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THE TURBINE STUCK IN MONTREAL AT CENTER OF ENERGY MARKETS: A turbine in an unassuming Montreal facility is at the center of global energy markets and the economic war between Russia and the West.
The context: The turbine is, supposedly, the key part needed to fix the Nord Stream 1 pipeline, the primary method by which Russian-owned gas giant Gazprom delivers natural gas to Germany (and from there, other European countries).
The pipeline is currently shut down for a 10-day period of maintenance that began on Monday. Gazprom says it can’t be safely operated without the repairs for the turbine.
The crux of the problem was Canadian sanctions on Russia, which made getting the turbine from Montreal to the compression station on the Gulf of Finland in Russia difficult…more on that below.
The fear: In the West, many leaders fear that Russia is using the turbine in question as a pretext to starve Germany and Europe of gas.
Some have argued that the Kremlin aims not to reactivate the Nord Stream pipeline at all —which would send Europe into absolute crisis mode as leaders scramble to secure alternative LNG and ramp up their gas storage ahead of the winter season.
Germany, which is reliant on Russia for roughly 35% of its gas supplies, has been particularly vocal about the feared Nord Stream 1 cutoff, with German Vice Chancellor. Robert Habeck describing a gas shutoff as a “political nightmare scenario.” “We have to prepare for the worst,” Habeck told a local radio station on Sunday. (Germany’s newly passed gas storage law mandates that the country’s gas stocks reach 80% fullness by October 1, and 90% by November—a timeline severely threatened by a long-term Gazprom shutoff.)
French Finance Minister Bruno Le Maire said his country is also taking preparations, and has described the shut-off from Russia as “the most likely scenario.”
The West’s response is to waive sanctions to eliminate any excuses for Russia: Over the weekend, the US joined Europe in pressuring Canada to grant Gazprom’s request to give Siemens Energy, the German company with operations in Canada tasked with repairing the turbine, a two-year exemption from federal sanctions to allow for the part to get back to Russia.
The Canadian government issued a two-year exemption to Siemens this weekend, a “time-limited and revocable permit” that it said will enable it to return the turbine to Russia and allow for additional maintenance, as needed, for its five additional turbines .
Ukraine is furious: The Ukrainian government has accused Canada of deferring to “the whims of Russia,” and on Monday it summoned Canada’s ambassador to Kyiv to defend his country’s decision. (A Ukrainian advocacy group also filed a legal challenge seeking to halt the delivery in federal court.)
Speaking at a press conference yesterday, Canadian Prime Minister Justin Trudeau defended the turbine decision.
The West “need[s] to hold together, particularly faced with the attempts by Russia to weaponize energy policy, to divide us amongst ourselves,” Trudeau said.
Russia maintains it is constrained by the sanctions the West is trying to waive: Gazprom said yesterday that it “does not possess any documents that would enable Siemens to get the gas turbine engine for the Portovaya CS out of Canada.”
So, to review: Russia has cut off natural gas to Germany, and maintains that Western sanctions are preventing it from getting the part it needs to restart the flow. Western countries, on the other hand, are saying that there should not be a problem with the sanctions, which they imposed to hurt Russia and help Ukraine – and Ukraine is upset that they’re saying that.
Why the West is skeptical: Officials noted that in previous years, Russia has rerouted more LNG shipments to the EU via other routes during Nord Stream maintenance periods as a means of compensating for the reduced supply. But Gazprom has made clear it has no intention of doing so this year, analysts told Breanne.
Europe’s options to secure alternative gas supplies are measurer. “It is clear that any extension of the Nord Stream outage would place even more pressure on the German and European gas markets in terms of storage injections, overall gas supply and market pricing,” Ed Coxhead of global LNG at commodity intelligence firm ICIS, told Breanne in an email.
Cox stressed that Europe would need to import incredibly high volumes of LNG, “likely the highest we have ever seen.” The absence of other flexible alternatives “will likely mean direct competition with buyers in Asia which in turn will support prices in both regions,” he added. “Only limited additional new LNG volumes will come online this year, meaning more competition for existing supply.”
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MEANWHILE, IN BUDAPEST… The Hungarian government declared a “state of emergency in energy” yesterday and ordered an export ban on fuels, including gas, amid fears of a cutoff from Russia, which supplies roughly 85% of the country’s gas needs. Hungary is believed to be the most exposed EU country to a possible energy shortage, though leaders have said Budapest is in talks to buy more gas ahead of the winter season.
