Thank God Portugal is a hot country!
So this winter our problem will not be the cold, but the food.
A Stalingrad for Natural Gas
By Dmitry Orlov at ClubOrlov on September 15, 2021
European natural gas hub spot price has surpassed $900 per thousand cubic meters with the psychologically important threshold of $1 per cubic meter not far off. This is an astronomically high price that is likely to bankrupt a lot of European energy companies while causing their customers to die of exposure this winter.
Just in the UK, where around 10 thousand people freeze to death during a normal winter with normal prices, so far PfP Energy, MoneyPlus Energy, People's Energy and Utility Point have kissed the world good-bye, their customers getting picked up by the government regulator Ofgem. Acting wisely, Ofgem raised the annual price cap for a typical household by £139 to £1,277. Just to make things even more interesting, the underwater cable providing electricity to the UK from France just failed, knocking 1GW out of the 2GW link.
What's behind all of this chaos and mayhem? Call it the wages of stupidity.
The UK went all in on renewable energy—wind and solar—ignoring the fact that "sitting in an English garden waiting for the sun," as the Beatles sang, is a futile pursuit. And now it turns out that there just isn't enough wind to turn the turbines either. As a result, demand for natural gas, which is the go-to fuel for plugging gaping holes in renewable energy supply, is outstripping what is available, resulting in exorbitant electricity prices.
In the European Union, not enough gas has been pumped into underground storage to last through a normal, moderate winter while an Arctic polar vortex forcing cold air far to the south would deplete the supply well ahead of spring. But there is also good news: Russia's Gazprom has just finished laying the last stretch of the NordStream2 pipeline, linking the Baltic coast in its Leningrad region to the German coast. Barring any German bureaucratic foot-dragging and American meddling, it should deliver its first gas in December.
The Americans are, of course, livid, and Republican senators are threatening to block nominations to posts in the Treasury Department because the Biden administration failed to block the completion of the pipeline. Trump wanted to sell US liquefied natural gas to Europe, but Biden wrecked this plan and allowed the pipeline to be completed. Of course, there isn't enough US liquefied natural gas available to have made a difference, and what gas there is goes to Asia, not Europe, because that's where the prices are the highest. "Nothing personal," as Americans like to say, "just business."
But politics is different from business: for the sake of Western political unity, if Americans can't or won't sell Europe enough gas, the Europeans should just keep quiet and slowly freeze in the dark. They certainly must not rush over and buy lots of totalitarian Russian methane molecules to make up the difference.
Meanwhile, European energy companies see in NordStream2 an essential lifeline. It is far less ecologically harmful and more economically sound than it would be to ship liquefied shale gas from across the ocean. The pipeline is 2000 km shorter than any of the existing pipelines to Europe and uses half as many pumping stations. The Germans believe that the launch of NS2 will make their industry more ecological and will enable collaboration with Russia in the area of green energy. Specifically, in the future NS2 will be able to carry some fraction of hydrogen along with the methane, to be separated out upon delivery and used to power all sorts of very dangerous yet very green stuff.
Meanwhile, poor Estonia, which borders the Leningrad region from which comes the gas, left foundering on the forgotten end of what remains of the European Union, has been forced to reopen its shale-burning power plant that the Soviets had the foresight to build for it way back when. They had previously shut it down because burning shale releases a lot of CO2 molecules that Greta could see all the way from Stockholm and that made her quite irate. But high natural gas prices have forced the Estonians to forget global warming and to re-Sovietize. Also, gazing across the 80-km-wide Gulf of Finland they saw the Finns contracting with Russia's Rosatom to build one, maybe two, nuclear reactors, and thought: "Oh, well..."
All of this is, of course, terrible, but the European Parliament is on it, having just agreed the details of a report prepared by Andrius Kubilius, former premier of Estonia's neighbor Lithuania. His report calls on the EU to strengthen its potential to contain Russia.
