Essay by Eric Worrall
UK PM Liz Truss and the EU plan to impose a Putin Energy Price Cap – but with Chinese hydroelectricity running dry, and Russia sending gas to China via a pipeline, the EU has zero leverage to negotiate a discount.
Putin warns the West will ‘keep freezing’ if energy price caps are imposed – and Russia will stop all gas and oil supplies
- Putin said Western attempts to cap prices for Russian oil and gas were ‘stupid’
- The Russian leader, 69, warned EU leaders that Russia would walk away from supply contract if EU imposed price caps on the country’s exports of gas and oil
- If gas and energy supplies stopped, there would be devastating consequences
By RACHAEL BUNYAN FOR MAILONLINE
PUBLISHED: 19:33 AEST, 7 September 2022 | UPDATED: 05:36 AEST, 8 September 2022Russian President Vladimir Putin today warned that the West will ‘keep freezing’ if price caps are imposed on Russia’s oil and gas exports.
Putin told an annual economic forum in the far-eastern port city of Vladivostok that Russia will stop all gas and oil supplies if those price caps go ahead.
The Russian leader, 69, said that European calls for a price cap on Russian gas were ‘stupid’, and would lead to higher global prices and economic problems in Europe.
But EU chief Ursula von der Leyen this morning refused to back down and proposed that member states agree on a price limit on Russian gas imports.
‘The objective here is very clear. We must cut Russia’s revenues which Putin uses to finance this atrocious war against Ukraine,’ the president of the European Commission told reporters.
The Group of Seven (G7) wealthy democracies announced plans to impose a price cap on Russian oil exports last week by barring insurance or shipping companies from helping Russia sell oil at prices above the set limit.
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This is a crisis which could have been avoided. Putin is responsible for shutting the gas taps, but European and British leaders are responsible for the reckless green energy policies which made their nations so vulnerable to Putin’s games.
Why are UK Prime Minister Liz Truss and the European Union making such a futile stand?
My theory is they are making rookie negotiating mistakes, because as far as I can tell the leaders of the EU and Britain have never run a business. UK PM Liz Truss went straight from being an employee to being a member of parliament. EU President Ursula von der Leyen worked as a physician before going into politics.
Running a business is a tough lesson on the dynamics of negotiation. If you want to negotiate the price down on a vital commodity, or reject someone a price increase, you need to have a backup plan, in case the other party tells you to go to hell, and breaks off negotiations. Which is pretty much what Putin just did.
Europe and Britain have no leverage over Russia, and no backup plan, because Russia no longer needs their business. Russia can sell as much gas as they want to China, via a pipeline which was opened in 2019 (another to be completed by 2025). Russia has also been using gas which used to go to Europe to generate electricity, which is being shipped to China via Russia’s HVDC interconnector.
Britain and Europe could have worked on a backup plan, but they simply ignored the problem instead of trying to find a solution. If Britain and Europe had started issuing fracking permits last February, when Russia invaded Ukraine, some of that gas would now be coming online. Even if they had delayed a few months there would have been a chance to increase supply before February.
But Europe and Britain have run out of time – even if large quantities of fracking equipment was loaded onto an East Coast USA ship today, it would still take at least a week to arrive, and months to install and connect to gas supply lines. There is now no chance of a substantial increase to domestic British and European energy supplies before the coming winter.
Europe claims their gas storage facilities are almost full – but they are still talking about energy rationing, in the wake of Russia’s complete gas shutdown.
Biden promised to ship more US gas, but now the USA itself is running short. Biden recently told US exporters to cut back, because the North East is running short of energy, thanks to all those cancelled US pipelines and cancelled fossil fuel projects.
Australia is supplying a little coal, but it almost certainly won’t be enough – Asia is just as desperate for energy as Europe, and Asia is much closer to Australia. In the time it takes to send a shipment of coal to Europe, the same ship could have carried two loads of coal to Asia, which makes diverting coal to Europe very expensive for Aussie suppliers.
Even if Australia did send more coal, thanks to regulatory hostility to coal and coal plant shutdowns, Europe and Britain likely don’t have enough capacity to use the additional coal Australia could ship, or additional coal they dig up themselves. Gas plants can be converted to burn coal, by installing a gassifier – but it takes months, more likely years, to fabricate the required equipment, and to install it correctly. Gassifiers produce large quantities of deadly carbon monoxide, which has to be correctly managed, so gassifier installation is not something you can rush.
Australia could send more liquified natural gas, but Aussie gas exporters are already at capacity, tied to long term contracts with Asian countries. The same kind of long term contracts Putin advised European leaders to consider.
Britain and Europe’s last hope might be able to buy enough refined diesel from India and China to keep the lights on. Europe and Britain have access to substantial emergency diesel generator capacity. India is making a killing, sidestepping sanctions and processing Russian crude into distillates, and selling their product on the world market. But someone will have to cover the cost of burning diesel for power, the emergency backup generator operators charge orders of magnitude more for their electricity than regular energy suppliers. In any case, It is doubtful sufficient quantities of oil could be shipped to Europe in time to make a difference.
The price cap will fail, and ordinary British and European people will suffer for the stupidity of their leaders.
Update (EW): Added an additional paragraph to the quote, to clarify it is not just Europe.
Government bureaucrats and academics do not understand markets or commerce. They have no experience of them.
One way or another, demand will be always be supplied (be it by operation of an open market or by operation of a black market).
The attempt to embargo Russian crude or cap its price is only going to enrich bad actors. The arbitrage between Russian petroleum and world marker prices is so fat that it cannot and will not be ignored.
Petroleum is a fungible commodity. Straw purchasers, transhipments or other means are already being employed to circumvent sanctions.
