Germany has made and is continuing to make choices that almost guarantee energy shortages this winter. From Pepe Escobar at strategic-culture.org:
A “perfect storm of Russian aggression during the coming winter months” is all but inevitable. Watch it on your screens while you properly freeze.
As much as with “brain dead” NATO (copyright Emmanuel Macron) no one ever lost precious assets betting on the incompetence, narrow-mindedness and cowardice of political “leaders” across the Atlanticist EU.
There are two main reasons for the latest German legalese gambit of suspending the certification of the Nord Stream 2 pipeline.
- Retaliation, directly against Belarus and Russia, “guilty” of the disgraceful refugee drama at the Poland-Belarus border.
- Politicking by the German Greens.
A high-ranking European energy executive told me, “this a game where Germany does not hold a winning hand. Gazprom is very professional. But imagine if Gazprom decided to deliberately slow down their deliveries of natural gas. It could go up tenfold, collapsing the entire EU. Russia has China. But Germany does not have a workable contingency plan.”
This ties up with a proposal that is sitting at a crucial desk in Moscow for approval for two years now, as I reported at the time: an offer by a reputable Western energy firm of $700 billion for Russia to divert their oil and gas exports to China and other Asian customers, away from the EU.
This proposal was actually the key reason for Berlin to resolutely counteract the U.S. drive to stop Nord Stream 2. Yet the torture never stops. Russia now faces an additional hurdle: a carbon tax on exports to the EU which include steel, cement and electricity. That may well be extended to oil and natural gas.
Every sentient being across the EU knows that Nord Stream 2 is the easiest path to lower natural gas prices across Europe, and not the EU’s blind neoliberal bet of buying short term in the spot market.
It’s perhaps not wise to throw out your existing hydrocarbon sources of energy until the new, green sources of energy are up to the job of replacing them. Especially when of your prime sources of hydrocarbons—Russia—doesn’t always have your best interests at heart. From Cyril Widdershoven at oilprice.com:
Europe’s energy crunch is continuing, as gas storage volumes have shrunk to 10-year lows. A possible harsh winter could lead to severe energy shortages and possible shutdowns of large parts of the economy.
While the main discussion is currently focused on the potential role of Russia in the energy crisis, a new narrative could soon make the headlines. In a surprise move, the Dutch government has indicated that in a severe supply crunch situation, the Groningen gas field, Europe’s largest onshore gas field, could partially and temporarily be reopened. It seems that the term Dutch Disease could get a new meaning, from being the paradox of a rentier state suffering from plentiful resources to a show of Europe’s lack of realism when it comes to energy transition risks and current market powers. Dutch Minister Stef Blok has indicated that he is considering the potential reopening of the Groningen field, in particular five wells, especially the one at Slochteren, as indicated by Johan Attema, director of the Nederlandse Aardolie Maatschappij (NAM), the operator of the Groningen field. The reopening of the field, even in the case of an emergency or an energy crisis, is politically controversial.
Until recently, the plan was that Groningen would be closed completely by 2023, ending the large-scale gas production and export by the Netherlands with a bang.
The Dutch media is speculating that minister Blok will be asking for a possible reopening of the Groningen field, a decision that must be made before October 1. If the Minister decides to change the current shutdown plans, the whole Groningen debacle, as some see it, will be prolonged. It is clear, looking at the current deplorable situation of the European energy sector, that Groningen is still needed. The ongoing energy crunch could have grave consequences for the economies and wellbeing of EU member states, changing the narratives in Brussels and the respective European capitals.
How about that! When the European Central Bank shovels fiat debt liquidity into the system prices go up, just like in the US when the Fed does the same. From Tyler Durden at zerohedge.com:
While a faint glimpse of reality did sneak through into the ECB’s latest set of economic projections, with the central bank now projecting that for the first time in over a decade, Europe’s 2021 inflation will surpass the ECB’s stated target of 2.0%, rising to 2.2% from the June projection of 1.9%, the balance of the outlook remained troubling, with the ECB now predicting inflation drops to 1.7% in 2022 and then again to 1.5% in 2023.
