Europe lurched closer to an energy crisis on Tuesday after the Kremlin cut off gas supplies to major buyers including Shell.
A Telegraph report said:
Russia’s state-owned gas supplier, Gazprom, said supplies to Shell in Germany as well as to Ørsted in Denmark will be cut off on Wednesday after they refused to bow to Putin’s demands to pay in roubles.
Gazprom cut supplies to the Netherlands on Tuesday after doing the same to Poland, Bulgaria and Finland this month, weapon sing gas amid its war in Ukraine.
Shell produces fossil fuels itself, but also has a vast trading division that buys gas from companies such as Gazprom and sells it on.
Responding to Gazprom’s statement, Shell said on Tuesday: “Shell has not agreed to new payment terms set out by Gazprom.”
The Shell contract cut by Gazprom involves a maximum of 1.2bn cubic meter of gas per year, delivered in Germany for Shell to sell where it is needed.
The EU imported about 155bn cubic meters of gas from Russia in 2021, amounting to about 40pc of its gas consumption.
Most of Gazprom’s contracts with European buyers remain in place after they found ways to comply with the demand, with the amount cut off thought to equal less than 20bn cubic metres in total.
Ørsted said on Tuesday its supplies from Gazprom would be cut off at 6am on Wednesday.
Mads Nipper, chief executive, said since there is no direct gas pipeline between Russia and Denmark, Russia cannot cut the country off, but Denmark will need to buy more on the European market.
The report cited James Huckstepp, manager for European gas analytics at S&P Global Platts: Efforts to replace Russian supplies are being helped by lower demand in Asia owing to Covid lockdowns and other factors, although things will become more difficult towards the end of the year.
It comes as Westminster is considering paying for a supply of coal to keep power stations online that would otherwise be shutting before winter. Energy companies Drax, EDF and Uniper would receive the supplies and delay the closure of some coal plants in September, Bloomberg reported.
Britain gets less than 4pc of its gas directly from Russia but there are concerns about a significant knock-on effect in Britain if Russia goes further in cutting off supplies to Europe over the next few months.
Electricity To Be Rationed In UK
Whitehall planners have warned that under a worst case scenario, first reported by the Times, electricity would need to be rationed to 6m homes in the morning and evenings.
Gas is used to generate more than a third of Britain’s electricity, and the electricity market is already set to be tight this winter due to the planned closure of some UK power plants and ongoing problems with nuclear reactors in France.
France To Import More Electricity From UK
The Telegraph report said:
Corrosion problems with reactors run by EDF mean up to half of the state-owned French giant’s fleet could be out of action during the colder months.
This could result in France importing more electricity from Britain, putting an extra strain on supplies.
Meanwhile, the UK market is about to lose several significant power stations, including the Hinkley Point B and Hunterston B nuclear plants, and a Government auction to secure backup generation capacity fell short, with generators offering up less than what was requested.
The System Turns More Fragile
Kathryn Porter, an independent energy consultant and founder of Watt Logic, said this meant that the amount of spare power available during the busiest periods of demand – also called the capacity margin – would be extremely tight this winter.
She said: “With six gigawatts of capacity set to close later this year and us exporting more to France, it pretty much wipes out any spare margin that we have.
“The whole system becomes a lot more fragile. And this, I think, is a huge worry.
“This winter, we could be consistently exporting to France. When you take that, plus all the plant closures that are planned for this year, plus the shortfall on the capacity market, I worry that we will have pretty much no capacity margin for this winter.
Rein In Consumption
She said that in extreme scenarios where there are electricity shortfalls, National Grid may ask big energy users such as manufacturers to rein in their consumption to ease the pressure.
A spokesman for National Grid ESO (electricity system operator), which manages the electricity capacity market, said the company would publish its official winter forecasts in July.
Oil Hits $124
Other media reports said:
The oil price soared to a two-month high after EU nations agreed on a partial ban on oil imports from Russia.
Tuesday’s price surge piles more pressure on a tighter market already strained for supply amid rising demand.
Brent, the international benchmark, breached the psychological $124 barrier, up 3.9% to $124.03, the highest since 9 March. West Texas crude was trading 3.5% higher to $119.05 at the time of writing.
