Energy Crisis

While Kremlin vows to restore gas supply if sanctions are scrapped, energy traders are reaping record profits

russia putin sanctions eu natural gas resseling china

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Published

September 9, 2022

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Published:

September 9, 2022

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Russian natural gas supplies to Europe will not be resumed until Western sanctions are lifted. Russian officials said that adding the deliveries of gas, oil, coal, and fuel oil could be halted entirely. The severe dispute between Russia and the West, as always in similar situations, is being used by other countries.

Statements by Russian officials that a complete halt of energy supplies is possible is a retaliation to the European Union’s intention to limit the price of Russian gas, but also to the agreement of the G7 to limit the price of Russian oil. The stakes in the conflict between Russia and the West are high because it concerns energy resources, which are key to all economies, and winter is just adding to that.

Last Friday, Gazprom announced that it is maintaining the suspension of gas deliveries through Nord Stream 1, which operated at 20% capacity before the previous halt. The company cited an oil leak on the gas turbine at the Portovaya compressor station near St. Petersburg.

Peskov: Sanctions led to this situation

The announcement came just a few hours after the G7, which comprises the United Kingdom, United States, France, Germany, Italy, Japan and Canada, agreed to cap the price of Russian oil.

Dmitry Peskov clarified Russia’s position. President Vladimir Putin’s spokesman blamed the sanctions for the maintenance problems, claiming they led to the pipeline shutdown.

Ursula von der Leyen: Russia’s share in European gas imports has decreased to 9%

Peskov said gas supplies would resume if the West lifted its sanctions, Forbes reported.

In the meantime, Ursula von der Layen, the president of the European Commission, called for a cap on the price of Russian gas. “We must cut Russia’s revenues which Putin uses to finance this atrocious war against Ukraine,” she said.

Von der Leyen added that Russia’s gas accounted for 40% of all imported gas at the beginning of the war and that it currently makes up only 9%.

She didn’t have to wait long for an answer.

Putin: we will not supply anything

“We will not supply anything if it is contrary to our interests, in this case, economic. No gas, no oil, no coal, no fuel oil, nothing,” Putin said at an economic forum in Vladivostok.

He said the measures to cap the prices of Russian gas and oil were another stupidity, another non-market decision with no future.

If the West goes ahead, it will “freeze, freeze the wolf’s tail,” referring to a Russian fairytale about a foolish wolf who a fox tricks into freezing his tail in an ice hole.

Of note, the EU ban on the import of Russian oil comes into force on December 5 and on February 5 for petroleum products. The EU banned the import of coal from Russia on August 10.

Who profits and how?

High electricity prices, dictated by high natural gas prices, are currently the biggest issue for Europe, alongside the lack of sufficient quantities of natural gas. It prompted German companies to reduce output and shut down production facilities. Government spending is surging – 25 EU member states allocated EUR 236 billion in total for measures to shield businesses and citizens against the rising energy prices.

The damage suffered by Russia is difficult to assess. According to one of the studies, since the beginning of the war in Ukraine, the country has earned EUR 158 billion from fossil fuel exports, more than in the same period last year. The rise came on the back of a jump in prices, offsetting the drop in volumes. The price of natural gas has increased 8-10 times, while the price of crude oil advanced 25%.

The US doubled its gas exports to Europe.

However, the damage to Russia must be assessed both in the medium and long term.

Of course, the list of those who profit is long. In the first half of the year, the United States exported about 57 billion cubic meters of liquefied natural gas (LNG), of which 39 billion or 68% ended up in Europe, according to Refinitiv data. Last year, exports to the EU were 34 billion, making up 35% of total exports of about 97 billion, according to Reuters, Global TimesGlobal Times reported. The prices this year are several times higher compared to last year.

Does China resell Russian gas to the EU?

China is also on the list. According to the Brussels Times, the country is reselling Russian gas to Europe. Chinese companies have neither denied nor confirmed this information. Due to weak domestic demand caused by corona lockdowns, China has a gas surplus. Of note, China is the largest LNG importer in the world.

The Financial Times estimates that China has exported about 4 million tons of LNG to Europe, or about 7% of European gas imports in the year’s first half.

This practice, of course, is not new. When the West began halting oil imports from Russia in the weeks after the start of the war in Ukraine, Russia lowered prices, and significant importers such as China and India bought more. But even exporters of oil took advantage of the opportunity.

Does Saudi Arabia resell Russian oil?

One of them, Saudi Arabia, more than doubled the import of Russian fuel oil in the second quarter to produce electricity in its thermal power plants and to meet the high demand for energy for cooling, but also to free up its crude oil for export.

Saudi Arabia imported 647,000 tons of Russian oil from April to June, or 320,000 more barrels compared to 2021 levels, according to Reuters. The agency noted that at the time, oil prices were at record highs.

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