Hungarian Foreign Minister Peter Szijjarto said earlier that its gas storage facilities are 44% full, though data from Hugary’s Energy and Utilities Regulatory Authority showed that the country’s gas storage stood at just 2.74 bcm as of mid-July. As Reuters notesthat’s by far the lowest amount in the past four years, including the 4.5 bcm stored last year and 5.4 bcm in 2020.
BUFFETT-OWNED BERKSHIRE HATHAWAY UPS ITS STAKES IN BIG OIL: Warren Buffett‘s company, Berkshire Hathaway, is continuing to plow more money into big oil—since February, the billionaire investor’s company has steadily increased its stake in the oil company Occidental Petroleum, and purchased an additional 12 million more of its shares over a period of two days this month.
The Wall Street Journal reports the purchase Berkshire’s total stake in the oil company to 18.7%, making it by far the company’s largest shareholder, and also moving it closer to owning 20% of Occidental’s common stock—a threshold that would allow it to include Occidental in its earnings results .
Occidental, like other oil companies, has benefited from the surge in energy prices caused by Russia’s invasion of Ukraine. Its shares have soared by a whopping 98% in 2022—making it by far the best performer in the S&P 500 this year.
OIL TRADES DOWN AT PRE-WAR LEVELS: Oil prices fell today to trade at levels not seen since before the war in Ukraine began.
Brent traded as low as $94.50 per barrel this morning, while WTI fell as low as $90.56, although prices for both benchmarks have since recovered.
Oil markets have been extremely volatile in recent weeks but prices have fallen overall, bringing retail fuel prices down in concert. Brent has traded from anywhere between $99 and $118 per barrel since the end of June.
STATES PROMISE LEGAL ACTION IF SEC CLIMATE RULE MOVES FORWARD: Republican attorney general told the SEC they’re ready “ready to act” just like they did in the West Virginia v. EPA case if the commission moves forward with its climate-related disclosure rule as proposed.
The 24 AGs, led by Patrick Morrisey of West Virginia Mark Brnovich of Arizona, submitted supplemental comments to the commission yesterday saying the Supreme Court’s decision in the EPA case changes things.
“The Court confirmed that Congress—not a federal administrative agency—has the power to decide major issues of the day,” they commentedslamming SEC’s proposed rule as “paternalistic.”
“If this sort of regulatory overreach does not constitute a sweeping policy judgment on a major question, then we struggle to see what would,” they also said.
Republicans have said the simple introduction of the proposed rule, which would require corporations to disclose their emissions footprints, is already sending negative signals to the market at a time when more investment in oil and gas are needed to grow production and reduce prices.
Democrats and environmental groups, however, have their sights set on fossil energy companies and want SEC to be even more aggressive than it proposed to be, especially on Scope 3 emissions disclosures.
House Oversight Chairwoman Carolyn Maloney and Environment Subcommittee Ro Khannawho have accused energy companies of misleading the public and lying about the role fossil fuels play in climate change, said the wiggle room SEC afforded on Scope 3 emissions in its proposed rule could let emissions go unreported.
“This is a particular problem in the fossil fuel industry, where Scope 3 emissions make up the vast majority of the industry’s overall emissions, yet some companies exclude these emissions from their climate pledges,” the two Democrats wrote in comments to the SEC.
S&P PUTS NUMBERS ON A GROWING COPPER SHORTFALL: S&P Global is charting out how a looming supply gap for copper is working against industry and threatening to keep countries’ net-zero goals out of reach.
The firm released a new study Today concluding that, on the current trajectory of mine capacity utilization and recycling rates, the globe would annually be short nearly 10 million metric tons of the copper it needs for products like EVs, batteries, and charging stations starting in the year 2035 due to an estimated tripling of copper demand over that period.
“Even under the study’s optimism High Ambition Scenario—which assumes aggressive growth in capacity utilization rates and all-time high recycling levels—the copper market will endure persistent supply shortages through most of the 2030s, including a deficit of nearly 1.6 million metric tons in 2035,” S&P said in a summary.
E&E News: Meet the officials shaping Biden’s offshore energy strategy
Euroactiv Finns flex muscle with Germany over energy crunch
THURSDAY | JULY 14
10:00 am 1300 Longworth The House Agriculture Committee will hold a hearing on “A 2022 Review of the Farm Bill: The State of Credit for Young, Beginning, and Underserved Producers.”