EU leaders agreed in principle to cut 90% of oil imports from the Kremlin by the end of 2022, resolving a deadlock after Hungary, a major user of Russian oil, held up talks that have been underway for weeks.
The embargo is part of the bloc’s sixth sanctions package on Moscow since the start of the Ukraine war in February, and around 36% of the EU’s oil imports come from Russia.
“The European Council agrees that the sixth package of sanctions against Russia will cover crude oil, as well as petroleum products, delivered from Russia into Member States, with a temporary exception for crude oil delivered by pipeline,” a statement said on Tuesday.
It added that in case of “sudden interruptions” of supply, “emergency measures” will be introduced to ensure security of supply.
The temporary exception covers the remaining oil from Russia that is not yet banned, European Commission president Ursula von der Leyen said in a press conference.
Von der Leyen explained that the temporary exemption was granted so that Hungary, the Czech Republic and Slovakia, who are all connected to the southern leg of the pipeline, have access which they cannot replace easily.
In March, crude prices surged to their highest level since 2008 and have risen more than 55% so far this year.
“The continued rise in oil prices is likely to act as a drag on economic activity, after EU leaders agreed a deal to block 90% of oil imports by the end of this year,” said Michael Hewson, chief market analyst at CMC Markets.
Oil prices have also been driven up by the lifting of pandemic restrictions in the world’s biggest importer, China.
It comes after International Energy Agency head Fatih Birol cautioned further oil price rises could be on the horizon if demand in China picks up.
Speaking at Davos last week, Birol said: “I very much hope that the increase coming from [the] US, Brazil and Canada this year, [will] be accompanied by the increase coming from the key producers in Middle East and elsewhere.”
Profiteers From Ukraine Crisis
Another media report cited the secretary of Russia’s Security Council, Nikolay Patrushev:
U.S. corporations and financial institutions are conducting a rapid expansion into Europe, using the crisis in Ukraine to their advantage.
Patrushev made the warning during a meeting of the body on Tuesday.
Among other things, U.S. firms “have already taken under their control a segment of the European gas market,” he reported. Semiconductors and other high-tech sectors of the European economy are also of great interest to the US companies, he said.
Russia was the primary supplier of energy to the EU, particularly of natural gas, before the Ukrainian crisis cast doubt on the future of trade. Following the U.S., Brussels imposed various economic sanctions on Moscow, claiming that they are meant to put a price on attacking Ukraine and force a retreat. The EU has placed embargoes on Russian coal and crude and declared it will fully cut supplies in the coming years.
Even before the hostilities, the U.S. had been pressuring European nations to reduce their trade with Russia.
Critics said Washington was interested in forcing Russian gas out of Europe and replacing it with U.S.’s more expensive liquefied natural gas.
A Trump-era official once described the US product as “molecules of freedom” as the administration demanded that Germany scrap the Nord Stream 2 gas pipeline. The project, which was fully complete and waiting only for regulatory approval from Germany, was suspended after Russia launched its offensive against Ukraine.
Russia And Saudi FMs praise OPEC+
A Reuters report said:
Russian Foreign Minister Sergei Lavrov met Saudi counterpart Prince Faisal bin Farhan Al Saud in Riyadh on Tuesday and both men praised the level of cooperation inside OPEC+, the Russian foreign ministry said.
The comments were issued amid Western media reports that some members of OPEC+, an alliance of OPEC members and their allies, were considering removing Russia from the group.
“They noted the stabilizing effect that the tight cooperation between Russia and Saudi Arabia has on world markets for hydrocarbons in this strategically important sector,” the ministry said in a statement on its website.
There was no immediate comment from Saudi Arabia outside of business hours.
Lavrov arrived in Saudi Arabia on Tuesday and is expected to meet with other foreign ministers from the Gulf Cooperation Council (GCC) states, Saudi state media reported.
OPEC+ is set to stick to an oil production deal agreed last year at its meeting on June 2 and raise July output targets by 432,000 barrels per day, six OPEC+ sources told Reuters last week, rebuffing Western calls for a faster increase to lower surging prices.
