AGI The energy chess game between Russia and the West pits two presidents making very bold bets: Vladimir Putin wants Europe to pay for Russian gas in rubles, while Joe Biden hopes to feed the oil market national strategic reserves to halt the surge of crude oil and gasoline prices. It will be interesting to see how far they go.
In Putin’s case, his “pay in rubles or no gas threat comes after the winter peak in heating demand ends, raising questions about how desperate European buyers might be to meet the demand. With spring advancing and summer approaching, Moscow’s threats may no longer be very frightening. At least for now. Gas is an important source of foreign exchange for the Kremlin.
The “game” of the gas
In the first nine months of 2021, the latest available data from Russian gas giant Gazprom shows that sales earnings in Europe, Turkey and China totaled 2.5 trillion rubles ($31 billion) from exports of 176 billion cubic meters of gas between January and Sept
If the European Union refuses to “play” with Putin and there are already enough protests to show they won’t the standoff could drag on until the first colds return in the autumn, if Europe is somehow forced will be to consider an agreement or compromise with the Kremlin. It could be in November. And if Putin were to step on the gas, it could mean that Europe won’t buy any gas from Moscow for the next seven months.
In these timesRussia could be forced to pump its gas into domestic storage facilities, which can hold around 72 billion cubic meters. Gazprom’s own deposits in Europe could hold another 9 billion. The Russian gas giant expects domestic demand to grow from 238 billion cubic meters in 2020 to 260 billion cubic meters of gas by 2026 and plans to expand storage.
If European gas were to be diverted to existing storage facilities in the short term, analysts say they would be full in three to four months and some gas production could then shut down, hurting longterm growth. “For Russia, the decision to limit supply would be like shooting itself in the foot“The analysts at Seb Research stated this bluntly. In addition, the EU has regulations that include measures to prevent and respond to gas supply disruptions, Reuters reports.
The regulation provides for three crisis levels: “early warning”, “alert” and “emergency”. EU countries must have plans on how to manage the impact of a supply disruption at the three stages of the crisis. In an emergency, European governments can only intervene when market measures are insufficient to ensure supplies to families and customers providing essential services.
The European Scenarios
Each country’s plan should set out responsibilities for facilities, including industrial gas consumers at each crisis stage, list measures to make gas available in the event of an emergency, and include a plan for countries to work together. In addition, the regulation obliges member states to support another EU country to which its gas infrastructure is connected if that country asks for assistance in supplying households with gas and essential social services.
In addition to trying to do more in an already tight global gas market, several European countries have that’s what they said too They are willing to use more coal, potentially “extend” the lifespan of nuclear power plants, and increase renewable energy production.
However, many doubt the gas price freeze will last seven months as European businesses and households cannot afford to let prices rise any further. The spot gas market in the EU has already grown by 500% compared to the previous year. Russia shipped 155 billion cubic meters of gas to Europe last year, a third of the bloc’s supply.
US LNG exporters have already emerged as big winners from Europe’s supply crisis, while Norway has also benefited. Last week the US said it will work to ship 15 billion cubic meters of LNG to the European Union this year, but this will not fully replace what Russia is sending to Europe via pipelines.
Gas in European storage It could be enough for spring and summer without a drop in demand, but Europe risks entering next winter with only about 10% of gas supplies by the end of October without some energy saving measures, said Wood analyst Kateryna Filippenko. Mackenzie.
To extract more LNG from other parts, i Wholesale gas prices in Europe are expected to remain above the Asian reference price. Skyrocketing gas prices are already hurting consumers and industries, and governments have spent billions of euros on measures to protect them. “We have to be aware that companies that have longterm contracts with Gazprom can get gas at significantly lower prices than we have to pay on the LNG market, so this will have an impact on energy prices,” some have already warned a week ago EU Commissioner for Energy, Kadri Simson.
