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Analyses Last Updated: May 23, 2022 - 11:35:59 AM


Grand Energy Transition (GET)
By N Khan, N. Abas and AR Kalair, Comsats 19/5/22
May 22, 2022 - 12:12:56 PM

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Clean energy transition refers to change of energy phase from one to another state, not from one to another place.

European energy transition initiative has become a social move against Russian fossil fuels. Energy transition from piped gas to LNG cargos may drive Russia out of global energy circuit but it is not clean energy transition [Phil 2022].

Under RePowerEU strategy Europe intends to spend $205 billion to bolster renewables and energy saving goals to break away from Russian oil by 2027. EU will raise clean energy target from 40% to 45% by 2030. EU will replace piped Russian gas with US and Australian LNG [Ewa 2022].

World community added 260 GW renewables in 2020, 295 GW in 2021 and 320 GW in 2022. The world is on track of reducing fossil fuels and increasing renewables whereas Europe is replacing piped gas with costly LNG from distant places which is mandate to nowhere.

Germany is building LNG terminals to import LNG for immediate needs and intends to build ammonia (NH3) and liquid hydrogen (LH2) at later stage. LNG is chilled at -160°C and hydrogen at -250°C so harder  to handle. Ammonia is chilled at -33°C so it is easier to handle compared to liquid hydrogen that needs specific handling and storage systems.

Green hydrogen is produced by electrolysis of water which is abundant in nature. Green hydrogen is combined with nitrogen to produce ammonia and carbon dioxide to produce synthetic methane. LNG and NH3 can be liquefied and transported to Germany where NH3 may be converted back into green hydrogen.

LNG terminals can’t be used to handle LH2 whereas LNG terminals may be tweaked to handle NH3 at 15% expenses to build a new terminal. In case consumers demand green hydrogen then it needs special cryogenic pumps to handle NH3. It is an energy intensive process which might need some clean energy to keep the process carbon free. Synthetic LNG, a mix of green hydrogen and carbon dioxide, may readily be converted into hydrogen for steal industries.

LNG terminals will be ready by 2025 with cost of $2.6 billion and Synthetic LNG terminals by 2027. By 2045 Germany wants 5 million tons of green hydrogen equivalent to 10% of annual energy needs. A 450% jump in natural gas prices makes the green hydrogen compatible with LNG. RWE is expecting 300,000 tons of green ammonia arriving in Germany by 2026 [Anna 2022].

 

Germany has signed green hydrogen agreement with India to supply NH3 or LH2 to Germany after a couple of years. Australia and India like Arab countries are already happy to make their countries hydrogen hub in future. India expects the world to spend $1 trillion in India to fight against climate change [Nikolaus 2022].

Gazprom tapped off 10 BCM piped natural gas supply to Poland and Bulgaria on 27 April 2022. Hungary voted against EU sanctions against Russian oil. Prime Minister Viktor Orban called Russian oil embargo an economic “nuclear bomb” on their economy [Robert 2022].

European gas consumers are shrugging shoulders on Russian terms to pay in rubles but they have no immediate alternative in sight. Payment in rubles is violation of western economic sanctions against Russia [Alvin 2022]. Energy experts think Europe will bend to Russian demand to pay in rubles.

Energy experts think Europe is natural customer of Russian gas which is hard to replace. Kremlin gas war in response to western sanctions may ruin Russian economy before blowing off European energy market [Niclas 2022]. Gas tap off fear bends Europe to Russian demand to the price in rubles [Ewa 2022]. Putin gas cutoff threat has shaken the Europe [Lorne 2022].

Russian gas gun backfire will affect Russian economy more severely than its frontfire on European energy market. Russia does not consider economic calculations when it comes to war so Europe must expedite its energy transition from Russian gas to LNG, NH3, LH2 and renewables. It won’t be so easy therefore the Europe braces for natural gas crisis.

Political pundits and oil analysts claim if Europe imposes Russian oil embargo then it can send the Russian economy into deep depression [Phil 2022]. China and India can help Russia but just to snorkel in ocean of depression. Russian economy is forecast to shrink by 10% already. Europe also eying on clearing Zimbabwe debts to China to occupy mineral market. Dollar surge has left trail of destruction and inflation in many countries who trade in dollars. This may be another reason behind Russian decision.

