By Tom Evslin, Fractals of Change
At over $80/barrel for oil, Russia and Iran are awash in profits; today’s price is $88. They can afford guns and butter. We see the results on the borders of Ukraine and in increased attacks by Houthi rebels on the UAE. At $40/barrel, both countries have all they can do to stifle internal rebellion against autocracy, kleptocracy, and general mismanagement.
Responding to Russian aggression in concert with NATO is difficult because Europe obtains 40% of its natural gas from Russia. This heating season began there with low supplies because more than a usual amount of gas had been burned to supplement unusually low yield from wind and solar used to generate electricity. Russia has refused to sell enough additional gas to Europe to refill the reserves, which keeps Europe particularly vulnerable to any threat from Russia to reduce the flow and does not leave Europe in a position to reduce Russian import revenue. Our European allies have asked the US to help them find more gas; but we are limited both by self-imposed restrictions on our supply and the prior refusal by some counties – especially Germany and France – to allow LNG import facilities to be built.
Germany made itself particularly vulnerable when Andrea Merkle over-reacted to Fukushima with a hasty shutdown of Germany’s nuclear capacity for generating electricity. Realizing that this created a need for natural gas, Germany contracted with Russia for supplies through a new gas line between the two countries, Nord Stream 2. Significantly Nord Stream 2 bypasses Ukraine through which much Russian gas reaches Europe today. The US has opposed Nord Stream 2 for security reasons, but Biden backed off on opposition early in his term in a bid to improve German-American relations. The pipeline is essentially finished but Germany has not yet given final approval for its operation. Meanwhile, Germany has had to increase coal use and is suffering from soaring electric rates because of high natural gas prices.
The threat to the environment
The incoming Biden administration has moved quickly to make oil and natural gas more expensive by canceling pipelines and refusing to issue drilling permits. As higher oil prices showed up at the pump, Biden was in the ridiculous situation of begging OPEC and Russia to increase production. His intent was to save the environment by reducing the use of fossil fuels. The affect was simply to increase production and the profitability of production is places like Russia, where there are no effective environmental restrictions on dirty drilling and leaky pipes while reducing production here where we can enforce good practices.
With natural gas prices up and supply down, Europe has been burning more coal. Coal emits at least 25% more CO2 per unit of energy than oil and 50% more than natural gas. Far from saving the environment, actions taken to reduce US production have INCREASED greenhouse gas emissions and strengthened our adversaries.
So now what do we do?
Franky the US hasn’t had a good record of carrying through on its threats nor of convincing Europe to take strong joint action. It’s unlikely that threats of any kind, especially threats of yet more economic sanctions, will deter Putin as long as he has the upper hand. We should take the steps below now – regardless of what Putin does – to reduce the advantage that high energy prices and tight supplies give Russia (and Iran).
- Drive oil prices and Russian oil revenue down immediately by increasing sales from the US strategic oil reserve. We needed those reserves when OPEC could cut us off; they can’t do that anymore. There is enough petroleum in the reserve to add 10% per day to the amount we are producing for almost two years. It won’t take that long to bring oil prices down.
- Don’t get in the way of increased US production of oil and gas. Fortunately, we have a private sector which has already responded to high oil and gas prices by increasing production. We have demonstrated that we are the world’s swing producer; we can make oil and gas prices crash. We should do so.
- Don’t let the major US oil and gas producers push regulation which shuts down their smaller competitors. Left to themselves, the majors are just fine with high oil prices because their value is the value of the wells and reserves they already own. It takes aggressive small producers to keep them honest.
- Do, however, regulate fugitive gas emissions from oil well drilling and gas pipelines. Use infrastructure money to rebuild leaky municipal gas systems; someday those pipes will carry clean hydrogen.
- Continue building pipelines to ocean ports so American energy can reach the world market and drive world fuel prices down again. Remember that most of this fuel will replace other fossil fuel from places which are not nearly as scrupulous environmentally as we can be.
- Tell our European allies that we have their back for long-term gas supplies and that we support their new emphasis on nuclear power to reduce the need for fossil fuels – and drive energy prices down. But tell Germany that they can’t have it both ways. No Nord Stream 2 if we are their supplier of last resort.
All the above will be much more effective than sanctions-as-usual. And will protect the environment from coal and dirty drilling as well.
The author, an author, entrepreneur, former Vermont state cabinet officer, lives in Stowe. He founded NG Advantage, a natural gas truck delivery company. This commentary is republished with permission from his blog, Fractals of Change.
Categories: Commentary
Biden is a buffoon ! Lord help all of us !
THE UKRAINE PLOT IS THICKENING WITH GERMANY AND FRANCE NO LONGER IN LOCKSTEP WITH US/UK-LED NATO
https://www.windtaskforce.org/profiles/blogs/the-plot-is-thickening-with-germany-and-france-no-longer-in
I wrote this article, because Russia-hating, extreme rightists in the US State Department and US Senate are leading the US into a shooting war with Russia, on European soil
I was living in the Netherlands during NAZI occupation.
Millions of European people, including my family, have vivid memories of war and the Holocaust.
NATO, a US/UK Handmaiden
NATO has a convenient policy, which states each sovereign country has a right to make its own security arrangements.
Russia is surrounded by sovereign countries, such as Kazakhstan, etc.
Does that mean all these countries are fair game for NATO color-revolution-style regime change?
If the NATO umbrella would spread to these countries, Russia would be isolated from many countries, except China.
Ukraine
Ukraine is a patchwork of pieces, similar to the former Yugoslavia.
