Category Archives: The USA

Germany’s Real LNG Policy [My BPJ analysis]

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“Natural gas instead of Diesel” © REUTERS/Hannibal Hanschke

My latest at: Berlin Policy Journal (German Council on Foreign Relations), June 28, 2018:

Germany’s Real LNG Policy
Germany’s government has endorsed imports of liquid natural gas for the first time—but not because of Russia and Nord Stream 2. 

The German federal government has decided in favor of building liquid natural gas (LNG) import terminals and infrastructure. In March, Chancellor Angela Merkel’s CDU/CSU-SPD government, in its “coalition contract,” pledged to “Make Germany the site for LNG infrastructure.” This is a notable policy change, because in Germany the opposition to LNG imports and use has been so much stronger than anywhere else in Europe.

The aim of this new endorsement is to reduce maritime and roadway heavy-transport emissions. However, many in Germany argue that using “small-scale” LNG in this way, as a “bridging” fossil fuel, is “wasted investment”. They contend that Energiewende-mandated electric vehicles can and will rapidly de-carbonize heavy transport. Still others oppose LNG imports on the grounds that they would unnecessarily diversify Germany’s gas suppliers with the aim of offsetting increasing reliance on Russian pipeline gas. They insist that Russian pipeline gas has been “historically reliable” and is cheaper for Germany than building large-scale import terminals for LNG.

Though the federal bureaucracy had been advancing this policy change for over a year, top government officials did not make any particular effort to bring the issue to public attention or to drum up support. Accordingly, media and public understanding of the federal government’s motivations has been less than ideal.

Small-Scale Imports for Cleaner Transport

There are two main points to understand. First, the aim of the new policy is clearly to address long-standing environmental and competitiveness problems in German marine and heavy road transport: compared to diesel, LNG as a transport fuel is much cleaner, emits less CO2 and is generally cheaper. Second, the approved small-scale LNG import facilities will not reduce German dependence on Russian pipeline gas, which is used for conventional purposes. The new policy is not intended to reduce dependence on Russian gas and the controversial Nord Stream 2 pipeline, contrary to various press reports.

The first facility to win approval from Berlin (and previously from Brussels) is planned for the North Sea port of Brunsbüttel, near Hamburg. The initial focus on the Hamburg region is logical. From there, LNG can be shipped up the Elbe River as an inland-shipping and road-transport fuel. In addition, there is access to the Kiel Canal, the world’s busiest artificial waterway, where LNG can be used or delivered into Scandinavia and the Baltic region. Hamburg is also Germany’s major container port, and the shipping industry has begun converting engines to LNG fuel globally.

However, as well as facilities for fueling ships and trucks in the immediate port area with liquid natural gas, and shipping some gas onwards, the plan also includes an onshore regasification unit and connections to the existing gas-distribution network for conventional gas applications—heating, electrical generation, etc. Experts feel this will provide the project’s developers with flexibility, as it will take time for LNG road-transport infrastructure to develop in Germany. Currently, it is almost nonexistent.

The €500 million terminal will have facilities to transfer, store, and redistribute the liquid for use as maritime-bunker fuel, road-transport fuel, and various industrial applications. Such direct use of LNG as a liquid fuel, without regasification, is known as “small-scale” LNG. This is distinct from “large-scale LNG,” which involves much-higher volumes that are re-gasified in huge facilities and injected into the gas grid for conventional uses.

A sense of scale is important. The Brunsbüttel facility will receive LNG equivalent to 5 billion cubic meters (bcm) of gas per year. In 2016 Germany consumed 80.5 bcm of gas. So the Brunsbüttel facility’s capacity to re-gasify a portion of the LNG could help replace a part of the gas Germany now receives from the Netherlands, whose Groningen field is mandated to close soon. But the small scale of the new facility’s means it cannot significantly diminish Germany’s great dependence on Russian and Norwegian pipeline imports.

Indeed, despite a spate of articles claiming the contrary in major media outlets, including Der Spiegeland Bloomberg, the goal of the federal government’s new LNG policy is not to cut dependence on Russian gas. The entire regulatory and ministerial review process clearly focused on fueling maritime and heavy-road transport. Clearly, this small-scale facility provides no serious counterweight to Germany’s Gazprom imports, which are projected to rise from current levels of 55 bcm via Nord Stream 1, to 110 bcm of gas per year when Nord Stream 2 is complete, or about 60 percent of total German gas imports. At present, Germany receives 31 percent of its gas from Russia and 24 percent from Norway. Reversing this reliance on Russia would require multiple large-scale LNG regasification terminals capable of fueling a major portion of the country’s conventional gas demand for electricity generation, heating, etc.

