Sunday, November 21, 2021

Net Zero Watch: Rolling blackouts threaten Europe this winter


In this newsletter:

1) Rolling blackouts threaten Europe this winter
The Daily Telegraph, 17 November 2021
2) Forget COP26: India's Jindal plans to start building Botswana coal mine in 2022
Reuters, 19 November 2021

3) Forget COP26: Japan to provide subsidies to curb gasoline prices
The Japan Times, 17 November 2021

4) Putin sounds alarm bells after seizing control of Iran gas in 'final act to secure Europe'
Daily Express, 18 November 2021
5) Ambrose Evans-Pritchard: An energy crisis is coming
The Daily Telegraph, 18 November 2021

6) Rick Newman: 3 warning signs for Biden’s green-energy revolution
Yahoo Finance, 18 November 2021
7) David Messler: Could an energy crunch lead to a global financial crisis?, 16 November 2021

Full details:

1) Rolling blackouts threaten Europe this winter
The Daily Telegraph, 17 November 2021
Shortages of natural gas could cause rolling blackouts in Europe this winter, one of the world’s largest commodity traders has warned, as gas prices surged after Germany suspended certification of a key new pipeline from Russia.

Jeremy Weir, chief executive of Trafigura, said a prolonged cold snap could cause major problems in comments likely to spark alarm in Britain following months of soaring energy prices.

“We haven’t got enough gas at the moment quite frankly. We’re not storing for the winter period, so hence there is a real concern that ... if we have a cold winter that we could have rolling blackouts in Europe,” he told the Financial Times Commodities Asia summit.

A global gas supply crunch has triggered a sustained gas price rally, forcing manufacturers to curb output and pushing 21 UK energy suppliers out of business since the start of September.

Gas plays a major role in electricity generation, meaning shortages have also pushed up power prices and risked causing blackouts, particularly when combined with low wind speeds denting output from wind turbines.

Russia has been accused of adding to the pressure by withholding extra supply to Europe to pressure Germany into giving the final approval for the Nord Stream 2 pipeline.

On Tuesday prices in Europe and Britain climbed 23pc to 238.9p per therm after Berlin suspended certification for the pipeline from Russia to Germany via the Baltic Sea.

German regulators took the decision after Nord Stream 2 set up a subsidiary to run the German section of the pipeline.

“The Bundesnetzagentur [regulator] concluded that it would only be possible to certify an operator of the Nord Stream 2 pipeline if that operator was organised in a legal form under German law,” they said.

“The subsidiary must then fulfil the requirements of an independent transmission operator as set out in the German Energy Industry Act.”

Nord Stream 2 told Bloomberg it was creating the subsidiary to “ensure compliance with applicable rules and regulations”, adding: “We are not in the position to comment on details of the procedure, its possible duration and impacts on the timing of the start of the pipeline operations.”

Owned by Russian state gas company Gazprom, Nord Stream 2 has been controversial as it allows Moscow to bypass Ukraine when sending gas to European markets and risks increasing Europe’s reliance on Russian supplies.

The US had opposed the project but in July struck a deal with Germany allowing the pipeline to go ahead, with Berlin pledging to respond to any attempt by Russia to use energy as a weapon against eastern European countries.

Europe gets about 40pc of its gas from Russia. Britain does not import much gas directly from Russia, but it does take some from Europe via pipelines, and prices in both markets track each other.

Two more UK electricity suppliers collapsed on Tuesday, with several more thought to be at risk. Neon Reef and Social Energy Supply have about 30,000 and 5,500 customers respectively. Under the industry safety net, the regulator Ofgem will send each company's customers to a surviving supplier.

The price cap on energy bills prevents household suppliers from passing the costs onto customers immediately, but bills are predicted to rise by as much as £400 when the cap is next reset in April.

The cap does not apply to business customers, however. In September the Government was forced to step in with financial support for fertiliser plants in Cheshire and Teesside, after owner CF Industries closed the plants due to the high gas prices.

Trafigura’s Nyrstar zinc business in September cut production during peak times at its zinc smelter in the Netherlands due to soaring power prices caused by the high gas prices.

