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Energy

Europe faces ‘unprecedented risk’ of gas shortage, IEA says

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By David Mchugh

Europe faces “unprecedented risks” to its natural gas supplies this winter after Russia cut off most pipeline shipments and could wind up competing with Asia for already scarce and expensive liquid gas that comes by ship, the International Energy Agency said.

The Paris-based IEA said in its quarterly gas report released Monday that European Union countries would need to reduce use by 13% over the winter in case of a complete Russian cutoff amid the war in Ukraine. Much of that cutback would have to come from consumer behavior such as turning down thermostats by 1 degree and adjusting boiler temperatures as well as industrial and utility conservation, the group said.

The EU on Friday agreed to mandate a reduction in electricity consumption by at least 5% during peak price hours.

Just a trickle of Russian gas is still arriving in pipelines through Ukraine to Slovakia and across the Black Sea through Turkey to Bulgaria. Two other routes, under the Baltic Sea to Germany and through Belarus and Poland, have shut down.

Another hazard in the study was a late winter cold snap, which would be particularly challenging because underground gas reserves flow more slowly at the end of the season due to less gas and lower pressure in the storage caverns. The EU has already filled storage to 88%, ahead of its goal of 80% before winter. The IEA assumed 90% would be needed in its Russian cutoff scenario.

Businesses in Europe have already cut back natural gas use, sometimes simply by abandoning energy-intensive activity such as making steel and fertilizer, while smaller businesses like bakeries are feeling a severe crimp in their costs.

High prices for gas, which is used for heating homes, generating electricity and a host of industrial processes are feeding through to record consumer inflation of 10% in the 19 EU member countries that use the euro and sapping so much consumer purchasing power that economists predict a recession at the end of this year and the beginning of next.

European governments and utilities have made up much of the Russian shortfall by purchasing expensive supplies of liquefied natural gas, or LNG, that comes by ship from countries such as the U.S. and Qatar and by obtaining increased pipeline supply from Norway and Azerbaijan.

The goal is to prevent storage levels from falling so far that governments must ration gas to businesses. Gas storage must remain above 33% for a secure winter, according to the IEA, while levels below that risk shortages if there’s a late cold snap.

Lower levels also would make it harder for Europe to refill storage next summer, while higher reserves from conservation would help lower extremely high prices.

European leaders say the cutback in Russian gas is energy blackmail aimed at pressuring governments over their support for Ukraine and sanctions against Moscow.

Since Russia halted flows this month through the Nord Stream 1 pipeline running under the Baltic Sea to Germany, it and the parallel Nord Stream 2 — built but never operated after Germany refused to certify it — were damaged in underwater explosionsthat European governments say are sabotage.

Demand for liquefied gas has driven up prices and tightened supply to the extent that poorer countries in Asia cannot afford it. Bangladesh is experiencing widespread power blackouts, while Pakistan faces rolling blackouts and has introduced reduced working hours for shops and factories to save electricity.

“Interregional competition in LNG procurement may create further tension, as additional European needs would put more pressure on other buyers, especially in Asia, and conversely cold spells in Northeast Asia could limit Europe’s access to LNG,” the agency said.

The gas crisis in Europe has also deprived Asian countries of the limited number of floating regasification terminals, which were expected to play a major role in LNG imports in Southeast Asia. Europe has secured 12 of the vessels and plans another nine.

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Energy

Russian oil price cap, EU ban aim to limit Kremlin war chest

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By David Mchugh in Frankfurt

FRANKFURT, Germany (AP) — Major Western measures to limit Russia’s oil profits over the war in Ukraine took effect Monday, bringing with them uncertainty about how much crude could be lost to the world and whether they will unleash the hoped-for hit to a Russian economy that has held up better than many expected under sanctions.

In the most far-reaching efforts so far to target one of Moscow’s main sources of income, the European Union is banning most Russian oil and the Group of Seven democracies has imposed a price cap of $60 per barrel on Russian exports to other countries.

The impact of both measures, however, may be blunted because the world’s No. 2 oil producer has so far been able reroute much of its European seaborne shipments to China, India and Turkey, although at steep discounts, and the price cap is near what Russian oil already cost.

As it stands, Russia will likely have enough money to not only fund its military but support key industries and social programs, said Chris Weafer, CEO and Russian economy analyst at consulting firm Macro-Advisory.

“At this price level, that outlook really doesn’t change much. But what is key is how much volume Russia would be able to sell,” he said. “And that depends not only on the willingness of Asian buyers to continue buying Russian oil, but also what is the physical ability of Russia to shift that oil.”

Western leaders are walking a fine line between trying to cut Russia’s oil income and preventing an oil shortage that would cause a price spike and worsen the inflation plaguing economiesand hurting consumers worldwide. They could later agree to lower the price cap to increase pressure on Russia, which says it will not sell to countries that observe the limit.

That could take oil off global markets and raise energy costs, including for gasoline at the pump. International benchmark Brent crude rose before falling 2.5% to $83.40 a barrel Monday.

To seriously cut Russian revenue, the cap must be lowered “quickly and progressively,” said Lauri Myllyvirta, lead analyst at the Finland-based Centre for Research on Energy and Clean Air.

Even the $60 cap, if enforced, would already push Russia to lower per-barrel tax, he said, calling it “by far the biggest step to date to cut off the fossil fuel export revenue that is funding and enabling Russia’s barbaric invasion of Ukraine.”

Russia has been living off the huge windfall from higher oil pricesearlier this year and will be more vulnerable in the next several months when that money is spent, Myllyvirta said.

