This commentary is by Tom Evslin of Stowe, an entrepreneur, author and former Douglas administration official. It is republished from the Fractals of Change blog.
The threat to peace
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 effect 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.
5 thoughts on “Tom Evslin: High oil and gas prices fuel Russian and Iranian aggressiveness”
Removing Nuclear Arsenal from Ukraine
President Clinton on Monday announced agreement with Ukraine and Russia to dismantle Ukraine’s entire nuclear arsenal, hailing the long-sought accord as “a hopeful and historic breakthrough that enhances the security of all three participants.”
The agreement, disclosed at the NATO summit here, and scheduled to be signed in Moscow on Friday, must survive potentially serious attacks by Ukraine’s neo-NAZI-style, nationalist factions that oppose the elimination of the weapons. They control the Ukraine Parliament.
If the accord survives the attacks, it will represent a substantial step forward for the US policy of curbing nuclear proliferation.
Ukraine, politically and economically unstable, ever since it became an independent state after the dissolution of the Soviet Union, has 176 intercontinental missiles armed with some 1,240 nuclear warheads–all aimed at the United States. It also has 592 nuclear warheads aboard bombers, which would be covered by the agreement.
The chaos in Ukraine, while possibly threatening the ability of Ukrainian President Leonid Kravchuk to carry out the agreement, also underscores the pact’s potential importance. It would: 1) allay Russia’s fear of a hostile nuclear neighbor, and 2) answer concerns that Ukraine’s nuclear weapons could end up in the hands of other countries.
Under the agreement, the United States, Russia and Britain will provide security assurances for Ukraine, when it gives up these weapons, and becomes an adherent of the Nuclear Non-Proliferation Treaty.
That agreement will keep nuclear weapons from descendants of NAZI-collaborators, who assisted the Germans with its Holocaust in Ukraine
Those neo-NAZI-style descendants are influential in the current Ukraine government.
They annually celebrate Balderas and his battalions as national heroes.
They assisted the Germans with implementing its Holocaust in Ukraine.
They are supported by the US/UK-led NATO and EU.
REASONS FOR SPOT PRICE INCREASES IN EU
1) EU bureaucrats had urged EU countries not to sign long-term gas supply contracts with Russia, because electricity from wind, solar, etc., would increase, and signing long-term contracts would “send the wrong signal”, plus it would give “evil” Russia more clout in EU energy markets.
2) However, EU bureaucrats did not take into account the vagaries of wind and solar. In that regard, they are far from unique.
From April, 2020, to the present, there has been significantly less wind than in prior years.
Even though more onshore and offshore wind turbine capacity, MW, was installed in the UK, Ireland, Belgium, The Netherlands, Germany and Denmark, that did not result in as much of an increase in wind electricity as predicted, due to less than average winds.
3) As a result, the shortfall of wind electricity had to be made up by burning more gas and coal, which rapidly increased SPOT prices of gas to $40/million Btu, and also increased the SPOT prices of coal.
4) Then, people became aware, the EU winter storage of gas was very low, compared to prior years, which meant energy markets began to bid up the SPOT prices of gas for future, i.e., winter, delivery.
5) At first, EU bureaucrats tried to hide their lack of planning ability, and blame the shortfalls on market manipulation by Russia.
However, Russia proved, with gas system operating data, it had been transmitting gas to the EU, IN EXCESS of long-term contract requirements; in case of Ukraine, the excess transmission was 10%. Various EU countries, that receive a steady supply of low-cost gas from Russia, chimed in to support Russia. See Note.
Ukraine: At present, Ukraine does not buy gas directly from Russia. Instead, the gas flows through a transmission line, and Ukraine takes some of that gas for its own use. Ukraine calls that gas “a reverse-flow supply”, as if it came from EU countries, i.e., a charade.
Ukraine pays these EU countries about 20 to 30 percent more, than if Ukraine had bought the gas directly from Russia.
