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08 March 2014

Press review 08-03-2014 - Europe caught in the middle

The crisis in Ukraine has rapidly escalated into a confrontation between Russia and NATO. It seems the US was more than supportive to the so called opposition that overthrew Viktor Yanukotich. In response Russia retook hold of Crimea, a territory that was under Ukrainian sovereignty for 60 years. It is hard to foresee where will all this lead, but a return to the previous geographic configuration of Ukraine appears remote.

So far NATO has reacted to Russia with sanctions, the US and the UK succeeding in their pressure on the EU to follow their hard stance. Make no mistake, Europe will be the big looser in this stand-off, neither Russia nor the US stand to loose as much. This is the reality of the XXI century, resources have a completely different role in international relationships and conflicts. If for Petroleum and Coal the EU can recur to the international market trying outbid other major importers, the scenario is completely different regarding Gas. If the pipelines out of Russia are tapped off there are no means to replace their flows.

Energy Matters
Ukraine: Russia holds all the aces
Euan Mearns, 02-03-2014

Ukraine is dependent on Russia for energy imports and cannot succeed in armed conflict. Sevastopol on the Crimean peninsula is the home of the Russian Black Sea fleet and the area is therefore of major strategic importance to Russia. I believe the Russians will simply annexe Crimea and protestations from Ukraine, the EU, the USA and the UN will be ignored.

Ukraine is also of major strategic importance to Europe since several gas pipelines cross the country transporting Russian gas to Europe. Europe is also heavily dependent upon oil and coal imports from Russia. And so, when Americans talk of sanctions on Russia they had better come up with a plan B for European energy supplies at the same time.
After some flash warnings from Gazprom, Ukraine lost its price discount on Russian gas. The US and the EU are waiving with IMF support to keep the country economically afloat. To see how the Maidan movement receives the IMF's austerity.
Deutsche Wella
Russia’s Gazprom scraps gas price rebate for Ukraine, offers loan to pay bills
04-03-2014

Ukraine was unable to pay its gas bill for February and owed Gazprom $1.5 billion (1.09 billion euros) for earlier gas supplies, Russia's state-controlled natural gas producer Gazprom announced Tuesday.

Therefore, Gazprom would cancel a contract that had granted the government in Kyiv a 30-percent discount on market prices for gas, currently standing at $400 per 1,000 cubic meters, Gazprom Chief Executive Alexei Miller said.

The measure will come into effect as of April 1, and was described by Russian Prime Minister Dmitry Medvedev as a logic step in view of Ukraine's failure to pay its bills.

If Ukraine was unable to pay for the goods it was receiving, it must bear the consequences, Medvedev told Russian new agency Interfax following a meeting with the Gazprom CEO.
François Hollande was the first European leader to support economic sanctions on Russia, in one more shameful display of infighting in the EU. Gas has little weight on France's energy mix, the country is piped to Algeria and also possesses several LNG terminals along its coasts. Germany imports almost half of its Gas from Russia and is much more reliant on this fossil fuel; there also no LNG terminals in Germany. Beyond Hollande's play, recent policies implemented or considered in Germany against indigenous electricity sources, such as Nuclear, Wind or Solar, also beg for reflection.

The French press has been largely supportive of the President's defiant stance against Russia.
Le Parisian
Ukraine : l'Europe est prête si la Russie ferme le robinet du gaz
Michal Cizek, 04-03-2014

Malgré les tensions en Ukraine et les menaces sur l'approvisionnement en gaz, l'Europe et la France peuvent passer l'hiver au chaud. L'Europe consomme certes de plus en plus de gaz russe mais elle est moins exposée qu'avant à d'éventuelles coupures sur les gazoducs transitant par l'Ukraine, après un hiver doux et grâce à de nouvelles options de livraison.

