Friday, January 14, 2022

Energy dependence ties Europe’s hands in U.S.-Russia crisis

Europe’s growing dependence on Russian gas and oil is limiting the continent’s room to maneuver in the mounting U.S.-Russia crisis over security in the region and making it highly vulnerable in the event of an escalation.

Officials from the U.S., Russia and Europe meet Thursday in Vienna at the Organization for Security and Cooperation in Europe to discuss the tensions. Earlier this week, the U.S. and Russia failed to narrow differences over Moscow’s deployment of more than 100,000 troops along the border with Ukraine, a major thoroughfare for gas consumed in Western Europe, and Moscow’s demands for changes to Europe’s security architecture. Russia has denied preparing to invade its western neighbor.

Highlighting the central role energy is playing in the standoff, U.S. senators are expected to vote soon on a bill introduced by Sen. Ted Cruz (R., Texas) requiring sanctions to be imposed on Nord Stream 2, a German-Russian gas pipeline that is expected to get online later this year.

Western officials accuse the Kremlin of withholding extra supplies in recent months to force European regulators to approve the pipeline—a charge the Kremlin denies. U.S. lawmakers and Ukraine say the pipeline would make Europe ever more dependent on Moscow.

Such dependence means European governments aren’t willing to consider sanctions on Russian energy exports—the backbone of the Russian economy—as a possible deterrent against a potential invasion of Ukraine, according to a senior European official involved in discussions on how to respond to the crisis at the border.

They also are nervous about Moscow retaliating by slashing gas exports to Europe, a concern that has grown more acute in recent days as energy prices have started shooting up again, the official said. Despite intense lobbying from the U.S., Germany has yet to say whether it would permanently block Nord Stream 2 if Russia invades its neighbor.

Russia’s saber-rattling on the Ukraine border and its failure to increase—and its occasional throttling of—gas deliveries to Europe already have helped to send energy prices rocketing there, a development that has claimed corporate victims in the U.K. and pushed German energy companies to secure billions of euros in funds.

It highlights Europe’s continued reliance on a supplier that is increasingly willing to use energy as a diplomatic weapon.

“Governments in the region could find themselves on the horns of a dilemma if sanctions are applied and then Russia, even for the short term, cuts off all gas flows to Europe,” said Richard Morningstar, founding chairman of the Atlantic Council’s Global Energy Center and ambassador to the European Union under President Bill Clinton.

Russia has increased its share of Europe’s gas market since annexing Crimea in 2014 and backing separatist forces in Ukraine. Moscow supplied 123.8 billion cubic meters of gas via pipelines to Europe, excluding Turkey, last year, according to S&P Global Platts, more than Norway’s 108.6 billion cubic meters. That gave Russian pipelines a market share of 29%, down from 34% in 2018 but up from 27% in 2014. Russia also exports some liquefied natural gas to Europe on tankers.

Russian President Vladimir Putin has shown “the world—and Europeans in particular—that the old geopolitics of oil and gas is alive and well,” said Meghan O’Sullivan, the director of the Geopolitics of Energy Project at Harvard University’s Kennedy School. “For the foreseeable future, Europe will remain dependent—and possibly as dependent as ever—on Russian gas.”

Europe has long tried to buy gas from producers in Central Asia, Norway, North Africa and the U.S. while developing renewable energy. But renewables have often proved tough to scale and at times unreliable due to weather patterns, while nuclear energy has been a divisive political topic. Many coal-fired power stations have closed and domestic gas production has nosedived, leaving Europe with no alternative but to keep importing gas even when prices rocketed.

Deprived of Russian gas, the region would have few places to turn. Gas export terminals on the U.S. Gulf and East Coasts were running at 99% of capacity at times last month, according to Helima Croft, head of commodities strategy at RBC Capital Markets. Spring weather that tames demand could be months away.

Gas isn’t expected to flow through Nord Stream 2 for several months because it requires approval in Germany and by the European Union. Once up and running, however, it will form a key part of Europe’s gas-import infrastructure. The pipeline’s capacity would equal that of Nord Stream 1, which also runs straight to Germany and handled 37% of Russia’s gas exports to Europe last year, according to commodities analysis firm ICIS.

Russia has been a major energy supplier to Europe since Soviet times, taking care not to wield oil and gas as a weapon. Back then, Moscow largely saw energy, a key export, as a business proposition and a way to develop commercial and pragmatic relations with Europe. That has changed over the years as relations with the West soured. Russia twice curtailed gas deliveries to Europe during the cold winters of 2006 and 2009 over price disputes with Ukraine.

“Russia in the 2000s decided to use gas as a geopolitical weapon,” Tatiana Stanovaya, founder of R.Politik, an independent political-analysis firm. “Moscow failed to convince the world that it was a pure business argument and damaged its reputation as a stable supplier.”

