Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21
Gold Price Big Picture Trend Forecast 2021 - 13th Jan 21
Are Covid Lockdowns Bullish or Bearish for Stocks? FTSE 100 in Focus - 13th Jan 21
CONgress "Insurrection" Is Just the Latest False Flag Event from the Globalists - 13th Jan 21
Reflation Trade Heating Up - 13th Jan 21
The Most Important Oil Find Of The Next Decade Could Be Here - 13th Jan 21
Work From Home £10,000 Office Tour – Workspace + Desk Setup 2021 Top Tips - 12th Jan 21
Collect a Bitcoin Dividend Without Owning the King of Cryptos - 12th Jan 21
The BAN Hotlist trade setups show incredible success at the start of 2021, learn how you can too! - 12th Jan 21
Stocks, Bitcoin, Gold – How Much Are They Worth? - 12th Jan 21
SPX Short-term Top Imminent - 12th Jan 21
Is This The Most Exciting Oil Play Of 2021? - 12th Jan 21
Why 2021 Will Be the Year Self-Driving Cars Go Mainstream - 11th Jan 21
Gold Began 2021 With a Bang, Only to Plunge - 11th Jan 21
How to Test Your GPU Temperatures - Running Too Hot - GTX 1650 - Overclockers UK - 11th Jan 21
Life Lesson - The Early Bird Catches the Worm - 11th Jan 21
Precious Metals rally early in 2021 - 11th Jan 21
The Most Exciting Oil Stock For 2021 - 11th Jan 21
Financial Market Forecasts 2021: Navigation in Uncharted Waters - 10th Jan 21
An Urgent Message to All Conservatives, Right-Wingers and Patriots - 10th Jan 21
Despite Signs to the Contrary, Gold Price at or Near Top - 10th Jan 21 -
Ultimate Guide On The 6 Basic Types Of Index Funds - 10th Jan 21
Getting Vaccinated at TESCO - Covid-19 Vaccinations at UK Supermarket Pharmacies and Chemists - 10th Jan 21
Cheers for the 2021 Stock Market and These "Great Expectations" - 9th Jan 21
How to Plan Your Child With Better Education - 9th Jan 21
How To Find The Best Casino - 9th Jan 21
Gold Is Still a Bargain Buy - 8th Jan 20
Gold Price Set to Soar as Hyperinflation Looms - 8th Jan 21
Have Big Dreams? Here's How to Pay for Them - 8th Jan 21
Will the Fed Support Gold Prices in 2021? - 8th Jan 21
Stocks trading strategies for beginners - 8th Jan 21
Who is Buying and Selling Stocks in 2021 - 8th Jan 21
Clap for NHS Heroes 2021 as Incompetent Government Loses Control of Virus Again! - 8th Jan 21
Ultimate Gaming and Home Working PC System Build 2021 - 5950X, RTX 3080, Asus MB - Scan Computers UK - 7th Jan 21
Inflation the bug-bear looking forward through 2021 - 7th Jan 21
ESG ETF Investing Flows Drive Clean Energy to Fresh Highs - 7th Jan 21
5 Financial Market Surprises in 2021 - 7th Jan 21
Time to ‘Reset’ Your Investment Portfolio in 2021? - 7th Jan 21
Bitcoin Price Collapses almost 20% at the start 2021 - 7th Jan 21
Fed Taper Nervous Breakdown - 6th Jan 21
What Will the U.S. Dollar Ring in for 2021? - 6th Jan 21
Stock market frenzy- Ride the bandwagon but be sure to take along some gold coins - 6th Jan 21
Overclockers UK Custom Build Gaming System Review Heat Test and Final Conclusion - 6th Jan 21
Precious Metals Resuming Bull Market, Gold, Silver, GDX Trend Forecasts 2021 - 5th Jan 21
Trump’s Iran-COVID-Gate Anniversary  - 5th Jan 21
2021 May Be A Good Year For The Cannabis / Marijuana Sector - 5th Jan 21
Stock Market Approaching an Important Target - 5th Jan 21
Consumer Prices Are Not Reflecting Higher Inflation; Neither Is The CRB - 5th Jan 21
NEW UK Coronavirus PANIC FULL Lockdown Imminent, All Schools to Close! GCSE Exams Cancelled! - 4th Jan 21
The Year the World Fell Down the Rabbit Hole - 4th Jan 21
A Year Like No Other for Precious Metals… and Everything Else - 4th Jan 21
The Stocks Bull Market is Only Half Completed - 4th Jan 21
An In- Depth Look At Gold Price Trend - 4th Jan 21
Building America Back After a Dark Covid Winter - 4th Jan 21
America's Dark Covid Winter Ahead - 4th Jan 21
Buy a Landrover Discovery Sport in 2021? 3 Year Driving Review - 3rd Jan 21
Stock Market Major Peak in Early April 2021 - 3rd Jan 21
Travel and Holidays 2021 - Flight Knight Cabin Bag Review - 3rd Jan 21
�� Happy New Year 2021 Fireworks and Drone Light Show from London and Sheffied - BBC�� - 2nd Jan 2
The Next IMMINENT Global Catastrophe After Coronavirus - 1st Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Disarming Putin's Energy Weapon

Politics / Energy Resources May 12, 2014 - 08:59 AM GMT

By: Andrew_McKillop


Never Give Up
Writing in the UK 'Independent', 9 May, Oliver Wright said: “Britain is drawing up plans with the US and other European countries to disarm the threat of President Vladimir Putin using Russian gas and oil supplies as a weapon against Ukraine and its East European neighbours”. 

