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"The West Is Suffering The Consequences Of Poor Energy Decisions" ...and... "Praise the EU gas replacement plan: Part 3" by Irina Slav

Tom Nolan in Oil (General)

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  • The EU has doubled down on becoming the world’s first net-zero region.
  • The West hasn’t done enough to secure crucial supply chains to provide raw materials for their energy transition plans.
  • Import dependency has made Western economies more vulnerable.

https://oilprice.com/Energy/Energy-General/The-West-Is-Suffering-The-Consequences-Of-Poor-Energy-Decisions.html

The West Is Suffering The Consequences Of Poor Energy Decisions

By Irina Slav - Apr 10, 2022, 6:00 PM CDT
  • The EU has doubled down on becoming the world’s first net-zero region.
  • The West hasn’t done enough to secure crucial supply chains to provide raw materials for their energy transition plans.
  • Import dependency has made Western economies more vulnerable.

There has been an unspoken assumption that the West knows what it’s doing because it has been doing it longer than the East. Almost all developed economies are in Western Europe and North America. Yet recently, the tables have turned in one vital respect: energy policy. During the last few years, the EU has doubled down on its ambition to become the world’s first net-zero region. It has built up massive amounts of renewable energy, has slated huge investments in green hydrogen, and has been adopting policy after policy to discourage the consumption of fossil fuels.

In the U.S., the big push into renewables started two years ago as President Joe Biden took office. The transition from a fossil fuel-based economy to one based on and fueled by renewable energy was a central tenet in his campaign, and he got to work from day one, banning the Keystone XL pipeline from Canada and soon after temporarily banning oil and gas drilling on federal lands.

Meanwhile, far, far, away in the East, OPEC+ was formed to include two of the world’s largest oil producers—Russia and Saudi Arabia—as well as the Central Asian oil producers from the former Soviet Union, including Kazakhstan and Azerbaijan. The expanded cartel hasn’t always seen eye to eye, and just before the pandemic really blew up, the Russians and the Saudis engaged in a brief price war. Yet since then, OPEC+ has worked like a well-oiled machine.

The EU, the UK, and the United States have raced to install more wind turbines, more solar panels, and more storage, and carmakers, almost all based in either Europe or the U.S., have equally raced to commit tens of billions of dollars to the electrification of transport. Those races are both based on the Paris Agreement and the goal of reducing the rise in global average temperatures by 1.5 or 2 degrees Celsius from pre-industrial levels.

Related: JP Morgan: Commodities Could Surge By Another 40%
While the West has been busy with that, OPEC+, headed by Russia and Saudi Arabia, has been pumping as much oil as it has seen fit at any given moment. In addition to that, Russia has kept its metals and uranium industry going and has continued to forge closer ties with the Far East, with a focus on China. Saudi Arabia, meanwhile, has staked a claim in the mining world and has allocated tens of billions on renewable energy and smart tech investment.

What this means, basically, is while the West has enthusiastically focused on the final section of the energy supply chain—the wind turbines, the panels, and the EVs—the East, in the face of Russia and Saudi Arabia, has focused on the start and the middle of the process, on the raw materials without which no energy transition would be possible. While doing that, they have also continued what they have done for decades: supply the world, including transition-happy economies, with fossil fuels.

Right now, the West is discovering how important the raw materials part is for the energy industry as a whole. U.S. shale drillers cannot boost production as fast as the Biden administration would like because it has been plagued by shortages. The EU is struggling under a growing electricity cost burden because renewables have under-delivered while the EU has been trying to reduce its consumption of fossil fuels. Now, this consumption is on the rise, but it’s also a lot more expensive than it was because of the tight supply. Ironically, emissions are also on the rise. Related: Outlook For China Oil Demand Darkens

The Biden administration wants to bring in more Canadian oil into the U.S., but the Keystone XL pipeline that could’ve done that has been killed by that very same administration. The administration also wants more local critical mineral production but appears to not want the mines that would be necessary to do that. What it doesn’t want, apparently, is Russian oil and fuels amid the Ukraine war, but it will only suspend these imports beginning on April 22, so it can stock up before that.

In Europe, politicians have been equally active in punishing Russia for Ukraine with, so far, five rounds of sanctions that many have joked have hurt the EU more than they have hurt Russia. There is some truth in these jokes: EU energy prices have skyrocketed and stayed in the sky, industries are warning they might have to close if the EU sanctions Russian gas or if Russia decides to turn the tap off in retaliation, and people are beginning to protest.

Even so, Brussels officials are talking about oil and gas sanctions, and they just this week voted for a ban on Russian coal imports... to take effect in August. That last part is a sliver of common sense. Russia supplies 45 percent of Europe’s thermal coal, used for electricity and heat generation. The EU is now scrambling to find a replacement, while the world’s biggest coal exporter Indonesia is hiking its prices massively and Australia, another coal giant, is warning it will not have enough for Europe.