The International Energy Agency on Wednesday said Russia is in large part responsible for Europe’s gas shortage. Executive Director Fatih Birol said state gas exporter Gazprom PJSC had reduced exports to Europe in the fourth quarter at a time when prices were high and Norway, Algeria and Azerbaijan were pumping more gas to the region.

Crude-oil prices also have risen globally, adding to Europe’s vulnerability and putting extra strains on businesses and consumers while contributing to record inflation in the eurozone. Mild weather and an influx of gas from the U.S. have offered some respite recently but wholesale gas prices in northwest Europe are almost three times as high as they were a year ago. Analysts say frigid temperatures and low gas storage levels could cause price spikes before spring even without interruptions to Russian supplies.

“There is not a common vision of security of supply and in this current crisis it comes to haunt us,” said Georg Zachmann, senior fellow at Bruegel, a think tank in Brussels.


British Treasury considers cutting green levy to ease cost-of-living crisis for UK households

A green levy on energy bills covering the cost of insulation for the poorest households could be cut to reduce the burden UK households are facing from ultra-high gas prices.

According to The Times, the Treasury is reviewing the Energy Company Obligation (ECO), a £1bn scheme which pays for insulation and new boilers.

This follows 20 Tory MPs and peers publishing a letter in The Telegraph calling for environmental levies and VAT to be scrapped.

ECO is currently viewed as an important part of the government’s attempt to hit net zero carbon emissions by 2050, as it provides a £290 yearly saving for the 200,000 UK households that have been improved under the scheme.

However, the levy also adds £29 to the average annual energy bill for consumers who are not improving the energy efficiency of their homes.

Making homes more energy efficient is a key target for the UK government, which has also rolled out plans to offer £5,000 grants to up to 90,000 British households to replace gas boilers with environmentally friendly heat pumps.

As it stands, approximately £159 of the current consumer price cap of £1,277 for average energy usage is spent on governmental social and environmental schemes with a further £61 on VAT.

The price cap is expected to rise by as much as 50 per cent in April to reflect soaring wholesale gas costs, which have contributed to 25 energy firms collapsing or falling into administration since last September.


The US government spent $1.1 billion on carbon capture projects that mostly failed

Coal should be going obsolete because renewable energy is becoming cheaper, but the US government is keeping it afloat with the promise of capturing carbon emissions and storing them underground. Now, the Government Accountability Office (GAO) has said that federal agencies spent $684 billion on coal plant carbon capture and storage (CCS) projects that have mostly failed, Gizmodo has reported. It also spent $438 million on other three CCS industrial projects, two of which were cancelled.

"DOE [Department of Energy] provided nearly $684 million to eight coal projects, resulting in one operational facility," according to the GAO report. "DOE’s process for selecting coal projects and negotiating funding agreements increased the risks that DOE would fund projects unlikely to succeed."

DOE’s process for selecting coal projects and negotiating funding agreements increased the risks that DOE would fund projects unlikely to succeed.

Not only did the Department of Energy use a "high-risk selection" method to choose projects, it negotiated and funded them too expeditiously, according to the report. Coal negotiations lasted just three months instead of the usual year "based on DOE's desire to begin spending American Recovery and Reinvestment Act of 2009 funds quickly." On top of that, it bypassed the usual cost controls and supported projects "even though they were not meeting required key milestones."

The DOE recently said that it wants to dramatically reduce the cost of carbon capture technology via a program called Carbon Negative Shot. The aim is to remove CO2 directly from the air and sequester it underground at a cost of less than $100 per ton, deploying it at the gigaton scale.

However, the easiest and cheapest way to cut gigatons of emissions would be to retire costly coal plants completely, according to a report last year the International Renewable Energy Agency (Irena). That's because the costs of renewable energy have plunged in the last decade, making them effectively cheaper than coal. And of course, adding CCS tech to coal would increase costs considerably. All that said, coal and fossil fuels are a charged political subject in the US, despite the global risks of climate change.

In the end, the GAO recommended more congressional oversight for DOE expenditures on CCS. "Absent such a mechanism, DOE is at risk of expending significant funds on CCS demonstration projects that have little likelihood of success."


The hottest temperature ever recorded in Australia on Thursday

Recorded by whom? The BoM record does not go back very far and gets more unreliable the further back it goes. As Watkin Tench observed, in 1790 in Sydney, birds and bats were dropping dead out of the trees it was so hot. I know of no such incidents in recent times

Australia has recorded its equal hottest day ever on Thursday as large swathes of the country endure hot, humid and sticky weather.

The town of Onslow, on Western Australia's northwest coast, reached 50.7C just before 2.30pm on a sweltering day for the Pilbara.

The previous hottest day ever recorded in Australia of 50.7C was set in the outback South Australian town of Oodnadatta back in 1960.

The weekend is looking milder in other parts of the country with possible rain in Sydney on Friday and Saturday but clearing by Sunday and maximum temperatures not exceeding 30C.

Brisbane will be slightly warmer seeing temperatures reaching the low 30s but there will be relief from the rain with fine weather forecast.




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