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How Europe’s Energy Crisis Could Turn Into A Food Crisis

How Europe’s Energy Crisis Could Turn Into A Food Crisis

Runaway energy inflation has taken a toll on European industry, but another threat is looming.

  • Europe’s two biggest fertilizer suppliers, Russia and Belarus have retaliated against European sanctions by cutting off fertilizer exports.
  • The fact remains that the global food chain, especially its European links, is not in a good place right now.

Runaway energy price inflation has wreaked havoc on European industrial activity, with the heaviest consumers taking the brunt. Aluminum and steel smelters are shutting down because of energy costs. Chemical producers are moving to the United States. BASF is planning a permanent downsizing.

There is, however, a bigger problem than all these would constitute for their respective industries. Fertilizer makers are also shutting down their plants. And fertilizer imports are down because the biggest suppliers of fertilizers for Europe were Russia and Belarus, both currently under sanctions.

Both countries have retaliated against the sanctions by cutting off exports of fertilizers to Europe, and European officials repeating that fertilizer exports are not sanctioned is not really helping.

Russia accounts for 45 percent of the global ammonia nitrate supply, according to figures from the Institute for Agriculture and Trade Policy cited by the FT. But it also accounts for 18 percent of the supply of potash—potassium-containing salts that are one of the main gradients of fertilizers—and 14 percent of phosphate exports.

Belarus is a major exporter of fertilizers, too, especially potash. But Belarus has been under EU sanctions since 2021 on human rights allegations, and unlike Russia, it has seen its fertilizer industry targeted by these sanctions. This has made for an unfortunate coincidence for Europe and its food security.

…click on the above link to read the rest…

Oil Prices Are Primed To Spike This Winter

Oil Prices Are Primed To Spike This Winter

  • The EU embargo on seaborne Russian crude oil exports and the G7 price cap on Russian oil are both less than a month away.
  • While a global economic slowdown and weak oil demand in China have capped prices, looming supply disruptions will likely send oil prices higher.
  • A lack of refinery capacity and crude oil disruptions will drive the price of fuels higher as well, particularly the price of diesel.

Less than a month from now, an embargo on seaborne Russian crude oil exports to the European Union will come into effect. As a result, global oil supply is set to tighten considerably as Russia is the biggest oil and fuels exporter in the world. And the market is preparing.

Hedge funds once again like oil, and are buying it on the futures market in considerable volumes, according to Reuters’ John Kemp. Last week, the buying reached 22 million barrels of Brent crude and 15 million barrels of West Texas Intermediate.

India is buying Russian crude at a discount, so it is buying a lot: its share of Middle Eastern oil imports fell to the lowest in 19 months in September, according to new data. Russia overtook Saudi Arabia as India’s number-two supplier after Iraq.

China is also buying Russian oil and not giving any indications it’s going to stop when the embargo enters into effect. The same is true of the G7 price cap for Russian crude that should also be coming into effect in a few weeks. China has already stated this will not change its current oil-buying habits.

Yet, with an EU embargo and a G7 price cap, what will almost certainly happen by the end of the year is that oil will become more expensive than it is now. Perhaps more worryingly, fuels – especially diesel…

…click on the above link to read the rest…

War; Economic War; War; Military; War; Economic War – Do You Spot A Pattern?

War; Economic War; War; Military; War; Economic War – Do You Spot A Pattern?

The times are not just a-changin’ – they have changed. Let’s take six of the top seven headlines in the Financial Times this morning in Asia as Exhibit A:

  • ‘Biden claims oil companies are ‘war profiteering’ as he floats windfall tax’
  • ‘The Long View. Is Europe winning the gas war with Russia?’
  • ‘Military Briefing: Russia and Ukraine prepare for the rigours of winter war’
  • ‘The Big Read. Egypt and the IMF: will Sisi take the economy out of the military’s hands?’
  • ‘The nuclear threats that hang over the world’
  • ‘Live news updates: Putin says grain deal ‘suspended’ not terminated’’

Do you spot a pattern? War; economic war; war; military; war; economic war. Are you incorporating them into your forecasts? I can assure you that the vast majority of analysts still aren’t because this is apparently ‘exogenous’. If so, what is endogenous is irrelevant. Anyway, on we go into those murky waters, via a mini-edition of the Global D’Oily.

The White House has come out all guns blazing against Big Oil, calling them war profiteers (which the US is no stranger to: **cough** The 2003 Iraq War **cough**), and threatening windfall taxes. President Biden gave a public address and specifically tweeted that: “The oil industry has a choice. Either invest in America by lowering prices for consumers at the pump and increasing production and refining capacity. Or pay a higher tax on your excessive profits and face other restrictions.” Recall when in 2016 I talked of geopolitical ‘Thin Ice’ we could fall through, after which markets would no longer operate the way they used to? Well, it wasn’t just about tariffs: the US is now laying down the law to not only the Russian energy industry, but its own.