OPEC+ was formed in 2016 and Russia is a leading member of OPEC+, along with some ex-Soviet states and other countries.
The Wall Street Journal, quoting OPEC delegates, suggested that exempting Russia from OPEC+ could potentially pave the way for other producers to pump significantly more crude as sought by the U.S. and European nations.
Lavrov’s meeting with his Saudi counterpart came shortly after the EU agreed on significant cuts to imports of Russian crude as part of its latest sanctions linked to Moscow’s invasion of Ukraine.
Lavrov’s visit takes place a day before a meeting in Vienna of OPEC+. OPEC+ is set to stick to last year’s deal that will see another modest increase in monthly output by the group in July.
West Trying To ‘Mobilize’ Countries By Using Ukraine To Protect Status Quo, Says Lavrov
Another media report said:
Western countries are trying to get other countries to their side by using the situation in Ukraine as a pretext to preserve the existing world order, Russian Foreign Minister Sergey Lavrov said on Wednesday.
“Of course, these processes [in the world] are at a turning point. The formation of a multipolar world is underway, and our Western colleagues are trying to prevent these processes, they want to maintain and extend their dominance to all regions. They are trying to mobilize all other countries to come under their flag, using the situation in Ukraine and around it as a pretext,” Lavrov said during a meeting with Secretary General of the Organization of Islamic Cooperation (OIC) Hissein Ibrahim Taha.
Russia hopes that Western countries will realize the need to consider global issues on the basis of the principles of the UN Charter, Lavrov added.
“We are ready for such a dialogue, but only on an equal and mutually respectful basis,” Lavrov noted.
The current situation reflects deep-seated problems that have been accumulating in Europe for many years, primarily in connection with the refusal of NATO countries to fulfill the promise given to the Soviet Union not to expand the alliance to the east, Lavrov said. He further noted that Russia appreciated “the balanced, objective position taken by the OIC, as well as the League of Arab States, and the Cooperation Council for the Arab States of the Gulf in relation to what is happening.”
“I hope that our Western partners at some stage will also realize the need to consider world problems, to agree on ways for their further development by the international community not on the basis of dictatorship [of one’s will], but on the basis of the principles of the UN Charter, primarily the principle that implies respect for the sovereign equality of states,” the foreign minister stressed.
On Monday, Lavrov began a working trip to the countries of the Persian Gulf, arriving on Tuesday in Saudi Arabia’s capital of Riyadh after completing his visit to Bahrain.
Saudi Arabia and other members of the OPEC have so far resisted U.S. pressure to boost crude output more sharply to cool prices, which have rocketed partly because of the Ukraine crisis.
Riyadh says the high oil prices are caused by geopolitics, stretched refining capacities and higher taxes in the Western world rather than supply concerns.
China, A Very Important Customer, Says Saudi Arabia
Other media reports said:
Saudi Arabia is committed to supplying crude oil to China and interested in collaborating with the world’s No 2 economy on issues ranging from climate change to curbing inflation, says the Gulf state’s economic minister.
The comments by Faisal al-Ibrahim come as the world braces for a new round of oil price hikes.
China, which relies on imports for 70 per cent of its requirements, is trying every means possible to keep its massive industrial system humming and its slowing economy on track.
“China is a very important customer. We understand that there have been changes recently in the energy markets, but we continue to be committed to being a reliable energy supplier to the world, including China,” Ibrahim said in an interview with the South China Morning Post. “We value this relationship very well.”
China watched nervously as benchmark Brent crude prices jumped above US$139 per barrel in early March, not long after Russian troops crossed the border into Ukraine.
China bought 87.6 million metric tonnes of crude oil last year from Saudi Arabia, its largest source of imports, with a share of 17.1 per cent.
Beijing is trying to lift domestic crude output to around 200 million metric tonnes this year and increase natural gas production to 214 billion cubic meters (7.6 trillion cubic feet), from 205.3 cubic meters in 2021.
In March, Saudi energy giant Aramco announced it would invest in a multibillion-dollar refinery in China’s northeast, adding to an established joint venture with state-owned Chinese refiner Sinopec in the southeastern province of Fujian.