The West is beginning its painful awakening to one very simple fact. This fact is that whoever controls the raw materials controls everything. And if those who control the raw materials play their cards right, they are likely to remain in control while the consumers of these raw materials deepen their dependence on these external suppliers.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:

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https://irinaslav.substack.com/p/praise-the-eu-gas-replacement-plan?s=r

Praise the EU gas replacement plan: Part 3

Irina Slav  

April 8th

In the time-honoured tradition of saving the best for last, in the third part of my praise for the EU plan to replace Russian gas, we’ll be looking at things like energy conservation, efficiency, nuclear power, and oil and coal.

As per the Die Welt article covered by Worldcrunch, the EU gas plan envisages the complete replacement of 155 billion cu m of Russian natural gas annually. Of this total, 63 billion cu m should come from switching to LNG, pipeline gas from other sources and boosting output from the Groningen field in the Netherlands. I’ve discussed the feasibility of this in Part 1 here.

Another 26 billion cu m will be replaced with wind, solar, and biogas per the plan. The chances of that happening I’ve detailed in Part 2 here. Now on to lowering thermostats, retrofitting buildings and using oxygen instead of gas in industrial processes.

6. 10 billion cu m from energy conservation

One of the brainchildren of Commissioner Thierry Breton is the suggestion of Europeans lowering the thermostat by 1-2 degrees Celsius, which, according to him, would save around 10 billion cu m of Russian gas. Perhaps while doing that and putting on an extra sweater, Europeans could follow EC vice-president Vestager advice to say “Take that, Putin!” because, you know, that would really hurt the Russian president and it’s also a very mature thing to do.

If the suggestion of turning the thermostat down sounds familiar that’s because it seems to be a really popular measure these days. UK experts recommended it as a way for households to save on their electricity bills. It was in a bouquet of other sensible advice such as hugging a pet and leaving the oven door open after the cooking is done.

International Energy Agency recommended it last month and it was even more generous with the effects on consumption than Breton. According to the IEA, turning the thermostat down by 2 degrees would save as much as 20 billion cu m of Russian gas. Germany’s economy minister added a melodramatic note to the Thermostat Song with the assertion that "Every kilowatt-hour counts.”

The population of the European Union is 447.7 million. Let’s divide this by four to get a very, very average household. That makes 112 million households. The Breton plan seems to expect that 112 million households might be willing to act in concert in order to… use less gas because the EU doesn’t like the supplier of this gas.

There are many in Europe who also don’t like the supplier. Maybe they will turn their thermostats down. There are those who like the supplier and they have been posting pictures online of turning on all gas burners at once in support for Russia (which is just as mature as Vestager’s shower advice).

And then there is what I suspect is the overwhelming majority that cares a lot less about politics and foreign crises than it cares about its own physical, material wellbeing. That majority will only heed the thermostat recommendation if forced to do so. We might reasonably expect energy conservation mandates.

7. 4 billion cu m from “energy-efficient refurbishment”

Proper building insulation is crucial for energy conservation. It is also a costly affair, if done properly. Governments provide grants for energy-efficient renovations already but things must be moving slowly if Breton is calculating savings of gas from yet-to-be-done renovations.

Here’s an interesting article about just how slowly the renovations are going. In June last year, the EU’s energy ministers agreed to work to double the rate of energy renovations going on in the union by 2030. According to the Euractive article, the ministers emphasised “the need to at least double energy-related renovation rates by 2030 and to promote deep energy renovations.”

Since the Die Welt article lacks any timeline about the renovations I had to assume that the aim is to have as many buildings renovated within the year because this is the timeline for completely replacing Russian gas. I could only wish renovation planners good luck and deep pockets. Higher demand drives higher prices, after all. It’s valid for both natural gas and renovation services (and materials). But what’s one more drain on EU finances if it’s for the common good, right?

8. 12 billion cu m from nuclear power

This is a another interesting part of the plan in that it can be seen as either ironic or amusing, depending on your mood. I find it amusing and one more piece of evidence that when push comes to shove, ideology flies out of the window.

Per Breton’s plan, the EU can save 12 billion cu m in Russian gas consumption by extending the life of three German and two Belgian plants previously slated for retirement. The question is whether the German government would succeed in convincing the very strong anti-nuclear lobby of the usefulness of such a move.

So far, the chances are not looking good. A month ago, the government suggested extending the life of the three facilities in light of the Russian invasion of the Ukraine. Almost immediately after that, the ministries of the economy and the environment dropped the plan.

"As a result of weighing up the benefits and risks, an extension of the operating lives of the three remaining nuclear power plants is not recommended, also in view of the current gas crisis," they said in a joint statement cited by Reuters.

