Daily on Energy: How Russia’s war has reshaped the global energy landscape
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Supply shortages, price hikes and security: Russia’s war in Ukraine has fundamentally reshaped the global energy landscape as we know it. In the nearly 10 months since the invasion, countries have faced abrupt supply shortages, soaring energy costs, and security issues that threaten supply disruption or blackouts for millions of people around the world.
Here are some of the major energy impacts caused by Russia’s war:
1) Europe’s scramble for fossil fuels:
The EU has long been dependent on Russia for the majority of its fossil fuel imports, including crude oil, natural gas (both piped and LNG), and solid fossil fuels—placing it in a uniquely vulnerable position following Russia’s invasion of Ukraine.
The EU announced eight rounds of sanctions against Russia in response to the war, including measures directly targeting its energy sector, and Russia retaliated by steadily throttling its natural gas shipments to the EU over the summer.
Sanctions and retaliations have fractured energy trade between the two, requiring Europe to turn elsewhere. The EU has ramped up its imports of non-Russian LNG by at least 65{6d6906d986cb38e604952ede6d65f3d49470e23f1a526661621333fa74363c48} since the start of the war, in an effort to fill its gas storage tanks and avert an energy crisis this winter.
The bloc is currently in a stronger-than-expected storage position thanks to a mild autumn and lower demand from China.
Still, concerns loom large for the year ahead. The IEA warned that conditions that cushioned the EU this year will not be replicated in 2023, due to a potential full cessation of Russian piped gas and a recovery of Chinese LNG imports, which could threaten as much as half the supply needed to fill its storage sites before the 2023-2024 heating season.
2) Resurgence of nuclear energy: Some countries have extended the lives of nuclear reactors or reversed their positions on the technology due to tightening supplies of energy.
EU member states have warmed towards the idea of nuclear power as they scramble to offset Russian fossil fuels.
Germany, which had long been among the most prominent anti-nuclear voices in the EU, had perhaps the most high-profile shift: In recent months, leaders were forced to walk back their nuclear phaseout plan, which had the country on track to shut down all of its nuclear plants by the end of 2022, and instead move to extend the lifespan of its three remaining reactors. (Members of the Bundestag voted to do so earlier this month on the condition it was temporary.)
Belgium announced plans to extend the lifespan of two reactors by 10 years due to Russia’s invasion.
And Japan has embraced nuclear power, in a major energy policy pivot following the 2011 Fukushima disaster. In August, Japanese Prime Minister Fumio Kishida announced plans to restart 17 of its 33 operable nuclear power plants, and weigh the construction of new facilities—a decision he attributed largely to the energy crisis caused by Russia’s war.
Japan, which imports 94{6d6906d986cb38e604952ede6d65f3d49470e23f1a526661621333fa74363c48} of its energy supplies and relies on Russia for 9{6d6906d986cb38e604952ede6d65f3d49470e23f1a526661621333fa74363c48} of its natural gas, has been especially hit by the price hikes caused by Russia’s war.
3) New England’s home heating oil inventory in crisis: The war has also exacerbated a home heating oil supply crisis in the Northeast, the densest-populated corner of the U.S. that relies most heavily on the fuel for winter heating, including supplies once sent from Russia.
U.S. residents who use home heating oil are poised to spend an average of $2,354 to heat their homes this winter—a 27{6d6906d986cb38e604952ede6d65f3d49470e23f1a526661621333fa74363c48} increase from the previous winter, and the highest price point in more than 25 years.
Russia’s war has been a major factor in the crisis. In March, the Biden administration announced a ban on Russian petroleum imports. The U.S. imported an average of 700,000 barrels of petroleum from Russia each day in 2021, and of those imports, most were shipped directly as refined petroleum products, such as heating oil—causing a significant supply shortage when they dropped to zero in March.
Since New England’s lack of pipeline infrastructure prevent it from receiving supply from other parts of the U.S., it will likely have to compete on the international market for costly imported supplies.
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TREASURY GIVES GUIDANCE TO INDUSTRY ON PRICE CAP COMPLIANCE: The Treasury Department issued new preliminary guidance yesterday to help guide industries and service providers in the United States as they prepare for the implementation of a Russian oil price cap slated to take effect next month, Breanne reports.
Treasury clarified that U.S. businesses can provide certain services related to the maritime transport of Russian oil, such as trading, brokering, financing, and shipping insurance, so long as the oil is purchased at or below the capped price.
