You are invited to attend the 1st Berlin Energy Roundtable, on 24 October. Our three distinguished speakers share decades of Eurasian and Mideast gas-sector experience. I’ll have the pleasure of moderating.
As many of you know, this is a format I long sought to establish in Berlin; but, which during Corona and the energy-crisis after the largescale Russian invasion of Ukraine, was difficult to advance.
The event is made possible with the generous sponsorship of the Divan Culture Housein Berlin. Hopefully there will be several more in the coming year.
[02.10.23 Note: Some typos/syntax corrected. Somehow could not edit w/ my phone yesterday.]
–1– The Saudis have no intention to spike oil price over $100/barrel, at least not for long – that’s my read.
Their customers’ economies are troubled, especially China, but Europe too – where too-high-an-oil-price could re-boost inflation, even push them into recession(s) killing oil demand.
Over the last year, the Saudi’s were newly proactive (their traditional mode was always to react after-the-fact). And their economists’ market calls were correct.
For several months, OPEC+ cumulative production cuts barely held prices stable. Only in recent months, along with new (though tepid) demand, did prices climb, form high-$80s to now mid $90s.
The Saudi minister professes to be unsure whether demand will rise in Q4. The IEA and the futures market (in backwardian now) see tightness. The Saudi minister answers that, if that happens, he has plenty of oil ready to put back into markets.
But – Nota Bene – despite present drawdowns in USA oil stocks and apparent tightness elsewhere, suddenly many oil analysts are saying that the present price rally could be short lived, and that OPEC-plus may have to keep or even deepen its cuts to maintain prices as they are.
Here are three very useful reports to this effect:
Today (Mon., 12.09.23; 12:16 CET) EuroNews-Serbia interviewed me (Video has English audio-overlay). I explained:
Saudi logic for cutting, with Russia, about 125 million barrels from the market so far, and by the end of 2023 some 245 million barrels [1] is its prediction of soft demand due to China’s slow recovery and somewhat the EU too; plus the Saudi minister points to central banks continuing to fight inflation with high rates.
However, the IEA disagrees, seeing a shortage of supply in Q4. I added that the market is in backwardian, and so agrees with IEA.
My assessment:
Price over $100 is likely this year; it is after all fairly close now, in the 90’s.
I answered a question about who gets hurt the most from high prices.
It is the countries who do not produce oil and are relatively poor. So, mainly some states in Asia and So. Asia, Africa and Latin America.
As for Europe, rising oil price will be somewhat inflationary; especially hitting Eastern Europe, where inflation is generally still a greater problem.
However, I pointed out that compared to historical peaks in 2008-09 and 2010-11, $100 or even $125/bbl or even higher prices are needed to begin approaching the REAL price of oil back in those cases.
So, $100 oil is now not so inflationary as it was back then (and in general oil is not as inflationary as it was in the last century, because economies have larger service and knowledge sectors that are not as strongly affected by fuel prices as manufacturing and chemical industries.
I also explained that the Russian oil price cap sanctions have actually “put money in the pockets” of people in poorer states, as its enforcement meant that Russia, while still selling its oil, has been forced to sell it cheaper.
In particular, up till the start of last month (start of Sept), Russia was losing about half the revenues it would have ordinarily made on its oil exports. (This can be seen on a chart recently released by the USA Treasury Department. [3])
However, as a higher percentage of its oil (about 75% now) is sold via tankers that are not owned or insured by the EU or UK , it can be sold at higher prices without falling under the price cap enforcement mechanism. This higher price is, then, also now contributing to the higher price of oil on the global market. [2]
A lively debate! I defended the Finnish model, as did Finnish expert Rauli Partanen.
Finland, having just completed and put online Europe’s largest nuclear plant, Olkiluoto 3, is considering adding more carbon-free nuclear power plants. Its two older nuclear plants, online since the 1970s and 80s, are operating 24/7 at an impressive 92.8% of full capacity. By comparison, I explained German onshore wind achieved only 19% and offshore only 35% of the installed turbines’ full-rated capacities in 2022 (Calculated from Fraunhofer data – T.O’D.).