Of course, a month is a long time in energy crises and there may be a change of heart. But it’s definitely not something the EU can count on as guaranteed. These 12 billion cu m, therefore, can only hypothetically be replaced by extending the life of nuclear power plants. Of course, a lot of the Breton suggestions are purely hypothetical but the degree of hypotheticity is especially obvious in nuclear. On the flip side, keeping the two Belgian NPPs open will save some gas.

9. 20 billion cu m from switch to coal

Let me expand that because it pleases me greatly: Commissioner Breton proposes reducing the EU’s dependence on Russian natural gas (the least polluting fossil fuel) by increasing its consumption of coal (the most polluting fossil fuel). I doubt even the most genius satire author could come up with such an idea. It takes a Brussels bureaucrat to do it. And it takes a few more bureaucrats to vote for banning imports of Russian coal soon after the floating of this idea.

Russian coal accounts for 45 percent of the EU’s total coal imports. But it accounts for 70 percent of thermal coal imports and thermal coal is the sort used for electricity and heating generation. I’m sorry but I need to expand on that, too.

In its effort to punish Russia for the Ukraine, the EU is willing to deprive itself of more than two-thirds of the coal it uses to make power and heat, only to “cut another important revenue source for Russia,” amounting to some $4 billion annually, in the meantime having to pay a lot more than that for alternative coal supplies.

This from the news of the last couple of days: Indonesia hikes April coal price 42% on Russia coal ban. Indonesia, Australia face limits in coal exports to Europe ahead of Russian ban. In other words, the EU will not only be paying through the nose for increasingly scarce coal because of emissions and lower investments in production. It will be paying through the nose for coal and it will still not be able to secure enough to replace lost Russian cargos. In this context, Breton’s idea of 20 billion cu m in savings becomes not so much far-fetched as an ironic fantasy.

10. 10 billion cu m from switch to heavy fuel oil

By this point, nothing should come as a surprise, now that we’ve got coal named as a desirable alternative to Russian gas. So it is no surprise that Breton is also suggesting replacing natural gas with heavy fuel oil, which, incidentally, is among the most polluting fractions. But needs must so heavy fuel oil it is. Guess who’s the biggest supplier of oil and oil products, including heavy fuel oil, to Europe. Separately, guess who’s talking about an oil and gas embargo on Russia. You won’t need to guess who voted for a complete fossil fuel embargo on Russia.

In the meantime, the EU is still very much determined to keep reducing its emissions, in what I can only assume is a case of unusually severe cognitive dissonance. The bulk of Russian gas replacements will come from other fossil fuels. This is enough to enrage any environmentalist worth their salt. And environmentalists are bound to speak up as global emissions last year hit the highest ever despite all the green efforts of European governments.

11. 3 billion cu m from switch from gas to oxygen

Oxygen has multiple industrial uses in processes such as welding, cutting, and oxidation (this from Google. I had a C in Chemistry in high school.). Apparently, it can also replace natural gas in some other industrial processes, which was news to me but not to the EU. Or can it?

“Burning more oxygen instead of natural gas could save three billion cubic meters of gas by the end of 2022, especially in the steel and metal industries and in the production of mineral wool and glass,” the Breton plan says and since I couldn’t readily find any useful information, I turned to my chemistry professor friend for help.

I sent the above sentence to him, with a link to the full article, and asked for his comments. Here’s what he wrote back.

“This sentence makes no sense or is incomplete, which makes it inaccurate. Oxygen does not burn. Take part in the process of burning as an oxydising agent Burning is a process of oxidation, during which organic compounds, such as methane, turn into water and carbon dioxide under the influence of oxygen. Oxygen is not a fuel. I have no idea what they meant.”

I think this is a good place to put a full stop to my praise of the EU’s gas replacement plan.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Praise the EU's gas replacement plan: Part 2

https://irinaslav.substack.com/p/praise-the-eus-gas-replacement-plan-b2a?s=r

Praise the EU's gas replacement plan: Part 1

https://irinaslav.substack.com/p/praise-the-eus-gas-replacement-plan?s=r

...and a BONUS....

Beware incompetents in power

https://irinaslav.substack.com/p/beware-incompetents-in-power?s=r

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https://oilprice.com/Energy/Energy-General/Environmentalists-Are-Crushing-Europes-Energy-Independence-Ambitions.html

Environmentalists Are Crushing Europe’s Energy Independence Ambitions

By ZeroHedge - Apr 10, 2022, 12:00 PM CDT

  • Europe is racing to reduce its dependence on fossil fuels, but its politics may be holding the transition back.
  • Bans on nuclear energy and natural gas development are hindering Europe’s ability to become energy independent.
  • As the region grapples with soaring energy costs, it is becoming increasingly clear that what they are doing isn’t working, and a change in strategy may be in order.

