Hot air versus hot money: Europeans prefer Russian LNG to American LNG

Yves is here. There are many examples in the cognitive bias literature of how presenting the same economic proposition in different terms, such as insurance or betting, elicits different responses. So much for the cognitive bias of Russian gas. If it’s through a dedicated pipeline, then no way, how can Europeans fool themselves about what they’re buying, supporting Putin’s war machine and continuing to consume it would be sacrilege. But LNG via tanker? Most Europeans seem to consider it too big.

Speaking of Putin, he early noticed and exploited the cognitive bias of Russian gas. He and Erdogan are confident that Russian pipeline gas, once it passes through the Turkish hub and is considered mixed with gas from other countries, will be considered to have lost its Russian character.

The author is John Helmer, Russia’s longest-serving foreign correspondent and the only Western journalist to run his own bureau, independent of individual national or commercial ties. Helmer has also been a political science professor and advisor to the heads of government in Greece, the United States, and Asia. He is the first and only member of the administration of the President of the United States (Jimmy Carter) to settle in Russia. Originally posted on Dances with bears

When Ursula von der Leyenmain image) was nominated in 2019 as Germany’s candidate for head of the European Commission, she was privately described by German politicians from her own party as too stupid and potentially too corrupt to risk inside Germany during the political succession race to replace Angela Merkel with post of chancellor. German military sources say that von der Leyen was the dumbest defense minister in German military memory.

Since the war began in February, von der Leyen did not say a word until November 30, when she announced that Ukrainian military casualties had reached more than 100,000 and more than 20,000 civilian deaths. A few hours later, these numbers were removed from the published entry about her speech. Von der Leyen’s confession implied that more than 300,000 Ukrainians had been wounded in the war, and that military and civilian casualties had already reached half a million. Von der Leyen confirmed Russian assessments and contradicted the propaganda of the Kyiv regime.

In September von der Leyen announced its support for price caps on international trade in export Russian pipeline gas and liquefied natural gas (LNG). She said last month that the European Union was “ready to go” with capping the price of Russian oil exports.

However, the European and Asian trade in gas and oil not only contradicts what von der Leyen claims; this demonstrates that they are cashing in on her public lies. There is new evidence in the gas market that the governments of France, the Netherlands and Belgium are allowing record volumes of imported Russian LNG to be bought and re-exported at a profit to other European states, including Germany. Arbitrage – that is, the profit from buying Russian LNG at a Russian selling price and then reselling it to European consumers at a premium – is so profitable that the Chinese redirect the contracted volumes of Russian LNG to Europe.

Olga Samofalova, energy market analyst Sight reported yesterday on how the markets beat the sanctions.

Source: https://vz.ru/

The following translation is literal, without editing. Added illustrations and URL links.

WHY EUROPE WILL BE SAVED BY RUSSIAN LNG AND NOT AMERICAN LNG

December 1, 2022
Text: Olga Samofalova

While pipeline gas supplies from Russia are under scrutiny, the European Union (EU) is slowly buying up more and more volumes of another Russian gas, ie liquefied natural gas (LNG). According to Bloomberg, the cost of Russian LNG imports in Europe has reached a record level. How did Russia begin to supply more liquefied natural gas to Europe and, most importantly, why do the Europeans themselves see nothing wrong with this?

As you know, Brussels has imposed an embargo on Russian coal; the oil embargo will take effect in a week. A number of countries refused pipeline gas supplies; others let the technical and bureaucratic problems of Nord Stream take their course. They claim that they did not notice the destruction of the Nord Stream gas pipeline or how the current situation did not affect Ukraine so much that it restored the transit volumes of gas through the territory of Ukraine.

At the same time, European spending on Russian LNG imports soared to record levels in 2022, Bloomberg reports. The EU has increased LNG purchases from Russia by around 40% this year. The EU spent a record 12.5 billion euros ($13 billion) on Russian LNG from January to September – five times more than a year earlier. This is a bitter pill for many of the bloc’s countries, which have imposed tough sanctions on the Kremlin to deprive it of funds for its military operations in Ukraine, a Western news agency writes.

Source: https://www.bloomberg.com/

Source: https://www.bloomberg.com/

Growing demand from countries such as France and Belgium has helped Russia become the second LNG supplier to northwestern Europe this year, as ship and port tracking data show. In the first place is Qatar, which traditionally supplies LNG to the European region. The current situation is that NW Europe is receiving significantly more Russian LNG than American LNG, even though it was the US that promised to save the Europeans with its gas after Russian pipeline supplies were cut off.

It must be understood that Belgium, the Netherlands and France accept Russian LNG, but then it is distributed throughout Europe. Of the European countries, only the UK and the Baltic countries have stopped buying Russian LNG.

Russian LNG will continue to flow to Europe, and most European countries are happy to turn a blind eye to this, said Anne-Sophie Corbeau, a research fellow at the Center for Global Energy Policy at Columbia University. Since the EU is faced with a real physical shortage of natural gas, this leads not only to a rise in the cost of the resource, but also to a reduction in the work of industry, and hence their need for fuel.

