Europe's gas war: to lose to itself, Asia or Russia?

And he compared the EU energy market with a “green boat” in a storm.

Yekaterina Maksimova

- In one of your studies, it was noted that at the height of the global energy crisis, that is, since last year, Europe has been actively purchasing liquefied natural gas (LNG). And she was ready to pay such prices that she became a premium buyer, displacing Asia. How will the Europeans, faced with shortages of pipeline gas from Russia, and the Asians, whose lockdown has ended, now divide the LNG market?

We shared an orange, many of ours were killed. Approximately so they will share liquefied gas. The LNG market consists of several non-equilibrium segments. And the part that can be divided quickly, transferred between buyers, focusing only on the most favorable price offers, occupies less than 30% of this market. This includes short-term contracts, that is, they are concluded for up to four years. Everything else is reserved by medium-term and long-term contracts. And the share of the Asia-Pacific region (APR) accounts for about ¾ of all world demand. This is based on the results of last year.

Europe found itself in the most vulnerable position

- That is, the Europeans can only count on 30% of the share of the world LNG market? This is clearly not enough for them to stop cooperation with Russia.

- Not even for all 30%, but for a fraction of this volume. More precisely, the struggle for additional deliveries on the part of each of the players is now unfolding around a share of this volume. Let's fast forward to 2021, when the global energy crisis hit. Europe then, if we compare the countries with the most significant economies, was in the most vulnerable position.

The vulnerability of the European Union is due to the fact that gas pricing there is tied to the stock exchange, while the European Union has abandoned the oil peg. For comparison: the Asia-Pacific region receives about 70-75% of gas, focusing on the cost of the oil basket. And only 25-30% is bought through the exchange. Therefore, the average price for Asia in any case turned out to be lower during the energy crisis, and much lower than for Europe.

And at the end of last year, European consumers created increased demand on the stock exchange, against which there was an extreme rise in prices for blue fuel to levels above $2,000 per thousand cubic meters. m. That part of the gas, which was not bound by long-term contracts, turned around from the Asian direction and, focusing exclusively on stock quotes, sailed to Europe. By January 2022, the European market had become a premium market for the LNG market, with the “tastiest” prices there.

Due to high prices, the EU was able, according to the European Commission, to attract an additional 21 billion cubic meters of non-Russian LNG in the first six months of 2022, according to the European Commission. The current situation shows us that this was most likely the maximum that Europe can take on the world market solely due to high prices. And now, in the second half of the year, Europe, at best, can claim the same 21 billion cubic meters. Or even less, given that 5 billion cubic meters came from the American plant, which had an accident in June.

A bit of absurdity

- Will Europe be able to increase the volume of LNG supplies in the future only through long-term contracts?

-Such an attempt was made by the Europeans. In the first half of the year, they turned to Qatar, which has plans to increase production by 1.5 times by 2027, by about 50 billion cubic meters. Qatar replied: no question, let's conclude a long-term contract. And we will supply you with these volumes from 2027. The Europeans replied: we don’t want it for the long term, we can’t, we have a “green” agenda, we will buy on the stock exchange.

This position caused, to put it mildly, some bewilderment on the Qatari side, because such an approach looks slightly absurd. LNG production is expensive. For 1 million tons of plant capacity, you will have to spend about $1 billion. This is not a strict value, but it allows you to estimate the approximate scale. So, 50 billion cubic meters. m is approximately 36 million tons of LNG. That's the money the manufacturer should return. To return them, we need guarantees in the form of a long-term contract, that is, at least 15, and preferably 20 years.

But Europe, on the other hand, has set a course for the decarbonization of its economy as part of the “green deal” by 2050 and announces the abandonment of gas in the coming decades. The contract will begin to be executed in 2027, and by 2047, according to EU plans, they will no longer need gas at all.

-How will the countries of the European Union generally hold out for a couple of decades until the “green” era they promised? If last year Europe (including the UK) consumed about 500 billion cubic meters of gas, almost 150 billion cubic meters of them were supplied by Gazprom. The share of LNG is 104 billion. Now, deliveries via Nord Stream 1 have dropped to 20%, and the Europeans have refused Nord Stream 2 because of the NWO.

-It is a delusion to link the current problems of the Europeans with a military operation. Our European partners try to explain most of their actions precisely by this. The actions of the European authorities in the framework of the sanctions confrontation with Russia are now somewhat exacerbating the consequences that the global energy crisis has brought.

Not now, but since the end of 2021, gas consumption has fallen in Europe under the pressure of high prices. Industrial enterprises began to suspend their activities last year.