…click on the above link to read the rest…

 

Energy Shock

The world is in energy shock.

European imported coal prices increased 421% before Russia invaded Ukraine. German electric power price increased 518%. European natural gas jumped 765% and Asian spot LNG, 957%.  Since then, it’s gotten even worse.

U.K. natural gas futures price has increased +$99.86 (+574%) from $17.41 to $117.27 per mmBtu just since June 8 (Figure 1).

Figure 1. U.K. natural gas futures price has increased +$99.86 (+574%) from $17.41 to $117.27 per mmBtu since June 8. Source: MarketWatch, CME & Labyrinth Consulting Services, Inc.

Now Europe’s energy crisis is on a path to even worse outcomes.

Russia announced on September 4 that gas supplies to Europe via the Nord Stream 1 pipeline would not resume in full until the sanctions against Russia were lifted. Finland’s Economic Affairs Minister stated ,

“This has had the ingredients for a kind of a Lehman Brothers of energy industry.”
–Mika Lintilä

Many governments are planning to subsidize consumers with price caps and to help industry with loans. My friend and colleague Nate Hagens recently noted that,

“Europe is committing economic suicide.”
–Nate Hagens

That is because these bailouts are happening at a time of economic contraction, high inflation and rising interest rates. That means increased and unproductive debt at a time that states cannot afford its service except with more debt.

French President Emmanuel Macron recently stated,

“What we are currently living through is a kind of major tipping point or a great upheaval … we are living the end of what could have seemed an era of abundance…the end of the abundance of products of technologies that seemed always available.”
–Emmanuel Macron

Meanwhile, OPEC+ has decided to cut production by 100,000 barrels of oil per day reversing 15 months of output increases. Although oil is relatively less expensive for Europeans than natural gas and coal, many countries have begun using diesel as a substitute to generate electric power.

…click on the above link to read the rest of the article…

Europe Cannibalized

Abandoned industrial building. Image credit: Pixabay
List of the most energy intensive businesses. Source: US Energy Information Administration

…click on the above link to read the rest of the article…

Russia Admits Weaponization Of Gas, Halts NS1 Shipments “Until Sanctions Lifted” As EU Prepares Response To Energy Crisis

Russia Admits Weaponization Of Gas, Halts NS1 Shipments “Until Sanctions Lifted” As EU Prepares Response To Energy Crisis

Putin is done playing around.

Two days after Russia indefinitely halted nat gas supplies via the Nord Stream 1 pipeline for the amusing reason that there was an “oil leak” (shown below)…

… on Monday Russia finally admitted what everyone has known since February – namely that it has weaponized commodities in response to the West’s weaponization of currencies (as Zoltan Pozsar has said all along),when the Kremlin said that Russia’s gas supplies to Europe via the Nord Stream 1 pipeline will not resume in full until the “collective west” lifts sanctions against Moscow over its invasion of Ukraine.

Putin’s spokesman, Dmitry Peskov, blamed EU, UK, and Canadian sanctions for Russia’s failure to deliver gas through the key pipeline, which delivers gas to Germany from St Petersburg via the Baltic sea.

“The problems pumping gas came about because of the sanctions western countries introduced against our country and several companies,” Peskov said, according to the Interfax news agency. “There are no other reasons that could have caused this pumping problem.”

Peskov’s comments were the most stark demand yet by the Kremlin that the EU roll back its sanctions in exchange for Russia resuming gas deliveries to the continent. It also confirms that Russia no longer needs to pretend it needs to export commodities to Europe – after all it has more than enough demand in China and India – and is willing to give Europe just enough to rope to… well, you know the rest.

On Friday, Gazprom said it would halt gas supplies through Nord Stream 1 because of a technical fault, which it blamed on difficulties repairing German-made turbines in Canada…

…click on the above link to read the rest of the article…

German Consumers Just Learned How Much Extra They Will Have To Pay For Gas This Winter

German Consumers Just Learned How Much Extra They Will Have To Pay For Gas This Winter

With millions of German facing a painful freeze in the coming months, a winter gas surcharge, which will come into effect in October for German households and businesses, was set at 2.4 euro cents per kilowatt hour on Monday, DW reported on Monday.

Gas prices have been driven by German sanctions on Russian gas, prompting market concerns about energy security and also shortfalls in deliveries in some cases.  And while so far, consumers have been largely shielded from the increases, with companies unable to pass on their increased costs, all that is about to change. 

