Daily on Energy: European energy problems give Russia an advantage

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PUTIN GAINS ADVANTAGE FROM EUROPE’S ENERGY TROUBLES: Just a mere tease from Russian President Vladimir Putin this week that the Kremlin is thinking about “a possible increase” of natural gas supply to the desperate European market sent prices down sharply this week in a matter of minutes, providing some relief to the continent suffering an energy crisis.

Russia, the top exporter of gas to import-dependent Europe, has not been shipping as much as would be expected with such high prices, with state-run Gazprom refusing to increase its shipments beyond its long-term contractual commitments.

Whether Russia is unable or unwilling to do so has been a hot debate among analysts, with critics maintaining Putin is manipulating the flow of gas to try to pressure Germany and the European Union to certify the controversial Nord Stream 2 natural gas pipeline, which is slated to be operational this year after the U.S. recently dropped sanctions against it.

As gas prices soared, the Kremlin made a point of saying Nord Stream 2 approval would ease the gas price crunch.

“Europe’s current gas crisis dramatizes the huge geopolitical and climate costs of its over reliance on Russian gas,” said Paul Bledsoe, strategic advisor with the Progressive Policy Institute. Bledsoe told me the U.S. and EU should work together to shift Europe towards greater imports of lower-methane U.S. gas, although liquefaction terminals are already operating at full capacity.

No matter their motives, Russia appears to be in a “strong position to dictate terms to a European market desperate to find more natural gas supplies,” as Jason Bordoff, director of Columbia University’s Center on Global Energy Policy, noted in a recent op-ed.

Possible downside for Russia: Nikos Tsafos, who studies the geopolitics of energy and natural gas at the Center for Strategic & International Studies, argues Russia’s role in Europe’s energy crisis is overstated.

Russia does not want very high prices, he said, while Gazprom’s capacity to deliver gas to Europe via pipeline is high enough already without needing Nord Stream 2.

“I don’t buy this idea that Russia is weaponizing Nord Stream 2,” Tsafos told me. “Whatever market power you think Russia will have with Nord Stream 2 it already has.”

If Russia is deliberately withholding extra natural gas, it would backfire. Higher natural gas prices could strengthen the case for a rapid shift to cleaner energy sources to lessen dependence on fossil fuels.

“No one is coming out of this crisis thinking gas is a great fuel to be relied on,” Tsafos said. “That’s not what these prices are telling anyone.”

Pressure on Europe: Anna Mikulska, a nonresident fellow in energy studies for the Center for Energy Studies at Rice University’s Baker Institute for Public Policy, said Europe needs to “better prepare” against seasonal shortages of natural gas in order to reduce dependence on Russia.

“Whether it’s market conditions or Russia’s unwillingness or inability to send gas to Europe, Europe should be prepared for that,” Mikulska told me.

European countries appear to be realizing they need to do more.

Five of them, led by France and Spain issued a joint statement this week pushing for the EU to create a “toolkit to coordinate national responses to immediately react to dramatic price surges,” including potentially setting common guidelines on how much gas needs to be kept in storage, and reforms to the wholesale electricity market to better compensate energy resources based on their ability to perform at periods of peak stress.

“The reality is Europe doesn’t have good answers to make sure that the pantry is full in the beginning of each winter,” Tsafos said. “We just hope it happens.”

Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writer Josh Siegel (@SiegelScribe). Email [email protected] for tips, suggestions, calendar items, and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn’t work, shoot us an email, and we’ll add you to our list.

RISK OF NATURAL GAS PRICE SHOCK TO US CUSTOMERS: Natural gas prices in the United States, spiking to their highest level in over a decade, remain a fraction of the surge seen in Europe.

But the prospect of further price increases translating to higher utility bills this winter, when demand is highest, could shock U.S. homes and businesses that grew accustomed to a long period of low natural gas prices thanks to the shale boom, as I report for a story in our latest magazine.

The issue of high energy prices more broadly has drawn the attention of the Biden administration, which fears political damage ahead of next year’s midterm elections and a backlash against its agenda to move the economy off fossil fuels.

“While natural gas prices are not as visible to consumers as retail pump gasoline prices, any persistent spike will hit consumers already grappling with broadly rising prices,” said Bob McNally of Rapidan Energy, a former top energy official in the George W. Bush administration. “That we are in much better shape than Europe won’t be of much solace to the Biden administration if this winter is cold.”

Eye on shale response: One key factor on whether prices keep rising here is whether gun-shy shale producers hold back or step off the sidelines.

U.S. natural gas producers are reluctant to drill more because they face growing pressure from Wall Street to demonstrate capital discipline. In addition, investors have soured on fossil fuels in response to public pressure to address climate change.

“If you are saying, ‘I guess we are going to have low prices forever because we have all these molecules in the U.S.,’ that is part of the story, but without investment, that’s not going to be true,” said Kevin Book, managing director of ClearView Energy Partners.

McNally told me producers are wary of previous spending sprees during price spikes that left them burdened with debt.

“Producers won’t want to inadvertently oversupply the market, which has been in a glut in recent years,” McNally said. “They know from hard and recent experience gas prices can fall as fast as they rise.”