Stalled Transport Cleanup

So what is the motivation for the new LNG policy? 46.1 percent of German GDP is dependent on exports (2016 data), compared to 26.9 percent for OECD states overall. Therefore, it is especially important that Germany be competitive in its maritime and heavy road transport to move all those goods. Yet despite having pinned the nation’s commercial future on the success of the Energiewende, actors from government, industry, political parties, and climate/environmental institutions have, embarrassingly, accomplished virtually nothing when it comes to cleaning up air-pollution and carbon emissions from transport. The so-called Verkehrwende (transport transition) is going nowhere. The ongoing diesel scandal is but one aspect of this, involving passenger vehicles. However, in maritime and heavy trucking, Germany has fallen disconcertingly behind many other European states and the United States.

For example, in California, after some 15 years of efforts, in 2015 fully 60 percent of all buses were running on compressed natural gas (CNG), as were 17 percent of all U.S. buses. This means their engines were emitting about 99% less particulates and sulfur dioxide, 70% less nitrogen oxides, reducing noise pollution about 50% and emitting from 12 to 20 percent less CO2 than diesel fueled engines, which remain ubiquitous in most German cities. Using LNG in buses would bring similar environmental benefits to Germany.
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A Comment on: “A Trans-Atlantic Manifesto in Times of Trump – A German Perspective,” by foreign policy experts

I sent this today to European and American contacts – apologies for duplications.

Dear Colleagues and Friends,

I read with interest the declaration: “In spite of it all, America: A Trans-Atlantic Manifesto in Times of Donald Trump – A German Perspective,” signed by a number of leading German foreign policy experts today in Die Zeit and translated in the NYTimes.
Point 10 is of particular interest and much welcomed as – at long last – a frank characterization in Germany of the Nord Stream 2 project for what it plainly is: “a geopolitical project:”  Quoting:
10. Energy security policy — giving up Nord Stream 2 is in Germany’s interest
There is one more policy area in which the German government should reconsider its position to open the door for productive cooperation: energy security policy. The United States has identified Nord Stream 2, the planned pipeline running through the Baltic Sea to Russia, as a geostrategic project. They are correct. More important: This pipeline project is not in the joint European interest. Nord Stream 2 contradicts a policy of greater energy independence and undermines the envisaged European Energy Union. We should try to identify a joint approach with our European partners and the United States. (emphasis added – T.O’D.)

Further along in the spirit of Trans-Atlanticism, which this manifesto embodies, I should point out that the recent US sanctions bill (enacted by Congress in retaliation for Russian interference in US elections, and to codify into law Obama’s presidential sanctions orders stemming from Russia’s East Ukraine and Crimean interventions, so that Donald Trump cannot easily reverse these) … involved Congress meeting with EU and German diplomats and re-drafting the initial bill so as to take into explicit consideration European concerns.

These concerns were that US sanctions should not unfairly disadvantage European firms over US firms, and should not be imposed on EU firms in a “unilateral” manner, without close consultations with European allies as were carried out by the Obama administration.
In fact, the final version of this bill explicitly requires the Trump Administration to decide to impose any new sanctions on participants in European pipelines or energy projects such as Nord Stream 2 only in “coordination” with the European Union.
The fact that the final drafting of this bill – which Trump was constrained to sign because it was ‘veto proof’ – involved US-EU active cooperation “without and against” President Trump is a significant step in defense of Trans-Atlanticism and in defiance of Trump’s anti-European “America First” policy and of his vision of US “energy independence” as jingoistic “US energy dominance.”
Today’s manifesto by influential German foreign affairs figures advocating further engagement with the USA in spite of (and de facto against) Trump, is a further positive step in this direction.
I should note that the Trump administration has missed the new sanctions bill’s mandated deadline to report to Congress on these issues.  Meanwhile, I am told (some two weeks ago) by reliable sources that “all work has been frozen” by Gazprom’s European-partner firms involved in the NS2 project, awaiting clarity from the White House on what any new sanctions will be and then to understand the longterm impact on their participations.
My recent Berlin Policy Journal article on this, Neue Neue Ostpolitik, and some earlier ones there may be of interest.
Sincerely,
Dr. Thomas W. O’Donnell  ||  Energy & International Affairs
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 – Freie Universität-Berlin …………………………Syllabus: Energizing Europ