 

Gazprom hurled fuel bomb when European Union decided to wean itself off Russian, gas, oil and coal. Russia asked its Europe to pay in Robles instead of Euro or dollar. Poland and Bulgaria refused to pay in Rubles on which Gazprom threatened to tap off their gas supply [Christian 2022].

Europe is determined to switch over from piped natural gas to liquefied natural gas (LNG). United States and Australia have spare LNG facilities but it takes long time to reach Europe. Sweden, Qatar and Nigeria can supply relatively in shorter times.

Europe buys 145 BCM natural gas and 15 BCM LNG from Russia which spot market might not be able to supply. European leaders were willing to continue buying Russian gas for 2022 but Gazprom demand to pay in Rubles has changed their mind [Kate 2022].  United States has inked an agreement to supply 15 BCM LNG in 2022 and raising this capacity to 50 BCM by 2030 [Andreas 2022].

Most of Europe, especially Germany, are in process of building LNG terminals which might take some time. A pipeline proposal from Sweden to Europe is on table which will also take at least one year. Europe dies not need heating in summer but winter is also 7 to 8 months away. Russian gas tap off will affect power, manufacturing and fertilizer industries.

Latvia, Estonia, Finland and probably Lithuania intend to stop buying Russian gas by end of 2022. These contracts could have gone to 2030 which are compromised by economic sanctions by Europe and ruble payment demand by Russia.  Baltic region has one 3.75 BCM LNG floating storage facility in Lithuania which might be enough for total 4 BCM gas consumption in this region [Mateusz 2022].

Europe call gas disconnect threat a blackmailing and Russia media blames their military support to Ukraine. Bulgaria and Germany will be more affected than other European countries. Austria has agreed to pay in rubles. Germany claims Russia agreed to pay to Gazprom bank in Euros which will further pay in rubles to Russia. Most will accept payments in rubles.

However, Kremlin claims any country refusing to pay in Rubles will face the same as Poland and Bulgaria [America 2022]. German and Austria tried to pay for April and May gas supplies through German controlled firm GM&T in Rubles which was turned down by Gazprom bank [Phil 2022]. Bloomberg claims four European countries have already paid in rubles and ten have open A/C in Gazprom bank to make payments in rubles [Shalini 2022]. Natural gas prices surged by 28% after Russia tapped off gas supply to Poland and Bulgaria. Russian response is strict due to western sanctions against her. German Bundesbank has warned the Russian gas disconnect will plunge German economy into recession.

Gas prices in Europe surged by 62% in winter due to War in Ukraine. Natural gas switch over to LNG issue emerged in summer which otherwise in winter could have caused catastrophe [Anna 2022]. Experts ten and twenty points energy transition from gas to renewables counting heat pump and solar water heating efficiencies which become paralyzed during arctic storms.

Germany, Hungary, Slovakia and Austria have agreed to pay for Russian gas in rubles. German Uniper and Vienna OMV companies have opened account in Gazprom bank in Switzerland and Italian Eni may sign up in May 2022. There are 10 other natural gas buyers who might be willing to pay in Rubles [Phil 2022]. It is much cheaper to get gas from existing next door neighbor pipes rather than waiting for LNG shipments from half a world away. Russia may not lose control over European energy market.

Russian response to pay in rubles has come after western intention to equip Ukraine with anti-aircraft tanks, guided missile system and heavy military machines. Russia did not use gas gun against economic sanctions in last six months. Russia could have tapped off gas supply in winter when Europe was ready to accept any condition which must be acknowledged.

This is a fact that Europe can’t replace cheap Russian piped gas with LNG. Russia will start supplying gas to China, to east instead of west, but Europe will be in problem. China is already buying 38 BCM gas which she can increase by stopping gas from other suppliers. United States and Australia have spare LNG but they both are located half a world away.

War in Ukraine has affected global wheat supply chain due to shutdown of ships in Black Sea. Ukraine and Russia used to supply 30% of Europe’s food and wheat to several countries. Economic sanctions have paralyzed Russian economy in first few weeks of war in Ukraine. Russia has asked China to send economic and military aid to sustain war expenses in Ukraine [Jim 2022].

Russia has requested China to send military equipment for war in Ukraine. USA has warned Russia against sending military aid to evade global sanctions against Russia. US officials say they will not let aid go ahead [Aljazeera 2022]. Sullivan said to CNN, “We are communicating directly, privately to Beijing that there will absolutely be consequences for large-scale sanctions evasion efforts or support to Russia to backfill them,” [Edward 2013].

