Russian Gas: Moral, and Economic Hazard for Germany, Europe, US

April 22, 2022

Above, reminder that Eastern Ukraine, the disputed territories coveted by Vladimir Putin, have huge natural gas reserves.
Below, Germany in particular, exposed to large dependence on Russian natural gas. As outrage spreads about Russian atrocities, a moral and economic crisis looms.

Financial Times(paywall):

The war in Ukraine is reordering the global energy landscape. Shocked by the devastation visited on Ukrainian cities by Russian bombs, the EU has imposed swingeing sanctions on Russian hydrocarbons. Coal is banned; oil could be next. Gas may also be on the agenda.

But talk of a full-scale embargo on Russian energy is spreading panic in Germany, which until the war received 55 per cent of its imported gas from Russia. The fear is that any sudden gas shut-off could paralyse large parts of the country’s industry. Martin Brudermüller, chief executive of the chemicals group BASF, says it would plunge German business into its “worst crisis since the second world war”.

Meanwhile, the government is pushing for more wind farms and solar parks to increase its share of renewable power. But it might also allow Germany’s coal-fired power stations, which are slated for closure by 2030, to operate for longer — a bitter pill for the Greens to swallow. Habeck’s ministry says that since Russia invaded Ukraine, the government has reduced its dependence on Russian coal from 50 to 25 per cent, oil from 35 to 25 per cent, and gas from 55 to 40 per cent.

The plan is for Germany to all but wean itself off Russian gas by mid-2024 and become “virtually independent” of Russian oil by December. Eon’s Birnbaum, however, says it will take three years for Germany to fully break its addiction to Russian energy imports. Others, though, disagree. According to a report by the DIW think-tank, Germany could easily fill its gas supply gap were Russian exports to stop, partly by increasing pipeline imports from Norway and the Netherlands, tapping more LNG via import terminals in Rotterdam, Zeebrugge and Dunkirk, and forcing industry to conserve energy.

“German industry has been developing these horror scenarios, saying we just can’t do without Russian gas, and by doing this they’re taking the whole economy hostage,” says Claudia Kemfert, an energy expert at the DIW. “But we’re living in a different world now . . . We can’t do business with Russia any more and industry has to realise that.”

But government officials dismiss suggestions that Germany can somehow make do without Russian gas. “Russian gas imports are still, in our view, irreplaceable,” says one.

Yahoo Finance:

U.S. natural gas is on a tear. Prices have almost doubled this year to the highest since the shale revolution more than a decade ago, driving up energy costs and helping fuel the fastest inflation in 40 years.

Yet the gas market, once considered a yawn among traders because of its predictability, could be setting the stage for a even wilder rally over the next few months, triggering bets on prices that would have seemed unimaginably high just a few months ago.

“There’s just too much uncertainty around trying to predict a price ceiling here — and if there is even a ceiling,” said Emily McClain, a senior analyst at Rystad Energy in Houston.

The rally has been supercharged by a surge in demand — from an unusually chilly spring that stoked heating needs, to a spike in exports as Europe tries to wean itself off Russian gas amid the war in Ukraine. That’s cut U.S. inventories to almost 20% below typical levels. At the same time, traders are staring down forecasts for a hotter-than-normal summer that will almost certainly bolster demand for gas to generate electricity as air conditioners get cranked higher. But what’s really getting the bulls excited is that the market has lost much of its ability to curb consumption through higher prices.

In the past, when natural gas became too expensive, power-plant owners would just dial down some of their gas-fired generators and turn up those burning coal, effectively putting a ceiling on demand and preventing prices from skyrocketing. But utilities’ move away from coal is shrinking inventories and drastically reducing their ability to pivot from gas, leaving the market more vulnerable to wild moves. “There is a path to some crazy prices,” said Paul Phillips, senior strategist at Uplift Energy Strategy in Denver.

Another pressure point for prices — overseas demand — is also unlikely to cool anytime soon. American gas has become vital to alleviate a global shortage and help Europe move away from Russian imports as part of efforts to isolate Moscow after its invasion of Ukraine. Prices in Europe and Asia are now four times as high as the U.S., meaning there’s a huge incentive for domestic suppliers to export every molecule possible. American exports of liquefied natural gas rose 26% in the first quarter from a year earlier to a record.

With international prices at about $30 per mmbtu, U.S. gas would have to climb to roughly $20 to make exports less appealing once the cost of shipping is factored in, according to Gary Cunningham, a director at Tradition Energy.

“It’s scary, but that’s where we’re at,” Cunningham said.Higher production could provide some price relief, but so far the industry has held back after a decade of overspending sapped profits. Even if they did want to pump more, producers would face rising costs, labor shortages and limited pipeline capacity in gas-rich areas including Appalachia. Average daily output this year is about 94.4 billion cubic feet, only slightly above the level for the same period of 2020, before a pandemic-led decline in output, according to data compiled by Bloomberg. Traders say an extra two or three billion cubic feet of gas may be needed to balance supply and demand this year. The Energy Information Administration expects production to average 97.4 billion cubic feet a day in 2022.“All the signals are pointing to higher prices because of what we’re seeing from a weather standpoint, what we’re seeing from the storage inventories, and from the lag in supply and the increase in demand,” said McClain, the senior analyst at Rystad. “We have all of the alignment here.”

One Response to “Russian Gas: Moral, and Economic Hazard for Germany, Europe, US”

  1. gmrmt Says:

    Given that leakage of as little as 3% of natural gas would make its’ GHG emissions worse than coal and that such long pipeline undoubtably leak more a temporary extension of coal shoud actually reduce emissions.

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