Finland also uses its natural endowment of no-carbon hydro wisely, and embraces a limited amount of variable renewables. I explained that this is in contrast to Germany with its (IMHO) over-dependence on renewables and willful destruction of 17 nuclear facilities, which is increasingly requiring installation of expensive new and rebuilt grids, and “grid-scale storage” for when wind and sun are low.
The third guest, the Paris chair of “The Nuclear Consulting Group” was actually anti-nuclear, defending an only-renewables strategy. I found his arguments, generally based on anecdotal expert opinions, as opposed to broad data, unsatisfactory; but consistent with the “100% renewables and no nuclear” school of thought, as I have termed it. (1)
Some facts on Finland’s energy: According to the International Energy Agency (IEA), Finland has “the world’s most ambitious carbon targets,” planning for neutrality by 2035 (IEA; timestamp 16:35), with 40% of its electricity in 2023 being nuclear (ibid.; timestamp 17:21). According to the latest (2023)IEA review, “Finland’s nuclear and renewable power strengths provide a solid foundation for reaching its ambitious climate targets.”
Here’s the lineup of the show:
TRT London – Round Table. Jun 9, 2023: Electricity bills have spiked across Europe. But, in Finland it’s going in the other direction.
Asharq, Dubai (Bloomberg, Dubai) in Arabic, with Jordanian expert and myself. 22May23
I was interviewed (from Berlin) by Asharq (Bloomberg affiliate, Dubai) along with Jordanian oil and energy expert, Dr. Amer Al-Shobaki (from Amman) about OPEC leaders’ assertions that oil investment is urgently needed to meet an expected demand rebound, especially in Asia, in Q3-Q4 2023.
Investments have been precariously low for a long time, throughout COVID and even after 24 February 2022, with Russia’s full-on aggression against Ukraine. Now, OPEC warns later-2023 can bring big price spikes and deep economic problems.
I should note, this demand-and-price boost would be a boon to Russian oil prospects, complicating Ukrainian’s allies’ attempts to reduce Russian profits and limit the resale of Russian oil refined in India into the EU market. The G7/EU adoption of the USA-proposed price caps on Russian exports (enforced via constraints on oil-shipping insurance and banks financing of sales) instead of an “old fashioned” sanctions regime (such as specifically restricting Russian oil sales step-by-step via direct and secondary sanctions) has finally begun to significantly restrict the normally expected flow of oil-export-sales cash back into Moscow’s coffers, after a 2022 of high oil prices and big Russian profits.
EU foreign minister, EU Commission foreign relations chief, Josep Borell, has rightly asserted that the EU must do something to stop this resale, by adjusting present sanctions. However, unfortunately, the EU has now backed down substantially on this ambition.
On air, I referred to a report by Marianna Pàrrage, at Reuters, whose research has found that from January to April 2023, 1.69 million barrels per day (mbd), and 1.89 in May, went to India, now accounting for about 40% of India’s total. This has displaced India’s former Venezuelan, Middle East, African and USA suppliers.
Interestingly, Moscow has sold its oil, banned in the EU, USA and UK, in a very focused manner to India, China and Turkey, not Asia broadly, which could have market advantages for Moscow.
My Asharq interview, along with Mohammed Al-Dabai, Saudi energy journalist, on 13 April 23. (This post has English interpreter’s audio and my voice over the Arabic. View in Arabic here.)
At about timestamp 5:30, I discuss the difficulties with the Gulf states exporting “green hydrogen” to Germany and the EU.
So little renewable carbon-free energy is produced in MENA and esp. in Gulf states (i.e., almost none), and it would be so inefficient to convert this into “green hydrogen” and then further into “green ammonia” (as many in Germany and the EU now advocate), and then to ship it all the way to Germany or elsewhere in the EU, that it would make little sense, except in so far as Germany and EU states are willing to pay a good price.
However, it would also leave the MENA region with little improvement in their carbon-heavy electricity consumption. Mr. Al-Dabai generally concurred on the “scientific” problems, as he described them, of producing and exporting green hydrogen.
We were discussing a recent Ember consultancy report (London, link below) on the progress of renewable electricity worldwide, and how there is little progress in the Gulf and larger MENA region.