Ukraine belonged, until recently, to 1) different empires, such as the Austro-Hungarian Empire and Russian Empire, and 2) several nations, such as Russia, Poland and Romania.
Ukraine’s major religions are Catholicism and Greek and Russian Orthodoxy.
Ukraine has millions of ethnic Russians and Russian speakers with deep historical, cultural and economic links with Russia.
Ukraine is a poor/unstable/divided country, with a corrupt, dysfunctional, kleptocracy economy
Ukraine is one of the poorest countries in Europe.
Ukraine ranks 117 out of 180 countries on the world-corruption scale in 2020
Ukraine has experienced an annual average population decrease of 300,000 since 1990.
Ukraine has been a US/UK color-revolution target since 1990.
The US spent $5 billion to lay the revolution groundwork, from 1990 to 2014, per Nuland, US Under Secretary of State
Ukraine is used by the US/UK-led NATO as a way to aggravate, contain, diminish, dismantle Russia
Ukraine is acting as an eager bad boy to: 1) advance US interests, 2) “deserve” NATO and EU membership
Ukraine helps implement the foreign policy of the extreme-rightist, hate-Russia factions in the US government
Ukraine hinders implementing the Minsk Agreements at the behest of the US.
Ukraine gets free weapons and training from NATO countries to “deter” Russia
Ukraine’s actions are harming EU/Russian trade relations; the EU has nothing to gain from Ukraine.
The EU and Russia want to have normal relations
The image shows Russian language presence in brown colors
Russia Pipeline Gas Supply to Europe
Russia provided Europe and Turkey with 200.8 and 198.97 billion cubic meters of gas (bcm), in 2018 and 2019, respectively;
Russia provided 174.9 bcm in 2020, because COVID reduced economic activity.
Russia provides about 40% of annual EU gas requirements, about 184 bcm/y
Germany, Italy and Turkey received 45.84, 20.80, 16.40 bcm, respectively, in 2020. See URL
http://www.gazpromexport.ru/en/statistics/
The EU threatened to disconnect Russia from the SWIFT system, and Russia threatened to stop EU gas supply. Russia has endured:
1) Decades of “defensive” encroachments by NATO
2) US/UK-instigated/encouraged color revolutions, etc.; the latest ones in Belarus and Kazakhstan were unsuccessful.
Due to increased EU energy and electricity costs, a Mercedes, or Audie, or Volkswagen, or anything else made in Europe, could suddenly become up to 50% more costly.
That condition would be in place for up to 10 years, because it would take that long to build up additional:
– Gas production capacity, elsewhere in the world, to replace Russia’s 200 bcm/y of pipeline gas.
– LNG production plants and sending ports
– LNG carriers; average capacity 170,000 cubic meter of LNG
– LNG receiving ports and gasification plants
– Connections to existing onshore pipe systems, all while:
1) EU inflation would be off-the-charts
2) EU exports would dwindle.
NOTE: The above build-ups would be in addition to what is required for LNG world market growth
Brussels RE bureaucrats, likely with little hands-on experience in the energy sector, have urged EU countries not to sign long-term gas supply contracts with Russia, because that would send the wrong “virtue signal” regarding “weaning the EU off fossil fuels”. Just google, if you find this incredible.
As a result of Brussels RE bureaucrat myopic decisions, EU spot prices for gas have become “volatile”, i.e., about 5 to 10 times long-term prices
In the meantime, Russia made sure to reliably provide pipeline gas, to clients with signed long-term contracts.
Russia has no contractual obligation to supply gas to the EU spot market.
This was known by Brussels RE bureaucrats, prior to their myopic decisions.
German Energy Sector, ENERGIEWENDE, and Global Competitiveness
There is no way Germany could shut down coal and nuclear plants, and have more wind and solar, as part of its multi-decade ENERGIEWENDE, without having much more low-cost pipeline gas from Russia
The additional gas is planned to arrive, via the completed Nordstream 2 pipeline under the Baltic Sea, from Russia to Germany.
Germany would have to buy very large quantities of LNG, at very high spot prices, from whatever unstable countries.
That cost adder would totally ruin Germany’s world competitiveness, and very large trade annual trade surpluses.
The ENERGIEWENDE, and fighting climate change, would have to be on the back burner for up to 10 years.
Germany is currently buying pipeline gas from Russia, under long-term contracts, at about $280 per 1000 cubic meter, or $7.93/million Btu. For comparison, US long-term pipeline gas prices are about $3/million Btu
Germany would be buying LNG gas, for many years, at spot prices of up to $1500 per 1000 cubic meter, or $42.47/million Btu
NOTE: 1000 m3 contains 1000 x 35.315 ft3/m3 x 1000 Btu/ft3 = 35,315,000 Btu
“United Front” Unraveling
The US/UK-led encroachment-push against Russia appears to run into major headwinds, because it had become strident, arrogant and irrational. Several EU countries, including Ukraine, have diverged from the over-hyped “United Front”.
– Germany announced it will not allow made-in-Germany armaments transferred to Ukraine
– Sweden announced it will not allow made-in-Sweden armaments transferred to Ukraine
– Croatia announced it will withdraw its forces from NATO, if war starts in Ukraine
– Bulgaria announced it will not send its forces to Ukraine, if war starts in Ukraine
– Germany announced it will not send its forces to Ukraine, if war starts in Ukraine
– NATO row erupts as Latvia blasts Germany’s “immoral & hypocritical” Russia, China ties
– Germany and France are conducting their own diplomatic activities with Russia, such as reviving the Minsk Agreements