Lundi, les stockages européens de gaz étaient pleins à 48,8% de leur capacité, contre environ 37% au même moment l'an passé, indiquait le groupement d'opérateurs de gazoducs Gas Infrastructure Europe (GIE). Soit environ un mois et demi de consommation, soulignent des analystes, alors que le Vieux Continent sort de son hiver le plus doux depuis six ans, ce qui a réduit la demande gazière.
Interestingly, even some of the German press is backing economic sanctions against Russia. A mild winter is used to diffuse any concerns over the Gas supply, which naturally will only be the case for a few months.
Deutsche Wella
Europe has little reason to fear Russian gas cut-off
Insa Wrede, 07-03-2014

Both the EU Commission and the German government maintain that the Crimea crisis does not endanger gas supplies to the European Union. Germany Economy Minister Sigmar Gabriel pointed out that Russia has always honored its contracts with Western Europe.

"There's no reason to be concerned at the moment," EU Energy Commissioner Günther Oettinger said, adding that the gas reserves are actually higher than they were last year due to Europe's mild winter temperatures.

Russia is not likely to cut gas supplies to Europe. "Russia heavily depends on energy deliveries to Europe," Kemfert said. "Some 60 percent of Russia's state income is due to oil, gas and coal sales - and a large part of that goes to Europe."
Same story in the US press. Fear not, reserves are high.
Bloomberg
Europe Gas Storage Seen Enough for 45-Day Ukraine Supply Cut
Anna Shiryaevskaya, 04-03-2014

Europe’s mildest winter since 2007 has left the region with enough natural gas in storage to cover any future disruption in flows from Ukraine for about 45 days.

European inventories were 49 percent full as of March 2, from 37 percent a year ago, according to Gas Infrastructure Europe, a lobby group of pipeline operators in Brussels. That’s equal to about 1 1/2 months of imports from pipelines running through Ukraine, said Oswald Clint, a senior analyst at Sanford C. Bernstein & Co. in London.

“It isn’t very cold, there is gas in storage, I wouldn’t panic,” said Karen Sund, founder of Sund Energy AS, which has advised the International Energy Agency and Centrica Plc on gas markets. “Power generators don’t want it anyway.”
According to some, even Ukraine itself is not vulnerable to cuts in the Russian Gas supply.
Reuters
Ukraine's gas stocks can meet four months of demand
Henning Gloystein, 03-03-2014

Ukraine's natural gas stocks can meet four months of demand should Russia cut supplies and most of reserves are in its west and far away from any potential Russian intervention, industry sources said.

Ukraine meets around half of its gas demand through imports from Russia, and it is also an important transit route for Russian gas to the European Union.

Moscow has in the past cut supplies to Ukraine when negotiating prices with Kiev, causing shortages in Ukraine and central Europe.

Russia's Gazprom said on Monday that gas transit to Europe via Ukraine was normal, but it warned that it might increase prices for Kiev after the first quarter, raising concerns that gas could be used for political leverage in the crisis.
Quiet dissonant voices exsit though. The figures are public and easy to interpret, Europe cannot possibly win an economic war with Russia.
CNNMoney
Why Europe will balk at Russian sanctions
Mark Thompson, 04-03-2014

Russia is the EU's third-biggest trading partner after the U.S. and China. Trade in goods totaled a record 336 billion euros ($462 billion) in 2012, more than 10 times the volume between Russia and the U.S.

Add in exports of services, and the value of the Russia-EU relationship rises to $520 billion.

Russia is the EU's single-biggest supplier of energy. Oil and gas prices rose sharply Monday on fear of supply disruptions through Ukraine, which account for about half of Russian flows.
The sanctions agreed so far are relatively mild, and target individuals, rather than Russia itself. The only hope is for Europe to stick with such make-believe sanctions and proceed with business-as-usual in the sideline with Russia. But the US and the UK will certainly hike the pressure; there's a fine line to walk that not all leaders may understand.