Mr Weir said the market had also been “challenging” for commodity traders but that the privately owned company was set for a “strong year”.
2) Forget COP26: India's Jindal plans to start building Botswana coal mine in 2022
Reuters, 19 November 2021

At the COP26 climate conference this month Botswana signed up to a global commitment to reduce the use of coal, but opted out of a pledge to stop issuing new coal mining licences.

India's Jindal Steel & Power Limited (JSPL) will start building a coal mine in Botswana's southeastern Mmamabula coalfields in 2022, aiming to supply the export market and a planned coal power plant, a company official said.
The Indian industrial giant aims for the mine to produce 4.5 million tonnes of coal per year.

"Work will start next year and develop in phases over two to three years. Regional demand is increasing and the South African market has appetite for Botswana coal," Jindal Botswana country head Neeraj Saxena told Reuters.
Despite the global shift from coal, Botswana is pushing ahead with developing its estimated 212 billion tonnes of coal resources. In April, it shortlisted Jindal, Minergy Ltd , African Energy Resources Ltd  and Maatla Resources in a tender to build a 300 MW coal-fired power plant.

At the COP26 climate conference this month Botswana signed up to a global commitment to reduce the use of coal, but opted out of a pledge to stop issuing new coal mining licences.

A last-minute intervention by India and China just before the conclusion of the climate talks changed a requested coal "phase out" to a "phase down".
Full story
3) Forget COP26: Japan to provide subsidies to curb gasoline prices
The Japan Times, 17 November 2021

The government plans to provide subsidies to oil wholesalers if domestic gasoline prices surpass certain levels, industry minister Koichi Hagiuda said Tuesday.

The financial assistance is aimed at encouraging oil distributors to limit their wholesale prices in order to prevent an excessive rise in retail gasoline prices amid crude oil price surges.

The aid program has no precedent in Japan, according to government officials.

The government plans to include the measure in its economic stimulus package to be adopted on Friday, hoping to start the aid by the end of the year.

“We’re looking at a temporary measure of supplying wholesalers with financial resources to curb prices and averting a sharp increase in retail prices,” Hagiuda told reporters.

Crude oil prices have been soaring, pushed up by robust demand stemming from the economic recovery amid signs of the novel coronavirus pandemic subsiding.

In response, gasoline prices in Japan have been on the increase, with the average regular gasoline price standing at ¥169 per liter as of Nov. 8, the highest level in about seven years and three months.

The government is weighing a program of providing subsidies to oil wholesalers if regular gasoline prices exceed ¥170 on average, according to informed sources. A plan being studied calls for a subsidy limit of ¥5 per liter, the sources said.
Full story
4) Putin sounds alarm bells after seizing control of Iran gas in 'final act to secure Europe'
Daily Express, 18 November 2021

VLADIMIR PUTIN has struck a deal with the Iranian regime to tap into a recently-discovered gas field in the Caspian Sea, sparking fears Moscow will soon have complete control over Europe's energy market.

According to the terms of the deal, the multi-trillion-dollar Chalous gas field will be carved up between Russian, Chinese and Iranian companies. Earlier this year, Iran's Khazar Exploration and Production Company (KEPCO) said the field could hold about 3.5 trillion cubic meters of gas or a quarter of the 14.2 trillion cubic metres of gas found in the South Pars field in the Persian Gulf.
However, financial institutions in Germany, Austria, and Italy are reportedly eyeing up potential investment in the project, which may indicate the field's reserves are bigger than initially thought.

Russia's negotiators have managed to secure a majority share in the gas field, despite it sitting within a section of the Caspian Sea controlled by Iran.

The landlocked body of water is estimated to sit on top of some 292 trillion cubic feet of natural gas.

A "senior Russian official" who was reportedly involved in negotiating the deal, told "This is the final act of securing control over the European energy market."

Europe relies heavily on third country imports for energy, with Russia being the biggest supplier of crude oil, gas and fossil fuels.

According to 2019 data published by Eurostat, the statistical office of the European Union (EU), gas accounted for about 27 percent of all energy imports.

And about 41 percent of that gas came from Russia, followed by Norway (16 percent), Algeria (eight percent) and Qatar (five percent).

Eurostat warned: "The stability of the EU’s energy supply may be threatened if a high proportion of imports are concentrated among relatively few external partners."

This threat was highlighted in recent months after the global energy crunch caused gas prices across to Europe to hit record highs, prompting fears of a full-blown energy crisis this winter.