“It will get more expensive — there is no getting around that. Energy prices continue to rise. But: we are already unburdening citizens to the tune of €30 billion,” Chancellor Olaf Scholz said on Twitter on Monday, soon after the announcement. “And we are working on a further relief package. We will leave nobody alone with these increased costs.” 

The decision on the amount of the levy fell to the company charged with overseeing and coordinating the German gas market, Trading Hub Europe.  The stated aim of the levy is to cover around 90% of the additional costs incurred by gas providers who are now paying higher prices to secure gas, in some cases from new sources other than Russia.

Just under half of German households are heated using gas, the most popular method by far in the country. German dependence on Russian gas has become notorious this year amid the war in Ukraine, both for household power and for industry.

Government seeks sales tax exemption

Finance Minister Christian Lindner has already said he aims to soften the blow by appealing in Brussels for the right to waive sales tax on the new gas levy…

…click on the above link to read the rest of the article…

Germany’s Energy Crisis About To Get Even Worse As Rhine Water Levels Plummet

Germany’s Energy Crisis About To Get Even Worse As Rhine Water Levels Plummet

What has already been a year from hell for Germany, which is suffering energy hyperinflation as a result of Europe’s sanctions on Russia, and which is “facing the biggest crisis the country has every had” according to the president of the German employers association, is about to get even worse as the declining water level of the Rhine river, which has historically been a key infrastructure transit artery across Germany, continues to fall and as it does, the flow of commodities to inland Europe is starting to buckle threatening to make an already historic crisis even worse.

The alarming lack of water is contributing to oil product supply problems in Switzerland and preventing at least two power plants in Germany from getting all the coal they need, and what’s more, the continent’s sizzling summer temperatures are forecast to climb even higher in the coming week, leading to even lower water levels.

The 800-mile (1,288-kilometer) Rhine river runs from Switzerland all the way to the North Sea and is used to transport tens of millions of tons of commodities through inland Europe. But with water levels at their lowest for the time of year in 15 years, there is a limit how much fuel, coal and other vital cargo that barges can carry up and down the river.

Low water levels on the Rhine River mean that barges hauling middle distillate-type oil products – typically gasoil/diesel – past Kaub in Germany, are limited to loading about 30% of capacity, according to maritime brokerage services firm Riverlake.

A barge loading in the energy hub of Amsterdam-Rotterdam-Antwerp (or ARA), which can haul 2.5k tons when fully laden, is restricted to taking on about 800 tons if sailing to destinations beyond Kaub…

…click on the above link to read the rest of the article…

European Power Prices Spike As Heat Dome Strains Grid 

European Power Prices Spike As Heat Dome Strains Grid 

European day-ahead power prices continue to soar for the third day due to an early-season heat wave driving up cooling demand, lack of renewable energy generation, declining nuclear power, and soaring natural gas costs.

Large swaths of Europe over the weekend experienced temperatures above 100 degrees Fahrenheit (38 Celsius). The hottest temperatures were from Spain to Germany to France.

Bloomberg notes power grids were under stress as wind generation in Germany and Italy plunged, forcing the need to increase the capacity of fossil fuel power generators to make up for the lost power. This placed a bid under electricity prices as the cost to generate power soars because of tightening supplies due to declining Russian flows.

“Already high gas prices, combined with low wind output will require less efficient, higher cost gas plants to fire up, pushing up prices,” BloombergNEF’s Andreas Gandolfo said. 

Day-ahead power prices in France traded at 383.14 euros ($404.08) a megawatt-hour, up more than 64% from last week.

Besides tight fossil fuel supplies and a lack of renewable power from Germany and Italy, half of France’s 56 nuclear reactors are offline. France was the biggest net exporter of power last year, supplying many European countries.

French nuclear power is needed when renewable energy is lacking. Also, Brussels’ drive for net-zero carbon emissions and weening off Russian fossil fuels has made the energy crisis on the continent worse.

To avert a more profound crisis, German Vice-Chancellor and Economy Minister Robert Habeck said Sunday that the country is increasing coal generation to increase power output.

The decision comes just days after Russian gas company Gazprom announced that it was reducing supplies through the Nord Stream 1 pipeline for “technical reasons.”

…click on the above link to read the rest of the article…

Oops! U.S. oil and gas exports fuel domestic price rise

Oops! U.S. oil and gas exports fuel domestic price rise

The U.S. oil and natural gas industry long fought for and in the last decade finally won release from federal restrictions that limited exports. The ostensible reason was that because of the so-called “shale revolution” in the country’s oil and gas fields, the United States would have plenty of oil and gas to spare for export.