But imports will continue to play a prominent role for the foreseeable future.
China is also ploughing ahead with crude imports from Russia, its second largest supplier, despite mounting pressure from the U.S. China imported 79.6 million metric tonnes of Russian oil last year.
In China, there is also growing worry about energy being used as a geopolitical tool.
The Saudi economic minister said the hike in oil prices were much lower than those for liquefied natural gas (LNG) and other energy products, pointing to increased output from major oil-producing nations.
“I must say that OPEC + and the OPEC+ deal is a good way to manage this potential inflation,” Ibrahim said.
“We are in discussions at multilateral levels to see how we can support this part of our approach,” he said. “We always want to participate in resolving global challenges.”
Beyond energy, China and Saudi Arabia are exploring opportunities under their respective development plans, namely Vision 2030 and the Belt and Road Initiative.
“We are actually working on some of these projects, whether it is in energy, infrastructure, logistics, manufacturing, [and] maybe in the future, also advanced manufacturing and advanced downstream conversion,” Ibrahim said.
The two countries – the world’s top crude consumer and producer – have both committed to achieving net-zero carbon emissions by 2060.
Beijing has become more pragmatic in its quest for energy security, after the closure of coal mines and thermal power plants last year due to the country’s carbon neutral drive led to a nationwide power crunch.
Saudi Arabia recently appointed its foreign minister as climate affairs envoy, as it tries to balance energy security, climate change and economic development.
Ruble-Yuan Trade Soars Over 1,000%
Russia and China are continuing to eliminate the U.S. dollar from mutual trade as monthly volumes on the exchange of ruble and yuan have reportedly soared 1,067% to nearly $4 billion over the past three months.
According to Bloomberg calculations, some 25.91 billion yuan, or $3.9 billion, have been exchanged for rubles on the Moscow spot market so far in May, marking a twelvefold surge versus the volumes recorded in February, when Russia launched its military operation in Ukraine. The spike coincides with a rally in the ruble to a five-year high against the yuan and the US dollar.
Meanwhile, volume in the dollar-ruble pairing reportedly dropped to the lowest level in a decade. The ruble rallied 118% against the greenback between early March and late May, even as most traders deserted the pair amid capital controls and forced dollar sales.
“The main players in the yuan-ruble market are corporations and banks, but there is also a growing interest from retail investors,” a currency and rates strategist at Sberbank CIB, Yuri Popov, told the agency.
“The volume on the Moscow Exchange’s spot market has surged. This is due to sanctions concerns, as well as the intentions of Russia and China to encourage the usage of national currencies in bilateral trade,” he added.
The mass exodus of international brands from the sanctions-hit country have reportedly forced Russian businesses to turn to Chinese goods to replace Western imports. Meanwhile, the Chinese yuan may gain fresh impetus for internationalization just when growing tensions between Washington and Beijing are slowing that process.
China’s Russia Dealings Irk U.S., But Do Not Breach Sanctions
An AP report from Beijing said:
China’s support for Russia through oil and gas purchases is irking Washington and raising the risk of U.S. retaliation, foreign observers say, though they see no sign Beijing is helping Moscow evade sanctions over its war on Ukraine.
Beijing’s importance as a lifeline to Russian President Vladimir Putin rose Monday after the 27-nation European Union, the main market for fossil fuels that supply most of Moscow’s foreign income, agreed to stop oil purchases.
President Xi Jinping’s government declared ahead of Russia’s Feb. 24 attack that it had a “no limits” friendship with Moscow and has kept the West guessing about whether it might bail Putin out.
China rejects the sanctions as illegal because the U.S., Europe and Japan cut off Russia from their markets and the global banking system without working through the United Nations, where Beijing and Moscow have veto power.
The sanctions do not prohibit China, India or other countries from buying Russian oil and gas. But President Joe Biden has warned Xi of unspecified consequences if Beijing helps Moscow evade sanctions. That leaves open the risk Chinese companies might be punished by losing access to valuable Western markets.
Beijing appears to be complying. But state-owned companies are buying more Russian oil and gas, which gives the Kremlin export income. They also are potential investors in Russian energy projects as Western companies leave.