The department also introduced a “safe harbor” provision making clear that U.S. service providers who comply in good faith with the oil price cap guidance do not face penalties.
Going forward, Russia “will have two options,” Treasury officials told reporters: It can either sell the oil underneath the price cap and use Western services, or Russia can find alternative buyers.
CONOCOPHILLIPS TO BUY SUPPLY AND EQUITY IN TEXAS LNG PROJECT: Sempra Infrastructure, the operator behind the FERC-approved Port Arthur LNG project, and ConocoPhillips announced a 20-year agreement for liquefied natural gas at the pending Texas terminal.
The sale and purchase agreement provides for 5 million metric tons, or about 243.5 billion cubic feet, per year from Phase 1 of the two-phase project.
ConocoPhillips will also acquire 30{6d6906d986cb38e604952ede6d65f3d49470e23f1a526661621333fa74363c48} of the equity in Phase 1 of the project, and Conoco will manage feedgas supply to the liquefaction terminal.
Port Arthur is one among more than a dozen approved yet incomplete LNG export terminals. Commissioners just unanimously approved the Commonwealth LNG project planned for Louisiana last week, giving the sector even more capacity to supply global customers.
At least two new LNG terminals are currently under construction, including Venture Global’s facility at Calcasieu Pass. The terminal is expected to be operational in the third quarter of next year.
LABOR REVERSES TRUMP-ERA RULES ON ESG IN RETIREMENT PLANS: The Labor Department cleared the path for employers to consider environmental, social, and governance principles when choosing investment funds for their 401(k) plans, the Washington Examiner’s Zach Halaschak reports.
The department announced its roll-back of restrictions put in place during the Trump administration that made ESG considerations more challenging for employers.
Trump-era restrictions “unnecessarily restrained” plan fiduciaries’ ability to weigh ESG factors when picking investments, even when those factors would benefit plan participants financially, the Labor Department said. Its final rule on the matter will take effect in 60 days.
“Today’s rule clarifies that retirement plan fiduciaries can take into account the potential financial benefits of investing in companies committed to positive environmental, social, and governance actions as they help plan participants make the most of their retirement benefits,” said Labor Secretary Marty Walsh.
The Biden administration is crafting multiple rules to orient the financial sector toward ESG-driven investing, where it is already the default at major institutions under pressure to help facilitate a transition away from fossil fuels.
Whereas some blue states are pushing the sector to be even more aggressive in firms’ emissions reduction goals, Republican state officials are campaigning hard against ESG, investigating and punishing banks and fund managers via divestment for embracing it.
NEW YORK TO IMPLEMENT FIRST CRYPTO MINING BAN: New York is set to implement the United States’ first ban on crypto mining in an attempt to cut back on the digital currency’s effects on the environment, the Washington Examiner’s Chris Hutton reports.
Gov. Kathy Hochul signed a two-year moratorium yesterday that will temporarily pause new permits for power plants that house the hardware to “mine” cryptocurrency. The state legislature passed the moratorium over the summer as part of the larger Climate Leadership and Community Protection Act.
The legislation also directs the state’s Department of Environmental Conservation to carry out a study to determine the specific effects of crypto mining on the environment.
Crypto mining requires immense amounts of energy, subjecting the industry to scrutiny about its environmental impact. The White House, like the New York effort, recently charged the Energy Department and EPA with tracking how digital assets impact the environment and considering development of performance standards for operators.
2022 ENERGY PRODUCTION OUTPACING PAST YEARS ACROSS SOURCES: Total U.S. energy production through the first eight months of the year is up across a range of source categories, according to new estimates the Energy Information Administration published yesterday.
Primary energy production from coal, oil, and natural gas through the month of August all exceed production over the same periods in 2020 and 2021. Production from wind and solar are also up relative to the previous two years.
The numbers reflect the rebound in fossil energy demand and production from the COVID-19 pandemic lows, as well as the increase in renewable generation capacity. EIA pegs total domestic petroleum production around 12.1 million barrels per day currently, up by around 700,000 bpd compared to the same week last year.
The Rundown
Euractiv Unease grows as EU green policies take the fast lane
Wall Street Journal Looming oil-supply shock launches debate in OPEC
Calendar
Enjoy your Thanksgiving holiday, readers. Daily on Energy will be back on schedule Monday, Nov. 28.