Kremlin spokesman Dmitry Peskov, asked in a conference call how the oil price cap might affect the war, said, “The economy of the Russian Federation has the necessary potential to fully meet all needs and requirements within the framework of the special military operation, and such measures will not affect this.”

The U.S., EU and allied countries have hit Russia with a slew of sanctions aimed at bank and financial transactions, technology imports and regime-connected individuals. But until now, those sanctions have for the most part not directly gone after the Kremlin’s biggest moneymaker, oil and natural gas.

Europe was heavily dependent on Russian oil and natural gasbefore the war and has had to scramble to find new supplies. Previously, the EU banned imports of Russian coal, and the U.S. and the U.K. halted their limited imports of Russian oil, but those steps had a much smaller economic impact.

Even as Western customers shunned Russian oil, the higher prices driven by fears of energy shortages helped offset lost oil sales, and Russian exporters have shipped more oil to Asian countries and Turkey in a major reshuffling of global oil flows. Russia’s economy has shrunk — but not by as much as many expected at the start of the war almost 10 months ago.

One unknown is how much of the oil formerly sold to Europe can be rerouted. Analysts think many, but not all, of the roughly 1 million barrels covered by the embargo will find new homes, tightening supply and raising prices in coming months.

The Biden administration doesn’t expect that Russia’s threats to cut off countries observing the cap and slow production would “have any impact long term on global oil prices,” National Security Council spokesman John Kirby said.

He said “this cap will lock in the discount on Russian oil” and countries like China and India would be able to bargain for steep price reductions.

Indian Foreign Minister Subrahmanyam Jaishankar indicated Monday that the country would keep buying oil from Russia to prioritize its energy needs. India so far hasn’t committed to the price cap.

The cap has a grace period for oil that was loaded before Monday and arrives at its destination before Jan. 19 to minimize disruption on oil markets.

The measure bars insurers or ship owners — most of them located in the EU or U.K. — from helping move Russian oil to non-Western countries unless that oil was priced at or below the cap.

The idea is to keep Russian oil flowing while reducing the Kremlin’s income. The U.S. and Europe leaned more toward preventing a price spike than provoking financial distress in Russia.

French Finance Minister Bruno Le Maire said the cap was “worth trying,” adding that “we will make an assessment of the efficiency of the old cap at the beginning of 2023.”

Ukraine’s President Volodymyr Zelenskyy had called for a price ceiling of around $30 per barrel. That would be near Russia’s cost of production, letting Russian oil companies earn enough only to avoid capping wells that can be hard to restart. Russia needs some $60 to $70 per barrel to balance its budget.

Russia could use methods to evade the sanctions such as those employed by Iran and Venezuela, including using “dark fleet” tankers with obscure ownership and ship-to-ship transfers of oil to tankers with oil of similar quality to hide its origin. Russia or China could also organize their own insurance. Sanctions experts say that those steps will impose higher costs on Russia.

The new EU sanctions led the Italian government to take temporary control of the Russian-owned ISAB refinery in Sicily last week. The government stopped short of nationalization but put the facility, where about 20% of Italy’s oil is refined, under receivership to protect 10,000 jobs linked to the refinery and its suppliers.

___

AP reporters Raf Casert in Brussels, Aamer Madhani in Washington, Sheikh Saaliq in New Delhi and Colleen Barry in Milan contributed

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Alberta

Report confirms Asia can reduce emissions with Canadian LNG

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‘It reduces emissions globally, so it’s for the good of everyone’

From the Canadian Energy Centre Ltd.

Asia’s demand for liquefied natural gas (LNG) is rising fast as countries look for cleaner alternatives to coal while their economies expand.  

To significantly reduce emissions, the LNG should come from Canada, according to a new report by global research consultancy Wood Mackenzie.  

If Canada increases its LNG export capacity to Asia, net emissions could decline by 188 million tonnes of CO2 equivalent per year – or the annual impact of taking 41 million cars off the road, analysts wrote. 

“It’s like taking all of the cars in Canada away, if we were able to build all of those projects,” said Matthias Bloennigen, Wood Mackenzie’s director of Americas upstream consulting. 

“It reduces emissions globally, so it’s for the good of everyone.” 

To reach global net zero emissions by 2050, the largest reductions will likely need to come from the power sector, analysts wrote.  

The heart of the opportunity is switching from coal-fired to gas-fired power plants, particularly in Asia. 

Natural gas – traded globally as LNG – produces less than half the emissions of coal when used in power generation.  

And it’s a so-called “baseload” reliable fuel that can help offset the intermittency of wind and solar as renewables take on a larger share of the global energy mix, analysts wrote.  

“Gas is also cost-competitive and there are large global reserves in many countries, including Canada,” the report said. 

“If Canada does not export as much LNG as anticipated to northeast Asia, the region would need to rely on LNG from elsewhere that has a higher emissions intensity.” 

If Canada limits its LNG exports to one or two projects, total emissions in northeast Asia would increase by 121 million tonnes of CO2 equivalent through 2050, analysts wrote.  

But if Canada significantly increases LNG capacity to help northeast Asia reduce its reliance on coal, net emissions would decline by 5,459 mtCO2e over the same period.  

“LNG from Canada going into northeast Asia has lower emissions than LNG coming from many other global LNG exporters,” the report said.  

LNG from western Canada has average life cycle emissions intensity 12 kgCO2e/mmbtu, compared to 21 kgCO2e/mmbtu for projects in the United States.  

“With its high environmental standards and stewardship, Canada would be a great partner to fill the LNG demand gap in Asia,” Wood Mackenzie analysts wrote.  

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