And now Europe, despite the shortage of gas, does not want to pay more for the same LNG than others. But she still has to do it. Asia, by the way, also does not want to, but it has more degrees of freedom - pricing is not tied only to the exchange, it has its own coal resources, which it does not hesitate to use.

Everything that could happen and that plays an important role at the moment began before the Ukrainian events. And the situation is not fundamentally changing now, the situation has changed only in the sense that the European Union is cutting off energy resources from Russia. This is the main difference of this whole story.

The reef hit by the “green” European ship

-Is this rapid cutoff from Russian gas critical for the European market or just temporary inconvenience ?

-Statements that the Russian Federation is manipulating the European market began to be publicly voiced back in September 2021. They say that prices are rising in Asia and the USA - this is one thing, but in Europe - only because Russia manipulates these prices in order to launch Nord Stream 2. Feel how omnipotent we are: we can turn the markets of Europe, Asia, and the USA.

The Europeans began to accuse us of manipulation a year ago, they decided to refuse (or rather, reduce dependence) on Russian gas at the legislative level at least 13 years ago. And at the conceptual level - 20 years ago.

Here is what we are seeing at the moment - this is one of the reefs that the "green" European ship ran into. And the fact that a storm (that is, a crisis in the energy market) will happen was not a matter of probability, but of inevitability. The intrigue was only in terms of when it would come. And if the EU does not learn the necessary lessons from the current situation, the crisis will repeat itself. Most likely pretty fast.

Europe's problem lies in the reforms it has been implementing in the energy sector since the late 2000s. The system, the very structure of the European market that they have created, cannot work in crisis conditions. They are intended only for greenhouse conditions.

Winter Is Coming

-Would you undertake to describe the coming winter in Europe?

- It's impossible to predict. Because there are several unknowns. First, the weather. Secondly, let's see how actively the Europeans will turn a blind eye to possible schemes of "gray" energy imports from Russia. For example, coal, the export of which from Russia has been stopped since August. And if he is not entirely Russian, but came from Turkey. You kind of guess whose it is, but you believe that it is from Turkey.

The third point is whether Nord Stream 2 will be launched. This, it seems to me, should not even interest us so much as the Europeans. I doubt, of course, that they will launch it, because in the minds of the European leadership, this is capitulation. But life does not exclude such a possibility. The Yamal-Europe gas pipeline has already been stopped, it is impossible to load the Ukrainian direction at full capacity. Plus, purely technical problems do not allow using more than 20% of the Nord Stream capacity.

The fourth unknown is the level of demand. In the first half of 2022, the level of gas demand in the EU decreased by 27 billion cubic meters. This is a lot. And the bulk of the reduction fell on the industrial sector. And this sector consumes about a quarter of all gas supplied to the EU countries. How much consumption will fall in the second half of the year is a question, but it is clear that there will be a fall. Those industrial enterprises that did not work in the first half of the year will not work in the second either.

The fifth point is gas prices. What they will be, no one knows yet. If they remain at current levels - from 1 to 2 thousand dollars or more, then I have bad news for our European neighbors.

“You never know what this person is trying to say about Nord Stream 2”

- “Nord Stream -2”: firstly, how would you personally explain to an ordinary Russian why about 10 billion dollars were invested in its construction, if Europe honestly announced the gradual abandonment of Russian gas pipelines. Secondly, German Chancellor Scholz has already ruled out the possibility of launching it.

- Political statements are one thing, harsh reality is quite another. The pipeline was built jointly with European companies. It was a joint project of economic entities related to the energy industry.

And these subjects, according to their assessments, believed that the “green” plans that the European Union wanted to implement were not feasible. The European Union, in its short history, generally did not implement a lot of the announced plans. There's a lot of stuff on the brakes. "Well, I couldn't, I couldn't." For example, in the 2010s, the Europeans tried to ensure equal access to energy resources for all EU countries. It didn't work out.

Moreover, Scholz and other European leaders who have now come to power have announced the development of renewable energy sources and the expansion of the share of gas generation. Because Europe plans to abandon coal in power generation, and specifically Germany refuses nuclear power plants. So they need to be replaced with something. They planned to replace it with gas-fired power plants. Gas consumption in Germany was expected to roughly quadruple by the end of the 2020s. This concerns the feasibility of building Nord Stream 2.

About Scholz's statements... You never know what this person is trying to say, please excuse me. On the one hand, Scholz is chancellor today, not tomorrow. On the other hand, if Nord Stream 2 is launched, then Europe will solve all its current gas problems. Russia, as a supplier of blue fuel, in the long term, is a non-alternative partner for Europe.

But, as I said above, I doubt that there can be positive decisions on Nord Stream 2 now.

