A terrible thing to start with: Russia is at war with Ukraine. Vladimir Putin announced the invasion last night. Brent crude passed US$100 for the first time since 2014. Western countries may tighten sanctions against Russia.
Welcome back to Source Energy.
At any other time, America’s biggest offshore wind auction would make headlines in the energy news. The ongoing bidding process is expected to fetch record sums as would-be developers scramble for the opportunity to erect turbines off the coast of New York and New Jersey.
But for now, the focus of global energy markets — and the world at large — is on the situation in Ukraine, where Russian President Vladimir Putin last night ordered a full-scale military invasion, triggering what could be the biggest conflict in Europe since the Second World War.
As Western sanctions against Russia are likely to be stepped up in response, our main question today is what might happen if Putin retaliates by halting the country’s sizable oil and gas exports.
Our second note is about a meeting between America’s top climate diplomat John Kerry and shale magnate Harold Hamm. Data Drill dives into the latest International Energy Agency report on methane.
Brent oil prices have surged above $100 a barrel on fears Russia will cut off Russian oil supplies to global markets. But oil flows are likely to remain unharmed for now.
President Joe Biden said earlier this week that “defending democracy and freedom is never without cost”, acknowledging that escalating tensions are fueling the rise in oil.
However, US officials have said emphatically that they will not sanction Russian oil in a way that hurts US consumers at the pump as inflation rises.
“We have been very firm in ensuring that the effects of our sanctions are directed at the Russian economy, not ours,” a senior administration official said at a briefing earlier this week. “None of the measures are intended to stop the flow of energy to global markets,” he added.
Of course, President Putin will also have his say. Will he reduce oil supplies in retaliation for economic sanctions?
Russia produces around 10 million barrels a day of crude oil, of which approximately 4.5 million barrels a day are exported, making it one of the largest oil suppliers in the world. Cutting some or all of that supply in an already tight global oil market would push prices up well above $100 a barrel and wreak havoc on Western economies.
This could become a tempting front in an economic war. But the reaction to Putin would be substantial and difficult to contain.
On the one hand, the domestic policy of cutting off oil supplies would be more complicated for Putin than for gas. The vast majority of gas exports are carried out by state-owned Gazprom, while oil is exported by a larger set of companies, many of which are privately owned. A sustained oil embargo could anger many of these private producers and force field closures, potentially hurting Russian supplies in the long run.
Putin also risks damaging his own economy unless the resulting price rise offsets lower export volumes — a situation that could linger if prices later fall but Russia fails to regain its market share.
The consequences abroad, meanwhile, would be much harder to contain than a cut in gas flows. While Russia could inflict more targeted economic damage on Europe by restricting gas to the continent, the cut off of oil flows would be felt at fuel pumps globally, hitting enemies and allies like China. Even Moscow’s OPEC+ partners would be irritated by an uncontrolled rise in prices.
None of this is to say that Putin cannot or will not cut off oil supplies to global markets. But in an energy war, oil would be the central option.
And the gas?
Natural gas is a much easier weapon for Russia to mobilize. While cutting off oil supplies has broader consequences, gas markets are much more localized.
About 40% of Europe’s gas imports come from Russia. And Moscow could put immediate pressure on the continent by turning off the taps, with limited repercussions on global markets.
Analysts at Rystad Energy estimate that the risk of Moscow deciding to “reduce or stop” gas flows to Europe has only increased since Germany suspended certification of the Nordstream 2 pipeline.
European gas benchmark prices are already five times higher than in this period last year — and jumped 20 euros this week to almost 90 euros per MWh (R$569.00), with brokers fearing the possibility of Russian retaliation. to Western sanctions.
If the Kremlin decides to play the gas card, Europe’s options are limited: African imports are in decline and there is not much to increase domestic supply.
A new energy strategy is expected to be announced by Brussels next week, aimed at turning the continent away from Russian gas — but that will take years to implement.
For now, Europe has gas for about a month, according to the Council on Foreign Relations. The distributors have about nine more weeks of supply.
Liquefied natural gas imports would be the main method to fill the gap. The United States has been coordinating efforts with countries such as Japan and Qatar to provide more LNG shipments to Europe. But with tight markets, the continent will have to pay for the privilege.