“Neue Neue Ostpolitik” My BPJ piece on German fury at Senate NS2 sanctions

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The US Senate’s decision to expand sanctions against Russia triggered indignation in Berlin, throwing Germany’s geopolitical ambitions over the Nord Stream 2 project into sharp relief.  Read below or get the App.   My other articles at Berlin Policy Journal  

“Neue Neue Ostpolitik”  

Berlin – July 21, 2017    By: Thomas O’Donnell —  On June 15, the US Senate approved an act to sharply expand sanctions imposed on Russia in retaliation for its intervention in eastern Ukraine and annexation of Crimea in 2014. The broadly bi-partisan move that enshrined Barack Obama’s earlier executive orders – intended as a response to Moscow’s alleged cyber interference in US elections – was a stunning rebuke to US President Donald Trump’s Russia policy, essentially taking a broad swath of foreign policy out of his hands. Continue reading

Trump’s promise to “stay totally independent” of OPEC is populist hype [My IBD interview]

eia_apr15_us_oil_prod-importsContrary to his campaign hype (see article below), Trump-as-president will not do anything to interfere with the free flow of oil or gas to or from the USA.  As I pointed out in the Investors Business Daily interview (Gillian Rich’s story is below), people central to Trump’s administration – such as Rex Tillerson, his designated secretary of state and former CEO of Exxon, and Harold Hamm, Trump’s fracking billionaire friend he wanted for secretary of energy – are global-market-oriented businessmen who would never agree to disconnect the USA from global energy markets.

The free flow of petroleum through the unified global market traded in US dollars – what I call the “Global Barrel” – is central to the business model of every private as well as every national oil company.  Today there is essentially one, global oil price. If you break up the global market by limiting imports or exports, you get national markets with national prices.  Then what?

If the US price went higher than the global price due to keeping out cheap foreign oil, Trump’s popular approval would dive. And, if the U.S. price went lower due to a domestic production glut of fracked oil, then his support among business would tank.

Moreover, the unified global market serves as the key element in the world’s collective energy-security system by guaranteeing equal access and prices to all suppliers and consumers.   Continue reading

My CNNMoney quote & 3 points: OPEC v shale, Russia’s new role & Trump-buddy Hamm is pro Saudi price band

 

160928163540-opec-algeria-384x216I was interviewed by Matt Egan of CNNMoney. Three points, if I may:

  1. This story echoes my message in Berlin Policy Journal earlier this week and my RTRadio interview: OPEC now has to live with a new oil-market paradigm where shale  won’t disappear (for now its in the US, but soon elsewhere too).  It is a technology more akin to manufacturing than traditional oil extraction and so more amenable to technological and operating innovation in a low-price regime (or in a price war such as the Saudis et al have just given up on waging against it). And, being much smaller-in-scale means it can ramp up at much lower initial costs and more rapidly than traditional oil fields. The CNNMoney story is below here, or here’s the CNN ink .
  2. Another totally new phenomena seen in this OPEC deal was that a Russian leader was deeply involved in the tense OPEC negotiations, specifically between Iran and Saudi Arabia. Russia has never done this before. Historically, it has also never carried through on previous promises to support an OPEC cut, instead free-riding on higher prices effected by OPEC/Saudi cuts.  In this case, Putin was instrumental in getting the Saudi’s to agree, as they always have before, to swallow most of the cuts. But, Putin has agreed to cut too (in ambiguous language, but repeatedly). We shall now see if he and Igor Sechin (CEO of Rosneft, that produces 40% of Russian oil, and who is, by the way, a great friend of Venezuela’s miserably failing chavista leadership, where his company is now the biggest foreign oil producer) … do as they have promised OPEC and the Saudis. If they do not, the fallout with Saudis and their allies will be significant.
  3. Now, also, we shall see how US shale responds. Of course, IEA head, Fatih Birol, has understandably predicted that US shale and other producers, will likely hike production if oil reaches $60/barrel and simply eat up the present OPEC cuts in about nine months or so. (Aside: of course, the present output cuts, even if they ‘fail’ in the long run to sustain higher prices, would still have had been a significant cash-boosting relief to all OPEC states and to Russia while they lasted.)  However, take a look at the Bloomberg video link at the end of my Berlin Policy Journal piece – an interview with Howard Hamm, Trump’s billionaire fracking close-ally (who has just turned down an offer to run the Department of Energy). He had told Bloomberg he expects OPEC to make a deal because “it makes sense” and, further, that he expects/hopes his US fracking colleagues will show ‘discipline’ after the price rise, i.e., not expanding too fast so as to keep prices up.  An interesting, de facto recognition that price wars, in the end (in the long run), do not benefit either side, and goes on to approvingly say that the Saudi’s want to once again maintain prices “in a band” as they used to do. It is clear from Hamm that this would all be very welcomed from the US side. (Note, Hamm’s Continental Energy company made $3 billion in just three hours after the OPEC deal boosted prices! ) Indeed, in light of such everlasting market realities, it is difficult to imagine Trump’s attitude to the Saudi’s will be much different than other US president’s over the years. Which has geopolitical implications for Iran, of course, as the Saudi-Iranian geopolitical competition for regional influence and their parallel oil-market competition both continue to heat up.