The ruble
Eventually, the ruble, which had been in freefall for the first two weeks of the Ukrainian invasion, regained ground, which was not so much due to operators’ optimism about the Russian economy, but more to the extraordinary efforts of the central bank in Moscow to do so support it. Measures taken include prohibiting commercial banks from selling dollars to customersa ban on Russian brokerage firms from allowing foreign clients to sell securities; and a limit on the number of dollars Russians can withdraw from their bank accounts.
Alongside the efforts of its central bank, Moscow is also steadily benefiting from oil and gas exports. One reason, of course, is that the sanctions themselves were not intended to hurt Russia’s energy sales, since Europe depends on them. Those who are not taking Russian oil and gas now are doing so of their own accord, either out of sympathy for Ukraine or fear of political repercussions. India is an exception.
The US and EU know that the only way to withdraw cash from Russia to finance its war against Ukraine is to refine existing sanctions against Moscow and develop more effective new ones. Basically, The White House and its allies must prevent Russia from buying the military equipment it needs to continue the warThis was announced by US Deputy Treasury Secretary Wally Adeyemo.
Overseas, Biden has also found support among Republican rivals to tighten sanctions on Russia. But the president has been skeptical about accepting that support, wondering if letting it slip through ahead of November’s midterm elections is a ploy.
oil
On the oil front, Biden announced Thursday that his administration would release 1 million barrels a day of oil from the US Strategic Petroleum Reserve over the next six months to help ease a global supply crisis. The president’s biggest problem may still be OPEC+, the Saudicontrolled cartel of producers and allies led by Russia. Allianz has no intention of supplying the oil market sufficientlywhere every requested barrel becomes available, and in any case, even if it wanted to, it could not fill the huge hole of 3 million barrels per day left by Western sanctions against Russia.
Analysts across the energy sector are warning of a worsening supply crisis in the coming months as the United States confirms a freeze on Russian oil, while many other nations avoid any kind of deal with Moscow amid sanctions.
Despite everything, OPEC+ decided on Thursday to increase production only moderately to 432,000 barrels per day from May. That’s a slight increase from the usual monthly increase of 400,000 barrels per day in a market that analysts say would need about 5 million barrels more.
OPEC+ also said that the recent volatility in oil prices “was not caused by fundamentals but by ongoing geopolitical developments,” in an apparent reference to the war in Ukraine. Brent crude hit a 14year high of nearly $140 a barrel after sanctions were imposed on Russia and has largely held above $100 for the past month.
So said Amos Hochstein, special envoy for international energy affairs in the Biden administration The release of 180 million barrels from the US Strategic Reserve was just the beginning of a larger supply that is about to arrive. But energy market analysts have expressed skepticism about the plan’s success.
“The instinctive selloff on the announcement of the release of 1 million barrels a day from national reserves over the next six months will not have a lasting impact on oil prices. So if geopolitical risks continue to intensify, Crude Oil will recover most of the time. Losses this week, said Ed Moya, analyst at online trading platform Oanda.
Biden ordered the release of 50 million barrels from the Strategic Petroleum Reserve (Spr) in November and 30 million in March, in coordination with the release of reserves from other countries including China, Japan, India, South Korea and the UK. The SPR had 568.3 million barrels in inventory for the week ended March 25, according to the US Energy Information Administration. With a withdrawal of 180 million barrels in six months, the reserve could fall to a third of its current size.
Biden began using the SPR last year to provide US refiners with borrowed oil from the reserve, which they would not have to pay for but would return for a small premium and within a set period of time. In this way, the government hoped that there would be fewer oil transactions on the open market and that prices for crude oil as well as gasoline and diesel would fall. For the past several weeks, the Administration has released approximately 3.0 million barrels weekly from the SPR.
However, government efforts so far have had little impact on prices as refiners produce more product than usual at this time of year. This resulted in exceptionally high barrel sales that did little to change prices on both the crude and petroleum product fronts. In closing, I would like to say that two of the most powerful men in the world, by virtue of their positions and the vast resources at their disposal, They are determined to bend the market their way. It will be history that shows the success or not of their actions.