United States asked China to not give arms to Russia to maintain global balance of power. China referred reports to be malicious disinformation with sinister mission as we are against this war and playing key role for peace. Biden fears from expansion of war and division of world into two blocs [Julian 2022]. Europe had launched a bid of EUR 300 billion to challenge Chinese Road & Belt Initiative in Lithuania [Jessica 2022]. China slammed European move after investment in Lithuania [AFP 2021]. Speedy economic sanctions are also a lesson for China [Evelyn 2022].

 

This war has increased 80% price of wheat as Ukraine and Russia used to provide 30% of global wheat share. Experts estimate 2.5% rise in global prices and 1% decrease in global GDP. Oil prices surged to over $131 per barrel second highest after 2008, but declined again due to supply from Arab oil producers and release of US strategic oil reserves.

Economic sanctions have disturbed global supply chain systems. Ban of Russian fuels (oil, gas and coal) was left out in list of sanctions which could have dropped German GDP by 3%. Neon, iron, steel and rare earth metal industries in Europe are facing heat of their decision. IMF claims backlash of sanctions will affect India whereas the WSJ expects more impact on the poorest worldwide.

Economic impact of sanctions will be a heavy blow to global growth causing price hikes. Sanctions will drive up food and energy prices which increase prices of almost all things. Egypt buys 80% wheat from Russia and Ukraine. Remittances will be affected for several countries due to block chain congestions.

Europe already facing crisis of 8 million refugees with serious language barrier. Inflation is causing new season of uprisings in weaker countries. Russian ruble has lost 50% value and Russian economy is expected to shrink by 15%. Energy faced more than 30% inflation in Europe and all goods more than 5%.

The IMF economic experts claim Ukraine-Russia conflict will alter global politico economic order [Andrea 2022]. A major issue with traders is to raise prices with rise of energy but never lower commodity prices when oil, gas or electricity prices fall down in market. This is generally in developing countries and to some extent in developed countries too [Victor 2022].

Once the trade contracts are gone it takes long to reestablish them. When you impose economic sanctions on others you indirectly apply it yourself too [Richard 1998]. Overall impact of economic sanctions against any country results in decline of global GDP, rise of inflation and sufferings of ordinary people who depend on free market. Free market is good idea but speculators misuse it.

Coercive use of economic sanctions against big nuclear powers may result in shift of unipolar world to bipolar word like Eastern and Western blocs.  USA has been importing $21 billion gold, pallidum, crude, titanium, pig iron, podium and petroleum products from Russia which now have been banned. China imports $58 billion crude oil, agriculture, iron ore, integrated circuits, LPG and multiple goods from Russia which will not be affected.

Russian total exports consist of 63% fuels & energy products, 10% metals, 8% machinery, 7% chemicals and 5% food and agricultural products. Major export partners were China (12%), Germany (9%), Netherlands (8.4%), Italy (5.8%), Turkey 4.4%) and Japan (4.1%).

Economic sanctions were called social boycott in India and Pakistan where people used to stop dealing with bad persons after village panchayat decision. India has refused to stop trade with Russia or even condemn Russia which undermines US, UK and EU effort to isolate Russia. Japan and South Korea echoed but India did not rather started trade through rupee-ruble or rupee-yuan.

Russian demand to pay in rubles is to strengthen declining ruble and do routine business due European dependence on Russian gas supply. Russian response may bend Europe to pay in rubles. IEA has proposed ten-point rescue plan but it needs time to implement it.

World is dependent on Russian gas and oil supplies. Germany, Italy, Netherlands, Hungary and Poland imported 42.5, 29.2, 15.7, 11.6 and 9.6 BCM gas in 2020 which increased in 2021 due to Covid-19. Turkey, Kazakhstan, China and japan imported 16.2, 10.2, 9.2 and 8.8 BCM gas in 2020 [Jake 2022]. China is building high capacity gas pipeline from Russia to import through land route.