“The Biden administration will likely become increasingly exasperated at China’s continued support for Russia,” Neil Thomas of Eurasia Group said in an email.
That increases the likelihood of “unilateral moves to punish Beijing” and “allied coordination on economic security measures aimed at countering China,” Thomas said.
The conflict adds to tension with Washington over Taiwan, Hong Kong, human rights, trade, technology and Beijing’s strategic ambitions.
China poses the “most serious long-term challenge to the international order,” Secretary of State Antony Blinken said in a May 26 speech.
The report said:
Other governments” must not harm China’s legitimate interests in any way” in dealing with Ukraine, warned a foreign ministry spokesman, Zhao Lijian.
Moscow is tiny as a trading partner for Beijing but an ally against what both resent as U.S. dominance in global affairs.
China sees Russian oil and gas as a way to diversify supplies for its energy-hungry economy. China bought 20% of last year’s Russian crude exports, according to the International Energy Agency. The two sides announced a new 30-year gas contract on Feb. 4 that will increase annual supplies to China by about 25%.
Washington is “monitoring closely” Chinese dealings with Moscow, the American Embassy said in a written response to questions.
“We have not seen the provision of military equipment,” it said. Asked about economic sanctions and possible violations, the embassy said it had nothing further.
China’s imports from Russia rose 56.6% over a year earlier in April to $8.9 billion, according to customs data. That helped Putin’s government record a current account surplus, the broadest measure of trade, of $96 billion for the four months ending in April.
Washington’s Frustration With India
The report said:
Washington also is frustrated that India, the No. 3 global oil importer, is buying more from Russia to take advantage of low prices. The Biden administration is lobbying Prime Minister Narendra Modi’s government to stop.
Beijing agreed to buy Russian gas in a deal estimated to be worth up to $400 billion over three decades.
Factbox-The Buyers Of Russian Crude Oil
A Reuters report mentioned buyers of Russian crude oil. It also mentioned names of the countries that stopped buying Russian crude oil. Following is the report:
Australia, Britain, Canada and the U.S. have imposed outright bans on Russian oil purchases, while Group of Seven (G7) nations, including Japan, committed to ban or phase out imports of Russian oil on May 8.
The EU agreed on May 30 to ban seaborne imports of Russian oil with a phase-in period of six months for crude oil and eight months for refined products.
The ban excludes oil supplied via the Druzhba pipeline thus allowing refineries in Eastern Europe and Germany to continue imports. Poland and Germany said they would phase out all purchases via the pipeline by the end of 2022.
That would in total cover about 90% of Russian oil imports to the EU.
Even before the adoption of the ban, at least 26 major European refiners and trading companies have voluntarily suspended spot purchases or announced plans to phase out a combined 2.1 million barrels per day (bpd) of Russian imports, according to JP Morgan.
China and India, which have refused to condemn Russia’s actions, are benefiting from discounts on Russian crude.
India has received 34 million barrels of discounted Russian oil since Feb. 24, according to Refinitiv Eikon data, and is set to receive about 28 million barrels in June, according to Refinitiv Eikon oil flows.
CURRENT BUYERS
BHARAT PETROLEUM
Indian state-run refiner Bharat Petroleum Corp Ltd has bought 2 million barrels of Russian Urals for May loading from trader Trafigura.
The company regularly buys Russian Urals for its 310,000 barrels per day (bpd) Kochi refinery in southern India.
HINDUSTAN PETROLEUM,
India’s state refiner bought 2 million barrels of Russian Urals for May loading.
INDIAN OIL CORP
India’s top refiner has bought more than 6 million barrels of Urals since Feb. 24 and has a supply contract with Rosneft for up to 15 million barrels of Russian crude in 2022.
ISAB
Italy’s largest refinery, owned by Lukoil-controlled Swiss-based Litasco SA, continues to buy Russian crude, while the Italian government has been looking into the possibility of temporarily nationalizing ISAB.
LEUNA
The land-locked Leuna refinery in eastern Germany, majority-owned by France’s TotalEnergies, continues to buy Russia crude fed by the Druzhba pipeline.