With Ukraine taking hold of front pages important developments elsewhere are forgotten. Nouri al-Maliki has succeeded in opening a second conflict front with the Kurdish autonomous regions in northern Iraq. The Kurds have now a strong pretext to seek autonomy and definitely relegate the country of Iraq to history books.
UPI
Iraq: 'This is war,' say Kurds in oil fight with Baghdad
28-02-2014

Prime Minister Nouri al-Maliki's dispute with Iraq's Kurdish minority over its independent oil exports has escalated with the central government blocking Kurdistan's share of the state budget and banning two airlines that operate between Europe and the Kurds' semiautonomous northern enclave.

Kurdistan's president, Massoud Barzani, warned Maliki that his actions are "a declaration of war against the people of Kurdistan."

The simmering feud between the autocratically inclined Maliki and the independence-minded Kurds seems set to escalate sharply.
Total is a company that for long has courted the hypothesis of a short term peak in world petroleum production. Company officers are very careful in their choice of words, in order to appear distant from ASPO, but essentially end up saying the same things. In this particular case, Christophe de Margerie makes it clear that at present prices production can not grow, which is reflected in a step down from exploratory activity from international petroleum companies all around the world.
RigZone
Total's CEO Discusses Rising Costs, Meeting Global Demand
Robin Dupre, 04-03-2014

[...] This cost trend is not new, Margerie noted, and is a focus for all major international oil companies. There is no more peak oil or gas, but peak capacity, he stressed.

“Today we are not able to meet demand. It’s that simple.”

As companies look to remote areas for new petroleum resources coupled with geological and engineering difficulties, costs have caught up to revenues for many classes of projects.
This week a long interview with Arthur Berman was published reflecting on source rock resources. Arthur yet again exposes the shift towards ever more expensive fossil fuels.
OilPrice.com
Shale, the Last Oil and Gas Train: Interview with Arthur Berman
James Stafford, 05-03-2014

How much faith can we put in our ability to decipher all the numbers out there telling us the US is closing in on its cornering of the global oil market? There’s another side to the story of the relentless US shale boom, one that says that some of the numbers are misunderstood, while others are simply preposterous. The truth of the matter is that the industry has to make such a big deal out of shale because it’s all that’s left. There are some good things happening behind the fairy tale numbers, though—it’s just a matter of deciphering them from a sober perspective.
Ending towards a positive note, here is an example of a community that successfully transitioned to a renewable electricity mix, reducing costs along the way. In spite of prevailing scepticism against modern electricity sources, examples accumulate on their feasibility.
Deutsche Wella
Remote Scottish island runs on green 'Eiggtricity'
Peter Geoghegan, 06-03-2014

[...] "The system has been running about five years and it works at an average of about 85 percent from renewables and 15 percent from the generators," Scott explains.

Before the introduction of "Eiggtricty," as people call it around here, the hundred or so residents on Eigg got all of their power from diesel generators that were noisy, polluting and expensive to run.

"I was buying a barrel of diesel a month to get five hours of electricity a day," Scott told DW. "Now I get 24-hour electricity and it costs me about 30 pounds (36.44 euros) a month."
Chris Nelder, an energy analyst that has been close to ASPO, is perceiving major changes ahead, triggered by the maturing of renewable energies. Although I have been writing a good deal on the impacts PV is having in European electricity markets, I see this so called "tipping point" somewhat farther than Chris. Both in Transport as in Heating, renewable technologies have dragged to create the impact they have had on Electricity. In any case, fossil fuels do not need to be replaced all at once, and every small step counts. The case might not be for optimism, but at least for hope.
SmartPlanet
The energy transition tipping point is here
Chris Nelder, 03-03-2014

At this point you may think, "Well, this is all very interesting, Chris, but why should we believe we've reached some sort of tipping point in energy transition?"

To which I would say, ask yourself: Is any of this reversible?

Is there any reason to think the world will turn its back on plummeting costs for solar systems, batteries, and wind turbines, and revert back to nuclear and coal?

Is there any reason to think we won't see more ruptures and spills from oil and gas pipelines?
Have a pleasant weekend and enjoy the early Spring.