Here’s the CNNMoney piece by M. Egan of 1 December 2016 (with my quote highlighted): Continue reading

An Oil-Price War´s Surprise Ending -My BPJ article on OPEC, Shale, Trump, Market & Geopolitics

bpj-oil-price-war-end-29nov16Here`s my latest at Berlin Policy Journal:  about  OPEC`s 30 Novermber meeting, US shale and the geopolitics from the  Trump Administration towards Iran and the Saudis. – Tom O`D.

An Oil-Price War’s Surprise Ending

No one expected shale producers to survive extended low oil prices.
, NOVEMBER 29, 2016 
The oil market’s oversupply – and the low prices that followed – was supposed to drive shale producers out of business. Instead, the economies of several large national producers have been upended, and the next act could prove even more destabilizing.

OPEC’s 171st meeting in Vienna on November 30 reflects the new paradigm of the global oil market. After two years, the Saudi-led price war to drive American shale and other “high cost” producers from the market has ended. However, to the surprise of many – not least the Saudis – shale has survived. What now?

The United States Energy Information Agency (EIA) expects persistent market oversupply to have been quenched by the second half of 2017. The Saudis view the diminishing oversupply as an opportunity to cut production by 600,000 or more barrels per day – although about twice this amount would be optimal – boosting prices from under $50 per barrel to $60 or more. The Saudis have worked intensely to reach an agreement at the OPEC summit to coordinate this production cut with Russia; any failure to achieve this highly anticipated deal would sink market confidence, pushing prices into the $30s.

The key obstacle to the Saudi plan is that Iran has refused to participate in any cut, insisting it should first be allowed to re-establish production it lost under years of sanctions. In response, the Saudis have threatened to boost their own production, punishing Iran by collapsing prices and by denying them market share. The Financial Times’ Nick Butler correctly characterizes this as “playing with fire,” and not only because of the severe pain this would impose on weaker OPEC states, but also for the geopolitical retaliation it might provoke from the new US administration as the Saudis would also bankrupt numerous shale producers in the US.

However, even if Russia, Iran, and the rest of OPEC agree to the Saudis’ cuts, US shale is widely expected to expand into the void, re-depressing prices by later next year. In all these scenarios, the future remains extremely difficult for OPEC, for Russia, and for other oil-dependent states.

A Price War Backfires

The prolonged high price of oil, starting to rise in 2002 and then dipping during the financial crisis before rising again till mid-2014, encouraged the emergence of new unconventional shale production. Driven by technical innovations in hydraulic fracturing plus abundant venture capital, by 2014 the US had added more new oil to the global market than what was lost in the Arab Spring and subsequent wars in Libya, Iraq, and Syria. By mid-2014, some two million excess barrels-per-day (bpd) were flowing into storage, and the price collapsed. Continue reading

Saudi & Russia seek oil deal as OPEC fight v US shale fails [My RTRadio Interview]

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RT Radio-Edinburgh’s Jack Foster interviewed me on the upcoming 30 November OPEC summit where the Saudis hope to set a cap on OPEC and Russian production. Here’s the interview:   Listen from time-stamp 9:00-to-17:30 (Streaming MP3) 

This would  mark the first-ever Russian cooperation with OPEC. However, market realities look bleak for OPEC and Russia whether they reach an agreement or not. The reason is the unprecedented continuing challenge from US shale, which has dramatically cut its costs via tech and operational innovations to stay profitable at low prices. Continue reading