However, I briefly pointed to nuclear developments, the building of new So. Korean Generation 3+ plants in the UAE, and to Saudi plans, as very promising.
However, as with other renewables-focused outfits, Ember doesn’t seem to see any value in this pragmatic approach, not to mention the benefits of coal-to-natural-gas switching as a very reasonable, carbon-emmissions-reduction strategy.
Note: The Arab-to-English interpreter’s voice has been inserted over the interviewers. T.O’D.’s is direct.
Sky News Arabia asked me to assess the memorandum Mauritania signed on 8 March with German project developer Conjuncta, UAE firm Masdar and Egypt’s Infinity to produce “green hydrogen.” I tried to give Sky News a data-driven assessment of this project.
According to Conjuncta CEO Stefan Liebing, “(This project) will have a strong link to Germany both as a technology provider and a potential offtaker of green energy.” (“Consortium signs $34 billion MoU for hydrogen project in Mauritania,” Reuters, 8 Mar 23.)
The German public broadcaster, Deutsche Welle, seemed impressed: “It has a planned capacity of 10 gigawatts – the output of roughly five to six standard nuclear power plants. The first phase of the project is set to be completed by 2028” (“Mauritania set to export green hydrogen to Germany,” DW Business, 09Mar23 archived at YouTube.)
While indeed, this MOU was advertised as aiming for “10 gigawatts” of electrolyzers, the initial goal is actually 400 MW (i.e., 0.4 GW) by 2028. That’s one-twenty-fifth the total According to the announcement, this means 8 million tonnes/year of green hydrogen by 2028.
Video: My answers in English; Host’s questions in Arabic.
Tom O’Donnell, on Asharq, 28 Jan 23. Written explanations of my answers are below.
Note: Questions in Arabic; my responses in English.
I explained how the crude oil cap is thus far successful. This bodes well for the products’ cap effectiveness.
The market situation is relatively favorable for application of EU sanctions on all Russian refined products on 5 February. Demand is still soft as Europe, even if it is not going into recession, and it is coming out of an unusually war winter that also softened demand. Also, China is not yet roaring back from its COVID reopening attempts.
German Chancellor Olaf Scholz looks on prior to deliver a speech at the Congress centre during the World Economic Forum (WEF) annual meeting in Davos on January 18, 2023. Fabrice COFFRINI / AFP
Summary (Added only on blog, T.O’D.): Scholz’s resistance to sending Leopard 2 tanks to Ukraine has freed up many in Germany and beyond with reservations about the direction of the West’s strategy to become vocal.
Scholz is opposed to the recently changed USA-NATO strategic understanding that Putin’s new, long-war-of-attrition strategy could give sufficient time for his larger economic and energy war on Europe to bear fruit, seriously disrupting the West’s solidarity with Ukraine.
Biden and the NATO majority concluded that Putin’s long war of attrition strategy must be smashed. This requires large numbers of heavy weapons – tanks, aircraft, etc. – for Ukraine.
However, Scholz’ faction in Germany and in other EU states see a stalemate (e.g., war of attrition)) as likely positive, as it might lead in time to the two sides accepting a negotiated settlement or frozen conflict. This, they feel, is the path to ending the dangerous Russian-EU energy and economic war.
However, the majority pro-escalation camp, expects that a war of attrition (aka stalemate) risks the destabilizing effects of a prolonged and costly economic-and-energy “Cold War. 2” on Western stability and solidarity.
Scholz’, by demonstrably stalling NATO’s ability to send German tanks, effectively signaled his leadership of the no-escalation and pro-stalemate EU-wide faction, which is of significant size. In Germany sections of every political party now align with Scholz’ strategy. He and his faction wait for their time, when and if the new NATO escalation strategy fails.
All German parties were deeply involved in the previous energy partnership with Moscow; there is no significant organized opposition faction able to take leadership from Scholz and implement a Zeitenwende. This vacuum drives a gathering German – and EU – political crisis
Moscow is well aware of these matters. (Kyiv Post Opinion piece follows)
German Chancellor Olaf Scholz’s resistance to sending Leopard 2 tanks to Ukraine has freed up many in Germany with deep reservations about the direction of the West’s strategy and policy, to voice their frustrations, fears and, for many, an unwillingness to join in a Russian-Ukraine war, as opposed to containing it.