Russian President Vladimir Putin has been accused of exacerbating the issue to gain political leverage over the economic bloc.

In particular, Moscow was said to "weaponise" gas supplies to push through the controversial Nord Stream 2 pipeline, which runs directly to Germany and bypasses Poland and Ukraine.

President Putin has said earlier this year that approving the pipeline would be an "obvious" way of stabilising the market.

He said: "Of course, if we could expand supplies along this route, then, 100 percent, I can say with absolute certainty, the tension on the European energy market would significantly decline, and that would influence prices, of course."
5) Ambrose Evans-Pritchard: An energy crisis is coming
The Daily Telegraph, 18 November 2021

Europe’s energy crunch has returned with a winter vengeance. We are back to warnings of power rationing and industrial stoppage, a looming disaster for the European Commission and the British government alike.
Vladimir Putin has tightened his stranglehold on gas, driving up futures contracts for January by 40pc in barely a week. Prices are nearing the levels of September’s panic. The difference this time is that the underlying geopolitical crisis is an order of magnitude more serious.

Russia has mobilized 100,000 troops near Ukraine’s border in what Nato calls a “large and unusual build-up” with hostile intent. American and British intelligence officials last week showed Ukraine’s top brass satellite images and electronic intercepts indicating a “high probability” of military attack this winter, led by the sorts of Spetsnaz special forces deployed in Crimea.

Mr Putin has already prepared the ground for the perfect energy squeeze. He took advantage of the world’s post-pandemic gas shortage over the late summer to withhold the top-up flows needed to replenish Europe’s depleted storage.

Other than short bursts of extra supply, almost as a tease, Gazprom has been delivering minimum contract volumes. Inventories are currently 52pc in Austria, 61pc in Holland, 69pc in Germany at a time of year when they should be near 100pc.

The Kremlin is now closing the trap. Energy analysts ICIS says Gazprom booked “nothing” for December through the Mallnow metering point on the Polish-Belarus pipeline. Europe is facing a supply-deficit of 32m cubic meters a day. By ill luck, Algerian flows have been cut by an intractable dispute with Morocco.

“It is hard to know whether Putin is leveraging the energy weapon to try to reverse Europe’s green deal or whether this is really about preparations for an attack on Ukraine,” said Professor Alan Riley from the Atlantic Council.

“But he has to be careful because if he plays this card, he can never play it again. Europe will redesign its energy system and stop buying Russian gas altogether,” he said.

Whatever Mr Putin’s plans for Ukraine, possibly seizure of the Donbass and the Black Sea coast as far as Odessa, a parallel showdown with Brussels over the Baltic Nord Stream 2 pipeline looks certain to escalate.

German regulators have suspended the certification process because Gazprom was trying to get around EU monopoly laws. They had no choice: a stitch-up had become impossible. “Poland would have issued an immediate injunction to stop it at the European Court,” said Prof Riley.

The Greens are about to enter the German government and they think Nord Stream is scandalous, Kremlin imperialism with no purpose other than diverting existing gas flows from the Ukraine pipeline and depriving Kiev of its means of economic self-defence. Mr Putin will not back down lightly since Nord Stream 2 is central to his drive to alter the strategic balance of power in Europe, and overturn the post-Cold War settlement. The chances are that he will keep stoking the gas crisis until a frozen Europe begs for mercy, or tears itself apart.

Thierry Bros, a former energy security planner for the French government, said Brussels has stumbled blindly into a Kremlin ambush. “Putin set his master plan in motion last July and August. I didn’t believe it at first but now there can be no doubt. He told us we’d be getting more gas in October but it never came, and November has been worse, and now there’s going to be nothing through Mallnow,” he said.

“Europe has failed to follow the Churchillian precept of security of supply and has got itself into an existential crisis of its own making out of sheer incompetence. This could cause a break-down of the EU’s integrated energy system and lead to the collapse of the whole bloc,” he said.

EU states resorted instantly to health nationalism at the onset of Covid-19. Germany blocked exports of PPE equipment without compunction, even within the single market and after the goods had been paid for.

Mr Bros said the lip-service pieties of the EU energy market are likely to prove just as hollow if push comes to shove. Countries may invoke national security laws and hoard whatever energy they have rather than feeding it into the common pool.