MANGALORE REFINERY AND PETROCHEMICALS
The state-run Indian refiner has bought 1 million barrels of Russian Urals crude for May loading via a tender from a European trader, a rare purchase driven by the discount offered.
MIRO
Germany’s largest refinery, 24% owned by Russia’s Rosneft, continues to buy Russian crude, which accounts for about 14% of the total intake..
MOL
The Hungarian oil company has said it would take at least 2-4 years to fully switch its two refineries in Slovakia and Hungary to alternative crude processing, which currently accounts for about 35% of total intake.
NAYARA ENERGY
The Indian private refiner, part-owned by Rosneft, has purchased Russian oil after a gap of a year, buying about 1.8 million barrels of Urals from Trafigura.
NEFTOCHIM BURGAS
A Bulgarian refinery, owned by Russia’s Lukoil, continues to refine Russian crude, which accounts for about 50% of its intake, according to government officials.
PCK SCHWEDT
Germany’s PCK Schwedt refinery, 54% owned by Rosneft, continues to buy Russian crude fed via the Druzhba pipeline.
German government officials have said they were looking to replace Russian crude with alternative imports via the German port of Rostock or via ports of neighboring Poland to keep the refinery running.
PERTAMINA
Indonesian state energy firm PT Pertamina is considering buying crude oil from Russia as it seeks oil for a newly revamped refinery.
SINOPEC
China’s state-run Sinopec, Asia’s largest refiner, is continuing to purchase Russian crude under previously signed long-term contracts.
FORMER BUYERS
BP
The British oil major has exited Russia and said it would no longer make new deals with Russian entities for loading at Russian ports unless “essential for ensuring security of supplies”.
ENEOS
Japan’s biggest refiner has stopped buying crude oil from Russia, and plans to source alternative supplies from the Middle East.
ENI
The energy group, 30.3% owned by the Italian government, has suspended purchases of Russian oil, including for Germany’s Bayernoil refinery, where it has a minority stake.
EQUINOR
Norway’s majority state-owned energy firm has stopped trading Russian oil and exited Russia, recording a $1.08 billion impairment in its first-quarter earnings report
GALP
The Portuguese oil and gas company has suspended all new purchases of petroleum products from Russia or from Russian companies.
GLENCORE
The global mining and trading firm said it would not enter any new trading business relating to Russian-origin commodities unless directed by the relevant government authorities.
HELLENIC PETROLEUM
Greece’s biggest oil refiner has stopped buying Russian crude, replacing it with additional supplies from Saudi Arabia and other countries.
NESTE
From the start of April, the Finnish refiner has replaced about 85% of the Russian crude oil with other crudes, and said it will not enter in new deals to buy Russian oil.
OMV PETROM
Romania’s top oil and gas firm, controlled by Austria’s OMV has said it was preparing to wean itself off Russian crude imports, which account for about 30% of its Petrobrazi refinery’s annual needs.
PKN Orlen
Poland’s largest refiner has stopped buying Russian crude on the spot market, switching to North Sea oil, with previously signed long-term supply contracts expiring by the end of this year. Russian crude accounts for about 30% of its intake.
PREEM
Sweden’s largest refiner, owned by Saudi billionaire Mohammed Hussein al-Amoudi, has replaced Russian barrels, which made up 7% of its supplies, with North Sea barrels.
REPSOL
The Spanish company has stopped buying Russian crude oil in the spot market.
SHELL
The world’s largest petroleum trader has stopped buying Russian crude and refined products, including blended fuels.
TRAFIGURA
The Geneva-based global commodities trader plans to stop all purchases of crude oil from Rosneft by May 15 when tighter EU rules on Russian oil sales come into effect, and “substantially” reduce volume of refined products it buys from Rosneft.
TOTALENERGIES
The French energy firm, which operates Leuna refinery in eastern Germany, has stopped making new deals to buy Russian oil and plans phase out its purchases by the start of 2023.
VARO ENERGY
The Swiss refiner, which owns 51.4% in Germany’s Bayernoil refinery, has said it would no longer enter into new deals to buy Russian crude.