The real reason behind the push was that the oil and gas industry wanted what almost every other industry in American already had: The right to sell their products to the highest bidders no matter where they lived on the globe.

This made it almost certain that as U.S. prices rose to match world prices, U.S. consumers would feel the pain. And, since energy prices affect everyone who votes, they are always politically consequential.

So, it is unsurprising that with U.S. regular gasoline prices over $5 per gallon President Joe Biden lashed out at U.S. oil companies—which are having one of their best years ever—saying they need to increase production of refined oil products. The companies have responded that their refineries are running at close to maximum capacity and so there is not much they can do in the short run.

What is left unsaid is that it has long been the policy of the United States to allow the export of refined (as opposed to crude) petroleum products such as gasoline, diesel and heating oil. The country has refinery capacity significantly in excess of domestic needs and so exports a considerable volume of refined products including about 1 million barrels per day (mbpd) of gasoline and 1.4 mbpd of diesel and heating oil (for the week ending June 10)…

…click on the above link to read the rest of the article…

Pitchforks soon in Europe?

Pitchforks soon in Europe?

Dear Europeans

For your own children´s sake — on my knees and with my saddened eyes humbly looking downwards — I beg of you to please stop the current self-destructive nonsense dead in its tracks by immediately demanding from your political class to import the bloody Russian oil normally once again as Europe had been doing for dozens of years. The impact that the ban on Russian oil has upon your daily lives now and for years yonder is such that at the very least a Referendum should have been held. But it was not, and without consultation, the EU leadership acted on their own.

Please be advised that the EU un-elected brass simply does not represent you or your needs. They were all voted amongst themselves into their positions like members of a committee in a private country club. If left unchecked, EU politicians will now continue misrepresenting you and, on your behalf — with your hard-earned assets and livelihoods – will keep on picking a most unnecessary and prolonged armed conflict with Russia, eventually forcing upon you a total war scenario where chances play out all very strongly against you, with Russia probably resulting unscathed.

C:\Users\Win7_64\Desktop\55 - copia.jpg

their war

European leaders crave for their war, so they can´t think of a better way to provoke it than by applying ever larger and ´meaner´ sanctions on Russia as if (a) sanctions were effective and (b) as if Europe could win such war (not).

Accordingly, we now have yet another set of spanking new EU “sanctions” in package No. 6 that will eventually backfire flat on Europe´s face – like all the others — such as banning the insurance and financing of oil tankers that carry Russian oil. Accordingly, the EU is now trying its very best to

(1) bankrupt the successful Western oil tanker insurance business by reducing the number of participants…

…click on the above link to read the rest of the article…

Crazy Pills

Crazy Pills

It’s not denial. I’m just selective about the reality I accept.” – Bill Watterson

In the brilliantly funny 2001 film Zoolander, Ben Stiller plays a past-his-prime male model named Derek Zoolander. As the plot unfolds, Zoolander is unknowingly groomed and brainwashed by evil fashion designer Jacobim Mugatu (played by Will Ferrell) to assassinate the newly elected prime minister of Malaysia. The prime minister campaigned on a platform of raising the country’s minimum wage and ending child labor – thereby threatening the profitability of the fashion industry – and must be eliminated. Mugatu judges Zoolander to be just dim-witted enough for the task.

The movie is absurd and yet so well executed that it works. The sheer number of derivative memes you can find on Reddit and in the Twitterverse pay tribute to its many memorable scenes. One meme stands out from the rest and serves as an apt expression of the spectacle we’re scratching our feathers over today. Zoolander proclaims to have developed three signature looks: “Ferrari,” “Blue Steel,” and “Le Tigre.” GQ astutely describes them as being completely identical, with “a raised brow, pursed lips and the misguided confidence that everyone knows the difference between them.” After observing the crowd’s adoring reaction to Zoolander’s latest flash of Blue Steel on the runway an exacerbated Mugatu explodes, “They’re all the same face! Doesn’t anyone notice this?! I feel like I’m taking crazy pills!!!

We sympathize with Mugatu’s lament, observing our political class translate its deep misunderstanding of energy into an equally haphazard set of economic sanctions levied against Russia, totally unaware that they are expressing the same ridiculous face at every opportunity. Before proceeding, we should note that pointing out the flaws in the West’s war response is not “pro-Putin,” nor is it “unpatriotic” as some propagandists on Twitter would have you believe…

…click on the above link to read the rest of the article…

Putin: Oil Sanctions Will Be Europe’s “Economic Suicide” On Orders From “American Overlords”

Putin: Oil Sanctions Will Be Europe’s “Economic Suicide” On Orders From “American Overlords”

Russian President Vladimir Putin announced that EU countries are committing “economic suicide” by refusing Russian energy resources amid a push to impose an oil embargo, but which has been thus far blocked by Russian energy-dependent Hungary and a handful of others.

As quoted in RIA Novosti, Putin described that the oil sector is busy undergoing a “tectonic shift” which will only be made worse by “ill-thought-out” sanctions by the West. The address was given virtually to an energy conference of the country’s industry heads.

“Changes in the oil market are tectonic in nature and doing business as usual, according to the old model, seems unlikely,” he said. “In the new conditions, it is important not only to extract oil, but also to build the entire vertical chain leading to the final consumer.”

Putin signs a pipeline in 2011. AFP via Getty

He called out the current EU-US trajectory of seeking to inflict maximum punishment on Moscow as a strategy ensuring higher energy prices and higher inflation. That’s when he observed:

“Of course, such an economic suicide is a domestic affair of the European countries,” based on the AFP translation.

At the same time, Putin additionally pointed out, Europe’s “chaotic actions” would eventually serve to boost oil and gas revenues for Moscow, also as Russia diverts energy supplies to “friendly” countries. He urged Russian industry authorities to be more proactive in leveraging the situation for the nation’s benefit.

Putin described a scenario of Europe feeling the brunt of the crisis worst, according to state media:

…click on the above link to read the rest of the article…

The Real Reason Behind the EU’s Drive to Embargo Russian Oil

The Real Reason Behind the EU’s Drive to Embargo Russian Oil

This week the European Union is expected to announce a complete import ban on Russian oil. Hungary, in its first real act of defiance, is threatening to veto this; Germany, after some hemming and hawing, has finally decided it can survive such a ban.

Assuming Hungary’s objections are eventually overcome, at first blush this looks like yet another energy “own goal” by the people obsessed with soccer. The U.S. has already issued this ban.

Because European industry is heavily dependent on Russian oil and gas, the conventional wisdom is that the EU Commission is just petulant and incompetent.

Are they petulant? Yes. Incompetent? Possibly? But only if you think in conventional terms of doing the right thing for their people. What is clear to any serious observer of EU politics is that they are not interested in what their people have to say or want.

Theirs is an agenda which will brook no opposition, even if it means destroying its own economy to bring a rival to its knees.

That said, I sincerely doubt there will be a “buyers embargo” on natural gas because there is no viable substitute for it.

Hungary is using the need for unanimous consent within the European Council to block any ‘gas ban’ in any new economic sanctions package. There are at least three other countries which are happy Hungary is willing to suffer Brussels’ wrath.

But banning Russian oil, on the other hand, is different.

So, it is interesting that Hungary would do this, given they import no oil from Russia. {Ed. this is wrong, Hungary imports 65% of its oil through the Druzhba pipeline} This veto was predicted by me the morning after the Hungarians overwhelmingly rejected George Soros’s anti-Viktor Orban coalition and handed it an ignominious defeat.

…click on the above link to read the rest of the article…

Europe May Face LNG Crisis This Winter

Europe May Face LNG Crisis This Winter

  • Rush to wean off Russian gas has made European consumers highly vulnerable to LNG price shocks.
  • Global LNG demand outstrips supply in 2022.
  • New LNG projects are unlikely to provide relief until 2024.

A liquified natural gas (LNG) crisis is brewing for European countries dealing with energy insecurity in the wake of Russia’s invasion of Ukraine, as demand will outstrip supply by the end of this year, Rystad Energy research shows. Although soaring demand has spurred the greatest rush of new LNG projects worldwide in more than a decade, construction timelines mean material relief is unlikely only after 2024. Global LNG demand is expected to hit 436 million tonnes in 2022, outpacing the available supply of just 410 million tonnes. A perfect winter storm may be forming for Europe as the continent seeks to limit Russian gas flows. The supply imbalance and high prices will set the scene for the most bullish environment for LNG projects in more than a decade, although supply from these projects will only arrive and provide relief from after 2024

The European Union’s REPowerEU plan has set an ambitious target to reduce dependence on Russian gas by 66% within this year – an aim that will clash with the EU’s goal of replenishing gas storage to 80% of capacity by 1 November. By shunning Russian gas, Europe has destabilized the entire global LNG market that began the year with a precarious balance after a tumultuous 2021. The decision to sharply reduce reliance on Russian gas and LNG from current levels of between 30-40% will transform the global LNG market, resulting in a steep increase in energy-security based European LNG demand that current and under-development projects will not be able to supply.

…click on the above link to read the rest of the article…

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