As Bloomberg’s Ven Ram put it, “the key number in all of ECB President Christine Lagarde’s projections is the HICP inflation number of 1.5%, which shows a modest revision that was expected by the markets. In other words, there’s still no sight of 2% inflation over the medium term. So after all these years of negative rates, APP and PEPP, there will be no end to yet-more accommodation and the ECB is saying its inflation target is still very much work-in-progress. And that against a backdrop where the ECB’s own estimates show growth this year and next will be better than it has been in a long, long time. Little wonder that BTPs and bunds are bid.”
Meanwhile, as Lagarde stakes the ECB’s reputation on the current burst of inflation once again being merely “transitory”, the reality on the ground is far uglier, and as the NYT writes overnight, soaring natural gas prices threaten to become a drag on the economies of Europe and elsewhere. Wholesale prices for the fuel are at their highest in years — nearly five times where they were at this time in 2019, before people started falling ill with the virus.
Texas was producing a lot more natural gas power than usual and a lot less wind power than usual during the recent freeze. From Robert P. Murphy at mises.org:
In the wake of February’s tragic power outages in Texas, during which 4.5 million households suffered service interruptions, partisans on both sides have been quick to interpret the events as confirmation of their preferred energy policies. With news images of helicopters deicing frozen turbines, conservatives lambasted Texas’s increasing reliance on wind power as the villain in the story.
Trying to temper this knee-jerk reaction, Reason.com columnist Ron Bailey argued that “[m]ost of the shortfall in electric power generation during the current cold snap is the result of natural gas and coal powered plants going offline.” And Paul Krugman for his part declared that it was a “malicious falsehood” to blame wind and solar power for what happened in Texas, as it was primarily a failure of natural gas.
In this article I’ll lay out the basic facts of which power sources stepped up to the plate during the crisis. Contrary to what you would have known from reading Ron Bailey (let alone Paul Krugman), when the Texas freeze hit, electricity from natural gas skyrocketed while wind output fell off a cliff. The people arguing that wind wasn’t to blame mean it in the same way Jimmy Olson wasn’t to blame when General Zod took over: wind is so useless nobody serious ever thought it might help in a crisis.
Most of Texas’s substantial wind power went off-line and natural gas couldn’t pick up the slack. From Tyler Durden at zerohedge.com:
With the worst of the Texas power crisis now behind us, the blame and fingerpointing begins, and while the jury is still out whose actions (or lack thereof) may have led to the deadly and widespread blackouts that shocked Texas this week, Cascend Strategy writes that “in case there was any doubt why the Texas grid collapsed, the data is clear”
- Wind failed as “Ice storms knocked out nearly half the wind-power generating capacity of Texas on Sunday as a massive deep freeze across the state locked up wind turbine generators, creating an electricity generation crisis.”
- Natural gas made up the difference for a while
- But then everything else followed down
Some more detail from Cascend which lays out the events of this week in sequence:
- A massive cold snap drove demand for electricity well beyond normal levels
- Wind power failed to deliver it’s expected power – almost 40% of expected power – in part due to lack of winterized wind turbines
A lot of people may have trouble getting head during a mammoth Arctic cold spell across the Midwest and South. This could get quite serious and potentially deadly. From Tyler Durden at zerohedge.com:
Updated (1726 ET): Weather forecast models suggest the polar vortex will continue pouring Arctic air into much of the central US through Feb. 20. This means nat gas prices could rise even higher early next week as electricity demand continues to soar over the weekend as Americans crank up their thermostats and watch Netflix shows or mine Bitcoin.
* * *
On Thursday, when we reported that nat gas prices across the plains states had soared to never before seen levels as a result of a brutal polar vortex blast…
… which literally froze off nattie supply as wellheads freeze-offs, cutting production receipts just when they’re most needed by customers’ demand for heating, we said that since the winter blast is expected to last for the duration of the week, it is likely that nattie prices across the plains states could hit GME batshit levels.
There’s more trouble looming for the Permian Basis petroleum industry. From Wolf Richter at wolfstreet.com:
“The capital markets for oil and gas remain extremely difficult.”
