ministry of Finance, the country had a fiscal surplus of 1.37 trillion rubles ($21.9 billion) in the first half of 2022, but the figure narrowed to 137 billion rubles for the year to August.
U.S. Looks To Punish Saudi Arabia For Large OPEC+ Cut
Despite repeated pleas from the U.S. that the Organization of the Petroleum Exporting Countries (OPEC), under the de facto leadership of Saudi Arabia, should not cut its collective crude oil production at its meeting last week it did just that. The White House had made it clear that a cut in crude oil production and the corollary rise in oil prices would lead to three outcomes that it sees as exceptionally dangerous for the world right now. First, it would add further impetus to the energy price-led surge in global inflation that has prompted rising interest rates around the world that are crimping economic growth. Second, it would significantly boost the state revenues of Russia, as a major exporter of crude oil and gas, enabling its illegal invasion of Ukraine to continue for longer on the back of that funding, costing more lives and increasing the likelihood of escalation into a global nuclear war. And third, it increases the chances that sitting U.S. President Joe Biden will do poorly in the November mid-term elections, making his government less likely to be able to deal effectively with the Russian- and Chinese-led security challenges that the world will face in the remainder of his presidency. Disregarding these entreaties from the U.S., and echoed by the major European states, OPEC, under Saudi Arabia, cut its collective crude oil production by a gigantic two million barrels per day (bpd). Market expectations had been for a possible cut of around one million bpd, with a very remote possibility of one and a half million bpd, if OPEC decided to ignore all its Western allies’ arguments against a reduction. However, the latest cut is the largest crude oil production reduction since the 9.7 million bpd decrease in May 2020 that was implemented expressly to rescue oil prices from the once-in-a-lifetime threat posed to them at the height of the Covid-19 pandemic. This most recent two million bpd cut is set to last for 14 months, until December 2023. The immediate impact on crude oil prices of the cut was not as dramatic as some had feared, but it might yet be very serious indeed, as it coincides with two other market factors, which the Saudis know perfectly well. The first of these is that the long-running program of releasing one million bpd crude oil from the U.S.’s Strategic Petroleum Reserve (SPR) – begun with the specific intention of the White House itself to bring oil prices down in order to dampen down inflationary pressures across the West – are scheduled to end this month. The second of these is that a European Union (EU) ban on seaborne imports of Russian crude is scheduled to go into effect on 5 December, while the G7 group of major industrialised nations is also looking at the mechanics of placing a price cap on Russian energy exports. Aside from knowing the huge upwards pressure that this historically enormous cut in crude oil supply would place on the global oil price, Saudi Arabia was also fully aware of the political ramifications of the cut for the U.S., for Europe, and for Russia, according to several sources in Washington and Brussels exclusively spoken to by OilPrice.com last week. “Senior EU energy security figures conveyed to leading OPEC countries that cutting crude oil production now could be disastrous for several proposed EU energy policies relating to Russian oil and gas sanctions, but these were ignored,” said one senior EU energy source. “The most senior figures in the Saudi government, including [Crown Prince Mohammed bin] Salman, also know exactly what these cuts and continued high energy prices mean for [President Joe] Biden in his mid-term elections,” he added. “The White House sees these OPEC cuts as a direct comment from Saudi Arabia’s highest leadership on what it thinks of the president, of our democratic process, and of our stand with our allies against the Russian invasion of Ukraine,” a senior energy source in Washington said to OilPrice.com last week. As highlighted in all three of my books on the oil sector since 2015, there is a very clear link between oil and gas prices, the U.S. economy, and the chances of re-election as U.S. president. Historical precedent highlights that every US$10 per barrel change in the price of crude oil results in a 25-30 cent change in the price of a gallon of gasoline, although recently this correlation has become even more dramatic. The corollary longstanding rule of thumb is that for every one cent that the U.S.’s average price of gasoline increases, more than US$1 billion per year in discretionary additional consumer spending is lost. It is a matter of historical fact, as shown in my new book on the global oil markets, that since World War I, the sitting U.S. president has won re-election 11 times out of 11 if the U.S. economy was not in recession within two years of an upcoming election. However, presidents who went into a re-election campaign with the economy in recession won only once out of seven times (Calvin Coolidge in 1924, although strictly speaking he had not won the previous election but rather had taken up the position on the death in office of Warren G Harding). The U.S. economy contracted an annualised 0.6 percent quarter-on-quarter (q-o-q) in the second quarter of 2022, confirming the economy technically entered a recession, following a 1.6 percent q-o-q contraction on the first quarter of the year. Ahead of critical mid-term elections in November, President Biden faces not just a recession but also the prospect of severe vote-losing falls in the U.S. stock and housing markets. Saudi Arabia’s core geopolitical alignment away from the U.S. and towards Russia began in earnest at the end of 2016 when the Kremlin stepped in to support the then-beleaguered OPEC at the end of the 2014-2016 Oil Price War. Back in October 2021, the meeting between Russian Deputy Prime Minister, Alexander Novak, and Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, to
The U.S. Is Preparing Its Response To The “Short-Sighted” Strategy Of OPEC+
The United States is considering “response options” in its relations with OPEC+ members and its de facto leader Saudi Arabia after the group announced a large 2 million bpd nominal cut in its collective oil production target earlier this week, U.S. Secretary of State Antony Blinken said. “As to the relationship going forward, we’re reviewing a number of response options. We’re consulting closely with Congress,” Secretary Blinken said at a press conference in Peru late on Thursday. “We will not do anything that would infringe on our interests – that’s first and foremost what will guide us – and we will keep all of those interests in mind and consult closely with all of the relevant stakeholders as we decide on any steps going forward,” Secretary Blinken added. Asked to comment on the OPEC+ production cut, he said, “We see the decision as both disappointing and short-sighted, especially as we have a global economy that is dealing with the implications of recovering from COVID, as well as the aggression from Russia in Ukraine, the consequences that’s having.” “We’ve said all along that supply needs to meet demand, and we’ve been clear about that and we’ve been working on that,” Secretary Blinken said. Following the OPEC+ decision, U.S. National Security Advisor Jake Sullivan and National Economic Council (NEC) Director Brian Deese said in a statement, “The President is disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of Putin’s invasion of Ukraine.” “In light of today’s action, the Biden Administration will also consult with Congress on additional tools and authorities to reduce OPEC’s control over energy prices,” Sullivan and Deese added. President Joe Biden has directed the Department of Energy to deliver another 10 million barrels from the Strategic Petroleum Reserve (SPR) to the market next month, they added. “The President will continue to direct SPR releases as appropriate to protect American consumers and promote energy security, and he is directing the Secretary of Energy to explore any additional responsible actions to continue increasing domestic production in the immediate term.”