Analysts at ClearView Energy Partners in Washington noted:
When it comes to natural gas, LNG is the only realistic alternative available on a large scale in a short amount of time. Replacing Russian pipeline gas with LNG imports on an ongoing basis may be theoretically possible, but also prohibitively expensive.
We didn’t have this in our prediction board
If you predicted that a year into the Biden administration, US climate envoy John Kerry would sit down in Washington to discuss US energy with Harold Hamm, the shale oil pioneer and former ally of Donald Trump, congratulations: your prize. It’s on the way.
But there was a meeting on January 19th.
Both are very rich. But otherwise, it’s hard to imagine a greater contrast than that between Hamm, the poverty-stricken Oklahoma self-made man, and Kerry, the French-speaking Ivy League graduate who exudes his elite coastal status. East.
Hamm told me about meeting Kerry when I was recently in Oklahoma City to interview Devon Energy Chief Executive Rick Muncrief. Hamm said Kerry contacted him after I reported in a profile of Hamm last month that the climate envoy had not responded to previous requests for a meeting with Hamm.
“We talked a lot,” Hamm told me. The shale baron said he disagreed with some of Kerry’s claims.
“He’s always throwing these numbers about oil and gas being subsidized,” Hamm said.
“‘John,’ I said, ‘I’ve drilled more dry holes than anyone alive. And nobody ever paid me a cent.’
(Critics of US oil and gas subsidies, which the Biden administration has promised to reduce, cite a wide range of them.)
News of the meeting will not help dispel ideas that, in the face of rising oil prices, the Biden administration — which initially seemed so focused on combating climate change — is closing in on the US fossil fuel industry, the biggest source of energy. American issues.
From shale to coal, American fossil fuels are now booming. The president’s pledge to stop shale fracturing on federal lands has crumbled. The much-lauded government attack on methane was criticized as too mild by asset managers. White House officials, from the president on down, have repeatedly urged oil producers to supply more oil.
Hamm says he is neither a Republican nor a Democrat — he is an “oleocrat”. But he has been a frequent voice in Washington policy on both sides of the aisle, supporting Donald Trump in recent years but also pushing the Obama administration to legalize US crude oil exports.
The two also discussed methane pollution, according to Hamm. Kerry cited the oil industry’s negative track record. Hamm, who supported Trump’s efforts to scrap Obama-era methane pollution rules, disputed Kerry’s claim. “How harmful is that really?” he asked.
A lot, said the report by the UN’s Intergovernmental Panel on Climate Change (IPCC). The Biden administration has made containment of methane — a virulent greenhouse gas — a cornerstone of its climate policy, and Kerry has been instrumental in a global deal to reduce methane emissions, considered a priority in the climate fight. It seems unlikely that Hamm changed Kerry’s mind.
A State Department spokesperson confirmed that the two met and talked briefly about transitioning to clean energy and opportunities to address methane emissions. Hamm also asked to meet with Gina McCarthy, Biden’s home climate czar.
data drilling
As energy prices soar around the world, plugging methane leaks could ease price pressures and reduce the sector’s emissions, says the International Energy Agency (IEA).
If all methane leaks in 2021 were captured and traded, an additional 180 billion cubic meters of gas would be available to the market; enough for Europe’s energy sector, according to the IEA’s recently released Global Methane Tracker.
The IEA also found that methane emissions from the energy sector were largely underreported by 70% of governments worldwide. The organization cites this incomplete information and a lack of awareness of the profitability of abatement as key barriers to keeping methane levels low.
power points
- US gas producers are seeking the “responsible sourcing” label to retain customers and ease investor pressure on emissions, but this has led to accusations of greenwashing.
- The job market is seeing more green jobs, but the positions tend to go to college-educated millennials, reports Kristen Talman of Moral Money.
- Mining company Rio Tinto delivered the second-largest payout in UK corporate history, cashing in on higher prices for its key commodities.
Translated by Luiz M. Gonçalves
I have over 8 years of experience in the news industry. I have worked for various news websites and have also written for a few news agencies. I mostly cover healthcare news, but I am also interested in other topics such as politics, business, and entertainment. In my free time, I enjoy writing fiction and spending time with my family and friends.