The Dallas Fed’s Forth Quarter Energy Survey, released today, portrays an industry that is turning increasingly somber. The data is based on responses of executives (names are not disclosed) of 170 energy companies – 111 exploration and production (E&P) companies; and 59 oil field services companies – located or headquartered in the Dallas Fed’s district, which covers Texas, northern Louisiana, and southern New Mexico and includes the most prolific shale oil-and-gas field in the US, the Permian Basin.
This time, there were additional questions, including on the reasons for “flaring” of natural gas in the Permian Basin. Natural gas is so abundant in the hydrocarbon mix produced at these wells (“associated” natural gas), and natural-gas pipeline takeaway capacity is so insufficient, that the surge in production led to the collapse of the price of natural gas in the area, reportedly dropping below zero on occasion. And it led to a record amount of natural gas getting flared in 2019.
Flaring large amounts of gas is a waste of natural resources, a source of air pollution, and a big financial drag for the already struggling oil-and-gas companies, investors, and banks.
Fracking may be the greatest thing to ever happen to US oil and gas production, but it’s having a hard time paying for itself, especially when the cost of copious amounts of debt is thrown into the calculations. From Wolf Richter at wolfstreet.com:
Including billionaires who thought they’d picked the bottom in 2016.
In 2019 through third quarter, 32 oil and gas drillers have filed for bankruptcy, according to Haynes and Boone. Since the end of September, a gaggle of other oil and gas drillers have filed for bankruptcy, including last Monday, natural gas producer Approach Resources. This pushed the total number of bankruptcy filings of oil and gas drillers since the beginning of 2015 to over 200. Other drillers, such as Chesapeake Energy, are jostling for position at the filing counter.
Chesapeake has been burning cash ever since it started fracking. To feed its cash-burn machine, it has borrowed large amounts and has been buckling under its debt for years, selling assets to raise cash and keep drilling for another day. But its debt is still nearly $10 billion. Its shares [CHK] closed on Friday at 59 cents.
On November 5, in an SEC filing, it warned of its own demise unless oil and gas prices surge into the sky asap: “If continued depressed prices persist, combined with the scheduled reductions in the leverage ratio covenant, our ability to comply with the leverage ratio covenant during the next 12 months will be adversely affected which raises substantial doubt about our ability to continue as a going concern.”
Despite the best efforts of the US government to get Europeans to buy higher priced American liquified natural gas, the Europeans inexplicably want the cheaper gas Russia offers, so the Nord Stream 2 gas pipeline from Russia to Europe will go through. From Irina Slav at oilprice.com:
This week, Denmark granted Gazprom approval for its Nord Stream 2 gas pipeline project, a project that is set to bring 55 billion cubic meters of Russian gas into Europe annually. It is one of the most controversial pipeline projects in the world and is now moving ahead despite strong opposition from multiple EU members and the United States.
The geopolitical tensions surrounding the development of Nord Stream 2 are unprecedented. To begin with, Russia has very poor relations with the Baltic states and Poland, nations who will almost always fight against anything they see as empowering Russia geopolitically. Then there is Ukraine, a nation that is strongly against the pipeline due to its fear of losing the transit fees that it currently charges Russia for exporting gas to Europe. Finally, and perhaps most importantly, the United States sees this pipeline as a direct threat to its soft power in Europe as well as a threat to its growing LNG exports.
Posted in Business, Capitalism, Economics, Energy, Foreign Policy, Geopolitics, Governments, Trade
Tagged Denmark, Europe, Natural gas, Nord Stream 2, Russia
Turkey moves farther and farther outside the US orbit. From Tom Luongo at tomluongo.me:
While the Trump Administration still thinks it can play enough games to derail the Nordstream 2 pipeline via sanctions and threats, the impotence of its position geopolitically was on display the other day as the final pipe of the first train of the Turkstream pipeline entered the waters of the Black Sea.
The pipe was sanctioned by Russian President Vladimir Putin and Turkish President Recep Tayyip Erdogan who shared a public stage and held bilateral talks afterwards. I think it is important for everyone to watch the response to Putin’s speech in its entirety. Because it highlights just how far Russian/Turkish relations have come since the November 24th, 2015 incident where Turkey shot down a Russian SU-24 over Syria.
Posted in Business, Currencies, Debt, Geopolitics, Governments, Money, Politics
Tagged Gas pipelines, Natural gas, Russia, Turkey, Turkstream