References

Phil R, Russia will likely be shut out permanently from global energy markets, top oil execs say, Business Insider, 17 May 2022. https://www.yahoo.com/finance/news/russia-likely-shut-permanently-global-125842840.html

 

Ewa K, Alberto N, EU Drafts $205 Billion Plan to Wean Itself Off Russian Fuels, Bloomberg, 11 May 2022. https://www.yahoo.com/finance/news/europe-drafts-205-billion-plan-230155080.html

Anna S, How Germany’s LNG Terminals Will Morph Into Green Hydrogen Hubs, Bloomberg, 12 may 2022. https://www.yahoo.com/finance/news/germany-lng-terminals-morph-green-050002953.html

Nikolaus JK,  Germany signs hydrogen cooperation agreement with India, Euractiv, 2 May 2022. https://www.euractiv.com/section/energy/news/germany-signs-hydrogen-cooperation-agreement-with-india/

Robert H, An Economic ‘Atomic Bomb’: Hungary Threatens EU’s Latest Sanctions Against Russia, Including Oil Embargo, Forbes, 6 May 2022. https://www.forbes.com/sites/roberthart/2022/05/06/an-economic-atomic-bomb-hungary-threatens-eus-latest-sanctions-against-russia-including-oil-embargo/?sh=f799a807b663

Niclas P, Simone T, Guntram BW, Georg Z, The Kremlin’s gas wars, Bruegel.Org, 28 February 2022. https://www.bruegel.org/2022/02/the-kremlins-gas-wars/

Ewa K, Alberto N, Jonathan T, Zoltan S, Europe Starts Splintering in Its Response to Russia’s Threat, Bloomberg, 29 April 2022. https://www.yahoo.com/finance/news/europe-starts-splintering-response-russia-102111453.html

Alvin T, Russia Cuts Natural Gas Supply To Two NATO Nations – Poland & Bulgaria, OER Live, 27 April 2022. https://www.oerlive.com/news/russia-cuts-natural-gas-supply-to-two-nato-nations-poland-bulgaria/#:~:text=April%2027%2C%202022%20Russia%20cut%20natural%20gas%20off,Associated%20Press%20%28AP%29%20news%20reported%20today%20%5BApril%2027%5D.

Lorne C, Danica K, Frank J, Putin gas cutoff shakes up Europe at little cost to Kremlin, AP, 29 April 2022. https://www.yahoo.com/news/putin-gas-cutoff-shakes-europe-141358653.html

 

Phil R, Russia's economy could spiral into a depression under an EU oil embargo. An energy analyst breaks down why Moscow won't be able to rely on China and India to fill the gap. Business Insider, 30 April 2022. https://www.yahoo.com/finance/news/russias-economy-could-spiral-depression-123000076.html

Christian H, Gazprom ‘blackmail’ backfires as EU vows to end energy dependence on Russia, Fortune, 27 April 2022. https://www.yahoo.com/finance/news/gazprom-blackmail-backfires-eu-vows-141630219.html

Kate A, EU leaders to agree to jointly buy gas, LNG this year, Reuters, 22 March 2022. https://www.reuters.com/business/energy/eu-leaders-agree-jointly-buy-gas-lng-this-year-summit-draft-statement-2022-03-22/


Andreas R, Kate A, Jarrett R, EU clinches U.S. LNG deal, brushes off Russian rouble demand, Reuters, Reuters, 25 March 2022. https://www.reuters.com/business/energy/eu-leaders-plan-energy-security-boost-brush-off-russian-rouble-demand-2022-03-24/

 

[Mateusz K, Baltic States Bet on New LNG Regasification Capacities, OCNUS.NET, 27 April 2022. http://www.ocnus.net/artman2/publish/Analyses_12/Baltic-States-Bet-on-New-LNG-Regasification-Capacities.shtml

erica H, Paola T, You’re next: Kremlin warns anyone not paying in rubles also faces gas shutoff, Politico, 27 April 2022. https://www.politico.eu/article/youre-next-kremlin-warns-anyone-not-paying-in-rubles-also-faces-gas-shutoff/

Phil R, Russia declines Germany's ruble payment for gas after cutting off supplies to Poland and Bulgaria, report says, Business Insider, 28 April 2022. https://www.yahoo.com/finance/news/russia-declines-germanys-ruble-payment-191757237.html

Shalini N, Four European gas buyers have paid Russia in rubles for supplies, bucking the EU's urging in the energy face-off, Bloomberg, 27 April 2022. https://markets.businessinsider.com/news/commodities /europe-natural-gas-russia-supplies-ruble-payments-energy-gazprombank-putin-2022-4?utm_medium =referral&utm_source=yahoo.com


Source:Ocnus.net 2022

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