“We’re running into a presidential election in France. People will scream if our industries are being shut and we’re told we have to accept rationing in order to heat the Germans,” he said.

For the British to rely on energy interconnectors from Europe in such circumstances shows touching faith in paper contracts. The UK imports little Russian gas but that is less reassuring than it sounds. It is part of Europe’s integrated nexus, and cross-Channel prices move in near lockstep. In one crucial respect the UK is in worse shape: it allowed the Rough storage site to close, to save pennies, and against vehement warnings, leaving this country nakedly exposed with just days of winter back-up.

The Government made a bet that the UK could always, and easily, obtain liquefied natural gas on the global market. But this country now finds itself in a bidding war for scarce LNG supplies with China, which is armed with $3.2 trillion of foreign exchange reserves and has ordered officials to secure energy as a matter of regime survival. The Asia spot price has just hit the once unthinkable level of $32 per MBBtu, if you can get it.

If the Government has not already created an “energy war room” with emergency powers, it should do so forthwith. My fear is that we will drift into something akin to the Covid debacle of February 2020, when officials professed cheery confidence in their contingency plans (for a flu pandemic), heroically ignoring what the virus was already doing in Italy.  Britain has advantages. Half its gas comes from internal supply on the Continental Shelf, unlike dependent Europe. Its service economy has a lower energy intensity ratio than Germany.  

It has useful friends. The Emir of Qatar has diverted LNG cargoes to the UK after a friendly chat with Boris Johnson, the fruit of tight defence, cultural, and royal ties. The Qataris turned down a similar request from Brussels because of an antitrust dispute over sales contracts. Might one discern a Brexit dividend in this?

Offshore wind is working as it should and has dented the exorbitant bill for imported gas. Renewables have made up 32pc of the UK’s power over the last week. Be thankful for small mercies. Drax has 1.3 gigawatts of coal capacity in reserve that could be cranked up quickly.

The UK could follow Japan and switch some gas plants to oil, currently trading at half the price of spot LNG ($180 equivalent). It could in extremis book LNG cargoes and hold the tankers at anchor as emergency storage. The Government could extend the life of the Hunterston B nuclear plant for a few months until we got through the worst.

Clive Moffatt, an expert on energy security, said it is already too late. “There’s no short-term fix to this. The grid is going to have to shut down industrial gas users. That is the only way to keep hospitals open and homes heated,” he said. But if I had to choose, I’d rather be in Boris’s Britain this winter, than Ursula’s Europe.
6) Rick Newman: 3 warning signs for Biden’s green-energy revolution
Yahoo Finance, 18 November 2021

The surging cost of gasoline and home-heating fuel is a political problem in itself.
Energy is 7% of the typical family’s budget, and higher prices = hardship. Voters blame whoever is in charge, and it’s no surprise Biden’s approval rating has plummeted as gas prices have risen 50% year-over-year.
This energy trap is also helping illustrate how difficult it will be to transition from fossil fuels to renewables and to reduce the carbon emissions baking the planet. Biden is mounting the most aggressive effort of any U.S. president to develop policies and legislation to combat global warming.
Yet there’s resistance everywhere: Republicans at the federal level are nearly universally opposed to green-energy incentives or limits on fossil-fuel drilling.
Democrats want to act but can’t agree on new taxes to fund green-energy investment. There’s more bipartisan support at the state and local level, but the scale of the problem is beyond what states and cities can do on their own.

Consumers increasingly acknowledge the damage global warming is causing, but they’re understandably leery of changes that will raise their out-of-pocket costs. Biden’s struggles on the issue reveal the fault lines forming in a transition from carbon to renewables that will take 30 years or longer. Here are 3 warning signs:

There’s a cost to vilifying fossil fuels. Americans got used to relatively cheap energy because of the fracking revolution that sharply lowered the cost of reaching certain oil and gas deposits in Texas, the Dakotas, Appalachia and elsewhere. But the drilling frenzy that kept costs down also required ready capital for new investments, and investors want to know there will be years of healthy returns before committing money.
There’s now evidence that money is drying up, as policymakers in the U.S. and many other countries roll out incentives for green energy while in some cases penalizing oil and gas drillers. Steve Schwartzman, co-founder of private-equity titan Blackstone, said recently that new emphasis on environmental investing is causing a credit crunch at oil and gas companies that is crimping supply and pushing prices up.