The nitwit Janet Yellen (who you can thank for the current raging inflation) was the worst Federal Reserve chair in its history. She is a genuine idiot whose ascension is wholly attributable to her gender and political correctness. Only someone as incompetent as Yellen could come up with the truly zany idea of trying to “cap” Russian hydrocarbon prices.
Good luck with that!
There is an attitude amongst many who consider themselves to be the “elite”, that making money through any of the trades or through being merchants, was something that the “lower” classes did. A true elite made their money by telling other people what to do.
Because of this, being ignorant about anything that mattered, was a point of pride.
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Liz Truss the new U.K. prime minister has indeed just announced the ending of the ban on fracking.
But this being the U.K., that’s not the end of course. You will have the antics of the likes of extinction rebellion, the muddle-headed malthusian misanthropic mingers called Malcolm, who will use their elite old money to oppose fracking all the way. So I remain very doubtful if fracking will happen in the foreseeable future in the U.K., or ever.
Nobody seems to take the ordinary Russian into consideration who is just as bad off, if not worse. As bad as things look, I still would rather be the victim of bad, disastrous even, policies than the victim of an evil regime.
Just what kind of response did the morons in the EU and elsewhere expect from Putin? If I were Putin, I, too, would be looking for the highest bidder to sell my energy products. Thus, it looks like China might be just that buyer. Which will enrich the energy sector of Russia, and lead to possible more money in the pockets of the Russian workers.
An extreme lack of common sense and logic seems to be the lead requirement to have a job as a “leader” in the EU and elsewhere in the West.
Except China isn’t looking to be the highest bidder. They’re looking to get the gas cheap (they’re getting discounts of up to 50%). And they can because Russia has little alternative for selling it’s gas.
I’m of two minds on this issue. One, I want the most complete energy security my nation can produce utilizing it’s own resources. And then my Dark Brandon self wants those who parroted this nonsense with their band-wagonish, head-bobbing, blind obedience/subservience as virtue, brought to financial ruin. While all the politicians who pushed this agenda onto the taxpayer’s cuff engage in a kind of global group hari-kari (ritual suicide by disembowelment). 😏
Stupidity or planned process?
It is no surprise that the ultra-wealthy often live in penthouses: the view obtained by looking at minions struggling to live down in the dumps is greatly enhanced the lower the depths at which the plebs are struggling!
You still don’t get it. They want the “energy crisis”. They need to destroy our standard of living down to the level to which “renewables” will be sufficient. Putin & the Ukraine are the smoke screen for this the way COVID was for totalitarian tracking, mandates, and censorship.
They aren’t making energy policy mistakes; this is deliberate.
CO produced by coal gasification is combusted along with all the other gases produced. Before natural gas was common, coal gas was used in major cites. It was a major hazard, a pot could boil over and put out the flame and kill an entire family.
I think he’s talking about the EU price cap, not the Truss subsidy.
What makes you think it’s not going according to plan? They keep on the same path…they aren’t collectively that stupid.
And if another cargo ship should just happen to run aground in the Suez canal, shipping times would be even greater.
I agree market price can’t be imposed on a fungible resource. However this article seems to take what Putin says at face value while doubting what Western leaders say. Western leaders, as quoted, have said some dumb things, mixed with some smart things, as not quoted.
I see no fibs here, just credulity imbalances.
“Even if large quantities of fracking equipment was loaded onto an East Coast USA ship today, it would still take at least a week to arrive, and months to install and connect to gas supply lines. There is now no chance of a substantial increase to domestic British and European energy supplies before the coming winter.”
There is a major shortage of fracking equipment and crews in the world. Even if they had opened up fracking back in Feb, it is highly unlikely that any production would be seen until 2023. As it stands, it is more likely that any fracking production would be realized in 2024.
Would the process move faster with “free money”?
Eric,
Great article, but I have to call you on this: “even if large quantities of fracking equipment was loaded onto an East Coast USA ship today, it would still take at least a week to arrive, and months to install and connect to gas supply lines.” That’s not how hydraulic fracturing (fracking) works. It is not connected to gas supply lines, it is a well completion application, very well known for its suitability in multi – horizontal wellbores in tight (impermeable) shale, used after drilling a well to complete it, and put it on production.
“………which makes diverting coal to Europe very expensive for Aussie suppliers.”
????? dont think they pay the bill in the end
Nonsense article. European and British storages are already filled up to 80-90%. Nobody is going to freeze. Russia is doomed. While it is true that they made themselves vulnerable to Russia, European countries are winning and putin bluff is about to fail. Russian king has no clothes
“Gas plants can be converted to burn coal, by installing a gassifier – but it takes months, more likely years, to fabricate the required equipment, and to install it correctly.”
Gasification is hideously expensive and a huge consumer of energy in its own right. It therefore significantly reduces the power station’s output to the grid. It would also require a lengthy shutdown of the power plant during construction of the gasifier.
The recently completed oil refinery in Jazan Saudi Arabia includes a 2,400 MW power station. It was originally planned to use fuel oil from the refinery as fuel for the power station boilers. Some genius decided it would be a great idea instead to use coke from the refinery, gasify it and fuel the boilers with it.
Additional plant units required included gasification, gas cleanig, HP oxygen generation, etc. Additional cost and time: Billions, and years.
Power required for gasification and associated facilities: 600 MW.
Max power available for output to the grid: Reduced from 2,400 MW to 1,800 MW!
More money and equipment to produce less power!
An additional power station will be required to deliver the 600 MW consumed by gasification facilities to the grid!
Gasification is an excellent technology when applied correctly, but a hopelessly inefficient and expensive when inappropriately applied.
Perhaps if the EU had not meddled in the affairs of Ukraine back in 2014 they would not be in this mess but they were blinded by their desire to expand eastwards.