In this Lithuanians are an exemplary case. They shut down their Ignalinskaya Atomic Energy Station (as a precondition for joining the EU) which the Soviets had so thoughtfully built for them to last into the 2030s. Instead, they are renting a Norwegian natural gas regasification terminal, parked at Klaipeda and called "Independence", for $189,000 per day. They sometimes use this terminal to buy natural gas from Americans... who in turn buy it from the Russians, filling up at a gas terminal around the corner in that selfsame Leningrad region and marking it up 100%. But mostly they just import electricity from neighboring Belarus, where Rosatom just fired up a new nuclear power plant located a short distance from the now defunct Ignalinskaya AES.
In any case, getting back to the European Parliament and their battle against all things Russian, the new report calls on the European Union to exert pressure on Russia to prevent Moscow's meddling in the affairs of EU's eastern and southern member-states. To this end, Brussels should become the single unified center for making decisions with regard to all things anti-Russian. In particular, the EU should be poised to refuse to recognize the results of the Russian State Duma election (which will be held over the next few days), to invest in weapons systems that would make the Russians think twice before invading and, of course, to think up some more sanctions.
But perhaps most importantly, the report calls on European institutions to develop a strategy for lessening the European Union's dependence on Russian resources, energy resources in particular, and on Russian nuclear energy technologies. In this context, in the opinion of the report's authors, NordStream2 increases the risks of "Russian dominance" and should not enter service in spite of the facts that the situation with natural gas in Europe is most dire, that it has already been built or that Gazprom is planning for it to enter into service this December.
This makes perfect sense, because the current huge spike in the spot price of natural gas in Europe is obviously all Gazprom's fault (if not directly Vladimir Putins)—for failing to voluntarily increase export gas flow above the contractually agreed-upon amount. This is a wonderful argument if one's prime directive is to blame Russia for everything that's wrong with the world, but beyond that there are a few other reasons for the chaos.
Over the past two years Western central banks have printed a lot of money but Western economies have failed to produce corresponding quantities of goods and services. Therefore, anybody offering a huge bundle of dollars or euros for something actually useful, such as natural gas, is likely to get punched in the face. Keeping innocent Europeans from freezing to death in their homes is one thing, but helping feed a speculative frenzy in an increasingly worthless currency is quite another.
Alas, the European Union is no longer a prime destination for natural gas. The prices in Asia are 10 to 20% higher and so all LNG tankers go to Asian rather than to European natural gas hubs. The big difference is not even the price but the fact that Southeast Asian economies have quite a lot more to offer in exchange for the natural resources they consume than the European Union does, a good half of which produces hardly anything at all.
Over the past many years the European Union has discriminated against Russia in general and Gazprom in particular in various ways under the guise of furthering free competition, neglecting the fact that when it comes to securing reasonably priced and reliable gas supplies there is no alternative to Gazprom, making it a natural monopoly par excellence. Consequently, in their efforts to construct a buyer's market for natural gas, the Europeans have succeeded in doing the exact opposite.
Last but not least, Europe's headlong plunge into renewables has resulted in very high energy prices and has wrecked its competitiveness in the world markets. Of course, European elites are incapable of acquiescing to this fact, and so their only recourse is to blame the Russians. Perhaps at some point a critical mass of European voters will realize that, in fact, it is the Russians that are attempting to keep them alive whereas their own elites don't care whether they live or die as long as Greta Tunberg is happy and vote out the greenie-meanies; only time will tell.
The Russians, of course, are far from blameless. Instead of crumbling under Western pressure as was expected of them by their self-appointed Western betters, they plotted and schemed and managed to organize for the collective West a sort of natural gas Stalingrad that is sure to teach it an important lesson, of the same kind they had taught Europe under the Teutonic knights in 1242, Europe under Napoleon in 1812 and, again, Europe under Hitler in 1942. As the saying goes, repetition is the key to learning.
Original text and readers comments here.