What’s missing is a realistic transition plan that acknowledges global dependence on fossil fuels, which still account for more than 80% of global energy needs. Biden himself acknowledged this dependence recently when he asked members of the OPEC oil cartel to drill more. They declined, and Biden is now pushing for an investigation into whether U.S. gasoline refiners are colluding to jack up prices. He probably won’t find much.
Global supply and demand sets oil prices, and U.S. gasoline prices follow oil prices closely, as the chart below shows. Gas prices currently averaging around $3.50 per gallon seem in line with oil prices that are around $80 per barrel.

A coherent transition plan would acknowledge the need for significant amounts of fossil fuels beyond 2030, and probably beyond 2040, while providing a policy framework that gives drillers and their investors some confidence they won’t be drummed out of business. Vilifying fossil fuel providers is cheap political theater, but it can backfire when you’re trashing the companies that fuel your SUV and heat your home—or worse yet, those of your constituents.
There are going to be disruptions. Supply-demand mismatches today could be a preview of much worse imbalances as we draw down one piece of giant energy infrastructure while trying to build another. Here’s one illustrative example: Forecasting firm IHS Markit believes the infrastructure bill Congress recently passed will fund about 400,000 new electric vehicle chargers by 2026. But with more than 9 million EVs on the road by then, the nation will need about 700,000 chargers, IHS predicts.

Private companies could provide some of the shortfall, but there could also be a major lack of charging infrastructure to keep all those EVs going. If wait times for a charger are too inconvenient or there aren’t enough chargers to allow long-distance trips, it could damage the credibility of EVs or trigger a consumer revolt. Getting the balance right as new technology displaces old is going to be difficult, and there are going to be snafus. What’s the backup plan?
Full post
7) David Messler: Could an energy crunch lead to a global financial crisis?, 16 November 2021
There is a case that can be made that the present day liquidity profile and reduced capital investment in upstream sources for new supplies of petroleum, match the similar scenario of the 2008-9 financial crisis.
In recent times, and partially as a result of the global pandemic, huge infusions of cash have been pumped into the market to achieve a number of objectives.
Commodities began an extreme pricing upswing last year as a result of this cash infusion and pent-up demand from the shut-down phase of the pandemic. As a result, not only are there strong parallels to 2008, but current conditions are even more exaggerated as we approach 2022, thanks to continued governmental and financial intervention in the markets. In this article, we will examine some of the key causes of the 2008 financial meltdown, and compare them against relevant data in the present day. We will then tie that to current data on petroleum supplies and production to make our final case about the likelihood of a severe global financial crisis.

Lack of capital investment in upstream petroleum supplies
If you follow the news you will become quickly and acutely aware that things are different on the global energy front. Strikingly different from just a year ago. One of the things that drives the conversation is the speed at which the market has flipped from assuming that oil would be plentiful and low priced well into the future to just the inverse. There was even a catch-phrase to describe this scenario, used as recently as March of 2020.

So what happened? As you can see below spending on fossil fuels has declined precipitously from 2014, reaching a bottom only last year. Estimates vary from between $600 bn to $1.0 Trillion of capital has been lost to oil and gas extraction since 2014.
Two primary reasons have been the cause of most of this capital restraint. The first is prices well below an acceptable rate of return for oil companies for much of this period. Lower for Longer carried an enormous financial impact onto the balance sheets of oil producers, and they did what oil companies do when oil prices drop.
They stopped spending...on oil and gas. Even now, with prices that are much higher, domestic oil companies are choosing to pay down debt, buy back their stock, and raise dividends as opposed to increasing their capital budgets. This was discussed in detail in an OilPrice article in September.

The second principle chilling effect on global fossil fuel investment has been the action of governments and activist shareholders to foster so-called "green energy" alternatives through edicts, tax subsidies, and regulatory barriers. Following the Paris Accords, signatories have moved swiftly to reward investment in these alternative energy sources, primarily-wind, solar, and biomass. This, despite the fact that many of these alternative technologies are still evolving, and lack supporting infrastructure. [...]
Full post

The London-based Net Zero Watch is a campaign group set up to highlight and discuss the serious implications of expensive and poorly considered climate change policies. The Net Zero Watch newsletter is prepared by Director Dr Benny Peiser - for more information, please visit the website at

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