ABOVE is the ENGLISH audio track with the translator. (Arabic video is below)
Asharq interview (9m 30s) with myself and expert in Baghdad. 13Jan23
The interview is self-explanatory. I think it is of utmost necessity for Iraq to capture the huge amounts of associate natural gas, a byproduct of oil extraction, which it now flares off, and instead use this gas to displace the huge amounts of Iranian gas it imports. Not only is Iran an obviously dangerous, autocratic regime, which threatens Iraqi sovereignty, it itself has gas shortages every winter.
Iraq currently has a very rational plan it has repeatedly contracted with Baker-Hughes oil-and-gas service company to carry out. If it ever actually carries out this plan (it was announced in 2018, again in 2020 and then December 2022), it should, in my view, first use this gas domestically to displace Iranian imports. Once it gets beyond this serious energy security issue, it will clearly be able to build a large-scale natural gas export business.
Al Jazeera’s English service asked me about the importance of the first-ever delivery of USA LNG to Germany on 3 January, as it was arriving at the newly installed Hoegh Esperanza FSRU (Floating Storage and Regasification Unit), in the Nord Sea port of Wilhelmshaven, near Hamburg.
The terminal is operatated by Fortum subsidiary Uniper, the recently nationalized German gas firm, and is the first of seven such terminals various firms and the German state plan to install over the next two-to-three years to help offset the loss of Russian gas imports it formerly relied on for about 60% of the nation’s natural gas.
I emphasized that Russia has locked the EU into what is expected to be a several-years-long energy war. This energy war against Europe should be understood as a second front launched by Putin’s Russia in support of its failing hot-war in Ukraine.
In addition, the aggressor in this energy war, like in the Ukraine War proper, is Russia. The aim is of weaponizing the continent’s overdependence on Russian exports, is to cause energy and economic hardships sufficient to undermine the solidarity of Germany and other EU Member states with Ukraine.
With the exception of the joint agreement between German Chancellor Scholz and USA President Biden to halt the Nord Stream 2 pipeline, before it was ever commissioned, if Putin invaded Ukraine, the EU and USA have not imposed any further sanctions or restricted the import of Russian gas into Europe, and payments for this Russian gas was not sanctioned.
The title and brief interview is rather self-explanatory. The interview starts after a brief intro, after 30 seconds.
Thanks to Daniel Winters, German national broadcaster Deutsche Welle’s (DW.de) English language Business News host for this invitation. We spoke, in Berlin, only a few hours after the cap was announced in Moscow.
Al Jazeera asked for an online commentary within an hour of Putin’s announcement. These were my initial thoughts.
I also spoke to AJ Arabic, and a couple hours later, on Germany’s Deutsche Welle’s English language service elaborated on these points (see video, next blog post).
The question is where will the EU-USA-g7 western alliance go from here. If they stepwise lower the cap, and also work hard to get new oil online (from OPEC and the USA), they can gradually keep lowering Russia’s market share. However, as I indicated, the coming recession – esp. in Europe – and the uncertainties of Chinese demand as it exits COVID shutdowns in early 2023, complicate calculations of whether the globala oil market will be short or long on supplies and if the price will spike or not. I said this will be “a chess game.”
My comments are at (1) 4:19, (2) 16:20, and at (3) the end 23:15.
Guests:
Nicholas Lokker, Research Assistant at the Centre for a New American Security
Marie Jourdain, Visiting Fellow at the Atlantic Council’s Europe Center
Dr. Thomas O’Donnell: Energy and Geopolitics Analyst
Host: Philip Hampsheir, sitting in for David Foster.
From the TRT YouTube page blurb:
Dec 7, 2022 – Top European Union officials are accusing the United States of profiting from the war in Ukraine through high natural gas prices and weapons sales, while Europe struggles with rampant inflation and a cost of living crisis. Amidst rising tensions, a meeting between French President Emmanuel Macron and his American counterpart in Washington saw both attempt to send a message of unity.
The Global Barrel 