What if Scholz threw a wrench there or tore off the wiring

- What is your forecast, what will happen next with the first Nord Stream? Will it be launched at full capacity in the fall? How long are we going to watch the series about the turbine?

- They won't launch by autumn. It's impossible. Seven turbines are not working there now. And these seven turbines are not in the same condition. One turbine is now in Germany. The parties cannot agree on its transportation to Russia. Three turbines require overhaul, they must be transported to Canada to the manufacturing plant. Now it is impossible to take them there because of legal issues. There are three more turbines that require the intervention of Siemens specialists on site - in Russia. Perhaps some of them also need major repairs.

And if right now, this minute, all the problems associated with the documentary side, with the delivery of the stuck turbine, are resolved, then it will be turned on somewhere by the end of August. And the gas pipeline will be able to reach approximately 67 million cubic meters, now 33 million cubic meters per day.

I can only describe the story with the turbine in one word - idiocy. Especially after watching the video with the German Chancellor. When for some reason the turbine from Canada was delivered not to Russia, but to Germany, Scholz approached it, touched it with his hands and, in all seriousness, said from the podium - I looked, it works. The situation itself is insane: not only was someone else's turbine brought to Germany for some reason, unpacked, it lies, not fenced, without protection. Come whoever you want, do whatever you want. And some people who simply cannot be near the equipment come up to her, and determine her condition by the laying on of hands.

Next to the chancellor, if he really wanted to diagnose the unit, at least there should have been a representative of the customer - Gazprom. And suddenly Scholz threw a wrench there or tore off the wiring. I'm kidding, of course. But seriously, after the turbine was unpacked without witnesses from the customer and felt, it again requires diagnostics.

But I repeat, if all legal (documentary) issues are resolved right now, discarding political manipulations, then the situation with Nord Stream can develop favorably no earlier than by the end of the year. It will be possible to reach, say, almost 100% capacity. But every week of downtime leads to the fact that it all does not work like that. And everything is moving towards spring. This is the best scenario.

In the meantime, Siemens representatives say that "Gazprom is lying to you, there are no sanctions restrictions on the delivery of a turbine from Germany to Russia." Gazprom logically raises the question : why are you saying this to the media, we want a paper with these words. Official, with a clear wording, with the seal and signature of the same Ursula von der Leyen.

“Why wait for winter? The system is already broken.”

-So Europe will not have time to fill the storage?

- It's strange that everyone is attached to winter. We froze in anticipation: now the frosts will hit and the Europeans will feel bad. This is their agenda - how to survive the winter, and for some reason we are not included in it.

Yes, that's not the point. And the fact is that they have, in principle, designed such a system that cannot but break. Why wait for winter? This system is already breaking down, breaking down for more than a year. No matter how much gas is accumulated in storage facilities, all these accumulations do not make sense without guarantees of stable supplies in summer and winter. And all this running around - “we will not allow Nord Stream 2”, “this is bad Gazprom” - this is already a consequence of the fact that they cannot cope. For me, this is a signal that they are desperate.

Of course, one should not expect that Europe will crawl on its knees in the dead of winter. No. They will tell how they adopted a plan to save gas by 15% and are implementing it.

And from what indicator 15%? I'll tell you: they are going to reduce the demand for gas from the average volume typical for the last five years from August 1 to March 31. And remember, I told you that they reduced gas consumption by 27 billion cubic meters in the first half of the year alone. And that in the second half of the year there will be a comparable reduction. The trick is that they are already close to the demand reduction target. A priori, they will show a decrease over the next eight months. Apparently, each of the European countries will have this figure fluctuate within 10-15%.

And the European leaders can come out and say: you know, our economy is in a very unpleasant situation, we have failed as managers. And you can say: you see what you, Europeans, are doing well, we told you to reduce consumption, and you have reduced it. This means that we made a management decision and everyone followed it.

These statements about the reduction are pure profanity, bullshit.

- Judging by your assessment, it turns out that the delusional situation is explained only by politics?

-Any manager should have a guilty one. If he is not there, then he must be appointed so that there is someone to blame for his mistakes. Given the state of affairs that has developed in the EU energy market due to a number of factors, the EU must have its own culprit. Russia was appointed.

They point a finger at us and say - this is all the Russian Federation, this is not us. They show a European - here is a turbine, here is Scholz next to it, it works, but there is no gas. Comfortable?

Now most European leaders are faced with a choice: on one side of the scales is their political future, on the other - the well-being of the European economy. Which bowl should outweigh?

Plus, there is one more factor: any progress related to the improvement of the situation is impossible without Russian gas. And if one of the politicians even tries to do something, it will mean that he caved in and lifts sanctions. In Canada, a socio-political scandal has not subsided until now because of the turbine sent to Russia.