Russia requires Ukraine to pay for a year of gas supply, up front, in cash, because impoverished, corrupt Ukraine:
1) Stole gas from transmission lines (the gas had been bought by EU countries from Russia), and
2) Did not make timely and adequate payments for contracted Russian gas, during prior years
In case Ukraine would have a gas supply contract with Russia, and the flow had been any quantity less than per contract, Ukraine would have cried “Russia is using gas as a weapon” to its EU, US, and NATO protectors.
Ukraine could not be such a bad commercial actor with regard to the EU, as otherwise, it would never be admitted to NATO and the EU.
Germany: Several decades ago, when Germany started its ENERGIEWENDE towards wind, and solar, and tree burning, and closing nuclear plants, I thought they were of-the-charts nuts. The chickens are finally coming home to roost, aided and abetted by RE-idiot bureaucrats in Brussels, who know not their belly buttons from a hole in the ground; I am trying to stay polite.
Gas Supply and Prices in the EU
Europe is seeing major increases in the SPOT prices of gas/1000 m3, coal/metric ton, and oil/barrel.
This will have an adverse effect on prices of all goods and services, including at the gasoline pump, building space heating, etc.
The EU SPOT price surge was entirely the fault of EU bureaucrats in Brussels, which have urged EU countries NOT to sign long-term gas supply contracts with Russia, because it would send a “the wrong signal regarding the seriousness of EU fighting climate change”. Just google, if you find this incredible.
Serbia, Hungary and Turkey recently signed long-term contracts with Russia at about $300/1000 m3
Those countries were vilified by EU bureaucrats, and the handmaiden EU Media.
Subsequently, SPOT prices of gas started to increase, and the three countries are smiling.
EU SPOT prices are about $800 to $1500/1000 m3
US SPOT prices are about $100/1000 m3, due to an abundance of fracked, domestic gas. See table.
Gazprom expects to export between 175 and 183 bcm of gas to Europe, in 2021, at prices of about $280/1000 m3; long-term contracts.
A below-ground gas storage reservoir has to a total gas volume and a working gas volume, WGV; as gas is withdrawn, the gas pressure decreases.
European gas storage was at 95.65% of WGV, on October 1, 2020, and at 74.14% on October 1, 2021, i.e., significantly below normal in 2021.
If Europe were to have a long and cold winter, economies would stagnate, prices would increase, and people would be suffering.
EU solar electricity would be minimal in winter.
EU wind electricity would not be something to rely on.
Biden stopped the Keystone pipeline, and cancelled oil and gas drilling leases.
As a result, the US became an energy importer under Socialist Biden, instead of an energy exporter under private enterprise Trump
As a result, the oil and gas prices increased, and the price at the gas pump increased.
Politically/stupidly restricting energy production in the US had a major effect on the world market, because the US is the largest producer of energy in the world; Russia is second.
Biden begged the Saudis to increase production, which they refused.
The Brussels RE idiot bureaucrats, who have no practical experience with energy systems, told EU countries not to sign long-term pipeline gas contracts with Russia, because that would be a negative for the “virtue signaling”regarding fighting global warming.
As a result, EU gas spot prices, normally about 2 times long-term prices, became about 15 times long-term prices.
Russia made sure to provide gas in accordance with signed contracts, to maintain its reliable provider status, as confirmed by Brussels, and by major gas purchasers, such as Germany and Turnkey
Russia is under no obligation to provide gas for the spot market.
Europe imports gas from Russia, because it is about 25% to 30% less costly than imported LNG from many unstable countries.
The EU does not want to import LNG from the US, because it would give the US, an economically powerful country, major influence over Europe
Russia is an economically weak country, compared to the EU
THE UKRAINE PLOT IS THICKENING WITH GERMANY AND FRANCE NO LONGER IN LOCKSTEP WITH US/UK-LED NATO
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.
The image shows, NATO expansion after the US Secretary of State, James Baker, oral pledge to Gorbachev, “not to advance one inch beyond East Germany”
Comments are closed.