Europe is not going to achieve a competitive energy transition with the current interventionist policies. Europe does not depend on Russian gas due to a coincidence, but because of a chain of mistaken policies: banning nuclear in Germany, prohibiting the development of domestic natural gas resources throughout the European Union, added to a massive and expensive renewable rollout without building a reliable backup. Solar and wind do not reduce dependency on Russian natural gas. They are necessary but volatile and intermittent. They need backup from nuclear, hydro, and natural gas for the security of the energy supply. Dependency on these backup sources rises in periods of low wind and little sun, just when prices are highest.

“Solar goes to zero for twelve hours a day, and that is guaranteed. The wind blows sometimes, and sometimes it does not, also guaranteed. They both depend on weather, which is 100% out of human control. They are on their best day a supplement,” wrote a Navy pilot follower.

Batteries are not an option, either. It is impossible to build an industrial-size network of enormous batteries; the cost would be prohibitive and the dependency on China (for lithium, etc.) to build them would be even more of a problem. At current prices, a battery energy storage system of Europe’s size would cost more than $2.5 trillion, according to an MIT Technology Review paper, massively more expensive than any other alternative.

Related: Russia’s War Highlights The Dangers Of Resource-Dependence

The added cost of a battery grid plus the distribution and transmission network would make household bills soar even further.

Inflation was already out of control in Europe before the invasion of Ukraine was even a risk. Consumer price inflation in Spain was 7.6 percent, in Portugal it was 4.2 percent, and in Germany, 5.1 percent. Euro area consumer price inflation was 5.8 percent.

In the face of the impact on prices and energy from the invasion of Ukraine, we must remember:

  • Europe was already in an energy crisis in 2020 and 2021, with the cost of CO2 permits soaring and wholesale electricity prices reaching record-high levels by December 2021.
  • Europe does not “depend on Russian gas.” It is codependency. Russia needs Europe to export, and Europe has no cheaper alternative. Let us remember that Russian gas is much cheaper than any other realistic alternative.
  • The long-term contracts signed with Gazprom are closed at prices that can be up to ten times lower than some of the current alternatives. The 150 billion cubic meters that Europe imports from Russia can be replaced with liquefied natural gas from Norway and the North Sea, the United States, Algeria, Qatar, or Israel, but it will be much more expensive.
  • The only alternative to Russia is to show that European countries have diverse and cheap sources of supply. If Russia sees that European governments ban nuclear power, prohibit the development of indigenous gas reserves, intervene in imports, and add massive CO2 taxes, Russian authorities will know that there is no competitive alternative and that European industry and consumers will collapse due to the rising cost of energy
  • European governments should think hard about misguided policies when the continent has been saved this winter by natural gas imported from the United States produced with fracking, a technology that has been banned in Europe.
  • Europe wants cheap and abundant energy, but politicians demonize nuclear, gas, and oil. All the interventionist proposals that are put forward by European politicians entail a higher cost for long-suffering consumers.
  • Natural gas flows all the time and is cheap and abundant. It cannot be substituted with renewables that are intermittent, volatile, and unpredictable. The example of Germany is clear. After investing massively in renewables and doubling bills for consumers, it depends more on lignite coal and Russian gas to guarantee supply. Germany has had to reactivate coal plants after spending more than $200 billion on subsidies and renewables!
  • All technologies are necessary, and renewables are key, but they are not the alternative because they need natural gas backup while the technology is developed, as it is still in its infancy. Let’s not forget that installing renewables involves a huge cost to networks. Who will lower bills if the fixed cost of networks is increased by the $150 billion we estimate is needed to strengthen distribution and transmission networks?
  • All the "magical" alternatives that interventionism sells mean going from depending on Russia to depending on China. Where are we going to get the silicon, aluminum, rare-earths, copper, lithium, etc. necessary for those massive magical investments announced?
  • Demonizing nuclear energy has left Europe in the hands of expensive and volatile alternatives. The energy transition must be considered with an understanding of the importance of security of supply and competitiveness. We need all technologies, without ideological bias. We need solar, wind, natural gas, hydro, oil, and nuclear, or we will go from crisis to crisis, and always pay more.
  • It is absurd to maintain the hidden tax scheme for CO2 emissions during an unprecedented crisis. Governments must use this income to reduce citizens’ bills.
  • Border taxes on oil products and natural gas are not taxing producers; they are taxing consumers in European countries. Whoever believes that the taxes that have been announced will be paid by Qatar, Nigeria, or Brazil has a serious problem of economic understanding.

A true energy transition must be competitive, reliable, and cheap, not a tax-collection and looting machine. It must consider all technologies. More industry and fewer politics. More competition and less ideology.

By Zerohedge.com

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