There are two LNG plants in northwestern Russia. These are Gazprom’s Portovaya and Vysotsky LNG. However, these are small plants; the first one started working just this autumn. Accordingly, we are mainly talking about the supplies of Yamal LNG and Novatek to Europe. Initially, the Yamal LNG plant was counting on deliveries to Asia, primarily to China. And until 2022, the main volumes from Novatek really went there.

Why has the situation changed so much this year?

Firstly, for the first time the European market, and not the Asian one, has become a premium for gas. Until 2022, gas prices in Europe have always been lower than in Asia. Now the opposite is true, so the growth in Russian LNG supplies is explained by an economic or commercial factor, Igor Yushkov, a leading expert of the National Energy Security Fund, an expert at the Financial University under the Government of the Russian Federation, believes. Federation.

The second point is the ice restrictions on Yamal LNG deliveries to Asia. “As soon as navigation along the Northern Sea Route ends, LNG can only be shipped to Europe. But when the Asian premium market was, it often happened in winter that Yamal LNG was shipped to Europe by ice-class tankers, then reloaded onto a regular tanker, and then this LNG cargo went through the Suez Canal to Asia, ”explains Yushkov. . But this year, all free LNG from the market is being utilized not by China, but by Europe.

“Therefore, even in the summer, when Novatek Yamal was able to supply LNG to the east via the Northern Sea Route, the main volumes still went to the European market for economic reasons,” Yushkov adds.

The third reason is the overall increase in the capacity of the Yamal LNG plant, where all four trains are operating at full capacity this year. The design capacity is about 16.5 million tons, but much more will be produced by the end of the year – about 20 million tons.

It is noteworthy that almost 16 million tons have been contracted and delivered under long-term contracts to customers. But the gas that the plant produces in excess of these volumes is non-contractual and goes to the spot market. Leonid Mikhelson, the owner of Yamal LNG, said that the company is now earning on these surpluses, which amount to about 4 million tons, more than on the contract sale of all the remaining 16 million tons.

This is easily explained. The contracts were signed when LNG prices were significantly lower than they are now. Buyers of Russian LNG under these contracts are in a very favorable position for themselves. But Novatek is already selling “surplus” at spot prices – and they are many times more expensive.

Source: https://www.bloomberg.com/

“Even the Chinese company CNPC, which has a contract with Novatek, sells some of this LNG on the European market, acting as a trader,” says Yushkov. The point is that it is profitable for a Chinese company to resell LNG to Europeans and get a profitable margin on the difference between the purchase price (which is written in the contract) and the spot price at which Europeans buy.

Gas consumption in China has declined, firstly, due to ongoing quarantine measures this year. Secondly, because of the growth in coal consumption against the backdrop of the European environmental agenda going into the shadows. China has increased its own coal production and increased coal imports from Russia at attractive prices.

Thus, the growth in Russian LNG supplies to Europe is explained by economic factors. And so the EU is slowly increasing its purchases and does not consider this a problem, while in European political circles there is constant chatter about pipeline gas from Russia and the need to get rid of it.

According to Bloomberg, the share of Russian pipeline gas in the region has decreased from 30% in 2021 to 10% in 2022. On the contrary, the share of LNG in Russian deliveries to Europe is now close to half.

“Europeans do not perceive LNG as a national gas. They do not have such a negative attitude towards LNG as towards pipeline gas. Perhaps this is all because of the demonization of Gazprom, which has been evident for more than a year. This is because pipeline gas has always come from Russia and from Gazprom until now,” says Yushkov. And LNG was initially perceived as a gas that would save everyone from Russian gas. First, the United States actively advertised its LNG as a salvation for Europe. In other words, in the European perception, everything depends on effective PR and the right headlines in the media, which help to form the socio-political line between “good gas” and “bad gas”.

Source: https://ycharts.com/
Bloomberg has been reporting the surge in Chinese “discount” buying of Russian LNG.

At the same time, Yushkov notes that, in principle, the Europeans have not abandoned Russian gas, with the exception of a few countries. And this despite the fact that European politicians talked about reducing the share of Russian gas, and in a few years even about abandoning it altogether. However, problems arose with the impossibility of delivering this gas through pipelines. The reasons for this, as you understand, are well known and very different.

The Yamal-Europe gas pipeline was closed by the Poles in connection with the nationalization of Gazprom’s stake in the pipe operator. Ukraine refused to accept gas through the Sohranivka PS, so only Sudzha has it. remained.

According to the contract, 109 million cubic meters per day should pass through Ukraine, but for now the flow is two and a half times less – 42 million cubic meters. The flow to Germany via Nord Stream 1 gradually stopped by September due to sanctions problems with turbines. The flow of Nord Stream 2 was stopped due to the suspension of certification, and then both of these gas pipelines were blown up – in seemingly safe European waters, right in front of NATO forces. Europe would be happy to buy Russian gas through pipelines, but there is no way, Yushkov said. The channels were completely disabled.

Printable, PDF and Email