No logic has to enter this “highly political” strategy. World gas and oil supply factors, energy infrastructures, energy technology and the costs and timelines to build new capacity, count for little or nothing in an uber-political thrust.

The UK 'Independent' also said that “Next month, David Cameron and other G7 leaders are expected to sign off on an emergency response plan to assist Ukraine this winter if Russia restricts gas supplies”. This plan, Wright said, was designed  “To eliminate Europe’s reliance on Russian oil and gas over the longer term and prevent energy security being used as political bargaining chip by the Kremlin”.

Russia currently supplies around 30 – 33 percent of all gas consumed in Europe and almost exactly the same percentage of EU28 oil demand. In some cases, like Ukraine, Russia supplies more than 50 percent of the gas used, and in the Baltic States this rises to 100 percent.

Under the G7 proposed plan discussed in Rome Friday May 9, support would go to building new LNG port terminals across Europe and the US would lift restrictions on exporting shale gas as LNG. Other parts of the plan may or might include increasing trans-Mediterranean gas pipeline capacities for bringing Maghreb gas to Europe, and even the longer-term integration of West African gas supplies for Europe, by north-south pipelines, to link with and bolster Maghreb gas supplies to Europe.

To be sure, neither the outline costs nor the timelines for achieving this “energy security” plan are presently established or disclosed, but with conventional technology the costs will be astronomic and the time needed to complete infrastructures would be in the 25 – 30 year range.

The only way out, to make both a decisive and rapid change to EU gas supplies, and to Ukraine's as supply, will need innovative technology.  Concerning oil, the options are much lower than for gas, simply due to world upstream oil supply tightness.

The Energy Weapon

Ed Davey, the UK Energy and Climate Change minister who represented Britain at the emergency G7 talks in Rome, told European media that unless emergency action was taken now Russia would “undoubtedly continue to use energy as a weapon”. He added that: “It is completely unacceptable for President Putin to use Russia’s gas and oil supplies as a weapon to exert control and power over Ukraine – or any other country. Davey also said he thought that unless the G7 countries take a stand, Putin “will undoubtedly continue to use energy as a weapon.”

The so-called “energy weapon” has a direct counterpart in energy prices. For the EU28, as of present, LNG terminal building is on the backburner after several years of fast growth is certain countries, mainly due to price uncertainty. This uncertainty is driven by EU28 gas demand trends – which are falling - dragging down prices. It is also driven by the potential for current major pipeline suppliers – Russia, Norway, Algeria by rank – to cut their gas prices anytime they face serious market challenges from LNG suppliers or locally produced shale gas in Europe.

Conversely, Asian gas prices are typically $16 per million BTU and in some markets higher. This favors the continued rapid growth of LNG supply in Asia. In Europe, gas prices presently around $12 per million BTU are eroded by oversupply problems for Europe's stagnant or declining gas markets.

When or if there is a gas price-demand spiral on the downside, in Europe, late entrants to the LNG supply market will be heavily penalized. Governments will therefore have to prevent gas price erosion, and turn it around, to enable the G7 emergency plan for energy security in Europe to have any market credibility.

Concerning oil, European import supply is basically much “tighter” than gas supply – because LNG terminal building, in some markets such as France, is already mature and capable of covering a large percent of national gas demands – if the price is right. Oil supplies for Europe face a different external supply context. They heavily depend on Russian supply and any sharp reduction in Russian oil supply to Europe will only, and can olny dramatically raise oil prices. Alternate supply sources for European oil are far more restricted than alternate gas supplies.

Innovation is Best
The Dec 2008 European energy plan voted by the European Parliament and transposed into the energy laws and regulations of all 28 member countries after this vote, called the “climate-energy package” seeks to reduce both gas and oil import dependence of the EU28. In fact, due the “climate pillar” of this policy package, this translated to heavy support by EU28 governments to renewable and alternate energy development, especially wind and solar energy.

Natural gas was excluded from policy support, due to it being “high carbon”. This in fact is a travesty of real world technical factors including emissions-per-kWh of generated power, but has also resulted in coal-based power production actually growing in Europe due to the near-collapse of the EU's ETS emissions trading scheme or system, initially designed to penalize “high carbon” fuels. European power producers prefer to use ultra-cheap coal despite its emissions, only weakly impacted by very low ETS permit prices, instead of using much cleaner but high-priced gas.

European coal import dependence on Russia is also significant, we can note.

The continental effort to financing and then building LNG terminals, typically costing about 1 billion euros for 30 million cubic metres/day capacity, or 0.9 billion cu. m. per month,  stalled by 2010-2011 as the ETS was revealed as unsure and unable to “penalize high carbon”. Other factors like stagnant or declining gas demand in Europe aggravated the anti-gas context. In addition, technology innovation in LNG handling now enables smaller, less infrastructure-dependent reception terminals, particularly offshore moored LNG-conversion (regasification) ships. These permit a large reduction in costs, to 500 million euros or less, for 1 billion cubic metres-per-month capacity.

The G7 emergency plan will certainly increase its credibility rating with investors when or if it features new and innovative LNG technology.

Specifically concerning Ukraine its current gas consumption near 80 billion cubic metres-per-year, close to Germany's total consumption for a population size two times Ukraine and a GDP output four times that of Ukraine, can be easily reduced without harm to the economy – but will need intelligent energy economic planning. Locally-produced gas, in Ukraine, is for example a higher priority than attempting to find stopgap import supply band-aids.

We can hope G7 deciders take a look at real world factors and energy options, before plowing ahead with an uber political set of decisions that will meet with failure.

By Andrew McKillop


Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2014 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

Andrew McKillop Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules