The Silence of the European Lambs | Latest news The Moscow Post
04 December 2022

The Silence of the European Lambs

The Russian-flagged vessel "Jade" with specialists Nord Stream AG on board inspected the first line of the Nord Stream gas pipeline at the site of its damage in the exclusive economic zone of Sweden.

According to preliminary results of the inspection, "craters of a technogenic nature were found on the seabed with a depth of 3 m to 5 m at a distance of about 248 m from each other," the correspondent of The Moscow Post reports.

The pipe section between the craters is completely destroyed, the radius of scattering of pipe fragments is at least a quarter kilometer. Work continues to analyze the data obtained, a representative of Nord Stream AG reported, noting that he is waiting for permission from the Danish authorities to examine the pipe in its territorial waters.

Earlier, Russian President Vladimir Putin reported that Gazprom was allowed to examine the site of the Northern Flows explosion, the head of the company Alexei Miller reported to him about it. The explosion on Nord Stream is an obvious terrorist attack, the head of state said.

I see nothing, I hear nothing

A silent reaction to the sabotage of Berlin and Paris showed that the "senior assistant" of the American owner did what needed to be done - he locked the gas door to Russia, and threw the key into the Baltic Sea. Kim Dotcom, who founded Megaupload and Mega file sharing, stated that Liz Truss sent Blinken a message immediately after the explosion and wrote that "everything is done."

Germany is the main victim of diversion, I didn't object as though it was with terrorists in consent. The diversion committed by London became possible only in the conditions of the anti-Russian hysteria which covered Europe. Kind of strange it didn't sound, but in the act of sabotage on an object of strategic infrastructure the interests of the criminal and victim coincided. They were united by the "high" interests of counteraction to Moscow!

All this kept within logic of Brussels even better. The head of European Commission Ursula von der Leien falsely threatened with the response to "deliberate violation" of the European power infrastructure. The old opponent of Gazprom, the former Minister of Foreign Affairs of Poland Radoslaw Sikorski was delighted to diversion. In Germany the security service and Foreign Intelligence Service of BND qualified leak of gas as the act of sabotage, but on it stopped. Only the Alternative for Germany opposition party (AdG) called diversion diversion.

But oppositional politicians don't define the future of the country. In July the current vice-chancellor of Germany Robert Habek urged not to put "under no circumstances" into operation the Nord Stream — 2 gas pipeline as it will become "a white flag of Germany and Europe". In December, 2021 this future Minister of Economy and Energy called the project "a geopolitical mistake". The error was corrected, "white flag" was destroyed, the fragile bridge to at least to limited independence of Germany burned down!

To refuse it is impossible to buy

Northern Europe had to refuse a long-term habit to steadily receive rather inexpensive Russian gas, doing it directly, passing intermediaries. Total power of two "Northern a stream" was about 100 billion cubic meters of gas a year. Nord Stream was stopped in view of the fact that gas-distributing turbines of Siemens needed under repair, but appeared under sanctions. "Nord Stream-2" was ready to work, stood filled with technical gas, but too was under a ban.

Explosions on gas pipelines touched not only Germany or France. After diversion there was a question of whether will be the liquefied natural gas (LNG) enough and whether he will be enough for the new mega-consumer? At least, on prospect of 3-5 years, new capacities for liquefaction of gas and reception terminals for the LNG transformation back to gas won't be put into operation yet. In Germany of such terminals yet isn't present at all.

In a year since January, 2021, monthly purchases of the European Union grew from 4 million tons a month to 10 million tons a month and remained at the level of 8-9 million tons up to September, 2022. On demand volumes Europe significantly bypassed both Japan, and China - two largest importers of LNG. Volumes of their import were "pressed down" by a pandemic and fell to a mark of 6 million tons a month for each country by then.

According to the Japanese-Korean S&P Global Platts index, the spot prices of LNG in Northeast Asia sharply grew with entry of the EU into this market. The prices in the markets of Asia cavorted in August, 2022 up to 2500 dollars for one thousand cubic meters, then fell in October up to 1100 dollars for one thousand cubic meters. It is necessary to notice that this level exceeded habitual values for Asia approximately twice. Till October, 2021, the prices held within 400-600 dollars one thousand cubic meters.

Europe still was lucky, the European importers of LNG benefited from the decrease in demand in Asia caused by a pandemic. "Reduction of import of LNG in Asia made volumes available to the European market", - Hiroshi Hashimoto, the head of gas group of Institute of economy of power, Japan (IEEJ) told.

The spot is expensive now

Japan, China and South Korea paid for gas much more, than Germany. But the European Union the reckless policy sharply changed dynamics of the market of LNG and shifted world economy towards recession and instability.

Besides refusal of import of gas from the Russian Federation, there were interruptions in deliveries because of the fire at the liquefaction plant in Texas. Strikes at the LNG Shell plant in Australia and also the statement of Petronas for force majeure, led to interruptions in deliveries too. The risks connected with supply of gas of the Sakhalin-II project remain. Japan receives about 9% of all import of LNG from the Russian Federation.

There won't be enough gas and LNG in the spot market will be expensive. "Asia should fight for LNG now, competing with Europe for which LNG isn't an additional power source any more", - Takayuki Nogami, the chief economist of the state Japanese oil and gas and metallurgical national corporation (JOGMEC) told.

Analysts don't say gas importing countries will immediately face supply shortages, but a severe winter could make a difference. "Demand for LNG will grow during the winter, but China is backed by contracted LNG. It's unlikely to have to buy spot LNG unless the winter is particularly cold, "said Massimo Di Odoardo, vice president of LNG at Wood Mackenzie.

Against the background of changes in Europe, the world's main LNG consumers began to stock up gas, which further spurred prices. As of June, LNG inventories in Japan and South Korea were 8% above their five-year average. Korea Institute of Energy Economics said state-owned gas company Korea Gas Corp. has filled 90% of its spare capacity. According to the Ministry of Economy, Trade and Industry of Japan, LNG reserves from generating companies amounted to 2.5 million tons, which is significantly higher than the average of 1.8 million tons over the past five years.

The Japanese government changed the law to allow state-owned JOGMEC to purchase gas when private companies could not secure additional imports for commercial reasons. In South Korea, too, the government is preparing for winter. Korea Gas will guarantee additional deliveries. "Even if we survive the coming winter without any complications, the problem is how we survive the next winter. We will have no choice but to limit demand, "summed up an analyst from IEEJ.

A crisis is just around the corner

Qatar, the world's second-largest LNG exporter, assures it will honour all its contracts with Asian buyers despite growing demand from Europe.

But the energy security of all LNG-importing countries has been threatened by soaring prices.

Rising gas prices caused by Europe's shift to LNG imports hurt India, but especially Pakistan and Bangladesh. Pakistan, for example, imported 4.25 million tons of LNG between January and July, down 18% from a year earlier. In addition, the country was forced to refuse to bid for the supply of 10 batches of LNG due to high prices. LNG supplies to Bangladesh, India and other developing countries declined to below last year's level.

"With the exception of India, where coal makes up most of the energy mix, reducing gas imports will directly lead to energy crises," said JOGMEC's Yutaka Shirakawa. According to the International Energy Agency, in 2019, gas accounted for 46% of electricity generation in Pakistan, in Bangladesh - 81%. Long power outages affect both countries.

Gas shortages and power outages are dealing a significant blow to local industry. In Pakistan's textile industry, output fell by more than half as gas supplies fell. This led to losses of at least $1 billion. The country is losing orders and customers, according to the Pakistan Textile Mills Association. The fall in export revenues leads to a decrease in foreign exchange reserves, limits the ability to pay for LNG imports.

The International Monetary Fund lowered its forecast for economic growth in Asia's developing countries to 4.6%. In April, an increase of 5.4% was expected. "Energy shortages deprive countries of sources of development, and the longer it persists, the greater the negative impact on emerging economies," said Osamu Tanaka, chief economist at Japan's Dai-ichi Research Institute.

According to a survey conducted by the Association of Chambers of Commerce and Industry of Germany (DIHK), one in five of German industrial companies plan to reduce production due to high electricity costs. About 17% of companies said the energy crisis forced them to cut production, 8% said they planned to move production outside the country.

The energy crisis has hit the auto industry. Almost 49% of component suppliers called their financial situation problematic, 16% reduced production volumes, 17% plan to move it abroad. High raw material and energy costs pose the greatest risk to businesses in this sector.

According to DIHK, electricity prices according to data for September increased almost two and a half times compared to September last year. Rising prices are holding back production and demand. According to forecasts of leading research centers, the energy crisis will push the economy into recession as early as 2023. Many agree that before the conflict in Ukraine, German industrial companies relied on cheap Russian gas and ensured the high competitiveness of their products.

A Long, Protracted Winter Ahead

Although the European Union managed to fill the storage facilities and prepare for winter, the underdeveloped gas infrastructure will not quickly solve the problems of gas supply. Without Russian gas, the import of LNG will not solve Europe's problems, especially in the context of the expected global deficit, which may last a very long time. Note that the deficit was created by the European Union, and the sabotage on the Northern Flows made the situation irreversible.

Prices in deficit conditions will rise from $1,100 per thousand cubic meters today to about $1,500 per thousand cubic meters by the winter of 2023. High prices hit precisely those countries that rely on spot contracts. Leading importers with a high share of spot contracts in LNG imports include the European Union (40%), South Korea (about 40%) and India (30%). As of 2021, Japan's share did not exceed 20%.

Prolonged fuel shortages and expensive electricity will make Europe's economic downturn protracted. Asia will not be easy either. But Brussels' dreams of limiting Russia's export revenues may or may not come true. The main thing is how much and how long Europe and many other LNG importing countries will be forced to pay for these fantasies and explosions in the Baltic Sea!

Photo: Jens Büttner / dpa / globallookpress.com

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