COAL PRICES SOAR, BUT INDUSTRY TOO BATTERED TO CAPITALIZE: The price of coal has exploded this year as worldwide demand has surged, but mining operations in the U.S. are struggling to keep up, the Washington Examiner’s Zachary Halaschak reports.

Several factors are driving up the price of coal, including supply-chain disruptions, burgeoning post-pandemic demand, and high natural gas prices.

Traditionally, higher natural gas prices and demand have prompted gas-to-coal switching by utility companies as a circuit breaker.

That’s not happening as much now:  “We believe the situation is different today. Mining and generating capacity dropped by 40% over the past six years,” said B. Riley Securities analyst Lucas Pipes. He added that any price relief would come from international rather than domestic markets.

A big factor limiting U.S. mines’ ability to meet the demand for coal is a shortage of miners and workers. In addition, the transition to cleaner energy sources has intensified, especially hurting coal capacity.

MONUMENTAL POWER: President Joe Biden will restore land to national monuments in Utah and off the New England coast that the Trump administration cut, the Washington Examiner’s Virginia Aabram reports.

Former President Donald Trump had shrunk the size of the Bears Ears and Grand Staircase-Escalante national monuments in Utah, allowing private citizens and companies to make new oil, natural gas, and drilling claims.

Trump cut Bears Ears by more than 1.1 million acres, or 85%, creating two smaller monuments instead. Former President Barack Obama created the 1.35-acre Bears Ears National Monument just before he left office.

Trump also slashed the 1.9-million-acre Grand Staircase-Escalante monument, designated by President Bill Clinton in 1996, nearly in half.

The two monuments are sacred to local Native American tribes and contain archaeological remains like rock paintings that date back 13,000 years. Designation as a monument protects the land from development.

Biden is also restoring protections to Northeast Canyons and Seamounts, the Atlantic Ocean’s first marine monument that Trump shrunk.

Biden is delivering remarks this afternoon on restoring protections for the monuments, which the administration says will ”better conserve and restore lands and waters that sustain the health of our communities, tackle the climate crisis, and power good jobs and a strong economy.”

Utah’s all-Republican congressional delegation, led by Sen. Mitt Romney, criticized Biden’s moves as exacerbating overuse of presidential power and “squandering the opportunity to build consensus by working with stakeholders to find a permanent, legislative solution.”

GOOGLE CUTS OFF CLIMATE SKEPTICISM: Google and YouTube announced yesterday that they would prohibit ads on and any monetization of content that contradicts the scientific consensus on climate change, the Washington Examiner’s Nihal Krishan reports.

The move will affect anyone who wants to host content or put up an advertisement on Google or YouTube that refers to climate change as a “hoax or a scam” or denies that human activity contributes to climate change.

The new policy will be implemented next month using a combination of automated computer tools and human review.

Social media companies have been under pressure for years to play a greater role in addressing climate change by not allowing climate skeptics to spread their messages on their platforms. Now that Google has acted, pressure will increase on Facebook.

SOUTH KOREA BOOSTS EMISSIONS PLEDGE: South Korea is dramatically increasing its greenhouse gas reduction goal from 26% to 40% by 2030, and plans to formally submit its stronger nationally determined contribution, or NDC, as part of the Paris Agreement.

The move delivers on a promise made by President Moon Jae-in at Biden’s climate summit in April, and adds more momentum ahead of a critical U.N. conference in Glasgow beginning Oct. 31.

This year, South Korea has already moved to end all public financing for overseas coal-fired power plants, stopped issuing permits for new domestic coal plants, and boosted production of wind and solar power.

US’ NEXT EXPORT OPPORTUNITY…HYDROGEN: The U.S. has a big opportunity to take advantage of increased demand for decarbonized hydrogen overseas, and should look to dominate the export market, the conservative group ClearPath said in a report out this morning.

The EU and Japan are rapidly increasing their use of clean hydrogen, but not producing enough to meet their domestic demand. Russia, the Middle East, and Australia are positioning themselves to fill the gap. But the U.S. can be competitive because of cost advantages it has exporting hydrogen produced from natural gas with carbon capture (blue hydrogen) due to the 45Q CCS tax credit that lowers the cost of production by up to 30%.

Emerging U.S. hydrogen hubs envisioned as part of the bipartisan infrastructure bill could meet both domestic and international demand, ClearPath said. Just this week, the Department of Energy announced nearly $8 million for nine hydrogen projects to reduce the cost of production and $20 million to demonstrate hydrogen production from nuclear power.

TESLA ON THE MOVE: Founder and CEO of Tesla Elon Musk announced yesterday he would be moving his company headquarters out of Silicon Valley to Austin, Texas where it is building a new electric vehicle factory, the Washington Examiner’s Elizabeth Faddis reports.

The move makes good on a threat last year when Musk fought with California over its policies on COVID-19 restrictions and taxes that forced Tesla to pause production at its factory in Fremont.

Musk said, though, that Tesla plans to increase its output from the Fremont location by 50%.

The Rundown

Reuters Democrats court Manchin with two-part climate plan

Reuters China orders immediate jump in coal output to fight power crunch

Bloomberg As Louisianans flee hurricanes, natural gas dollars and jobs flow in

New York Times 6 aspects of American life threatened by climate change

Calendar

TUESDAY | OCT. 19

10 a.m. 366 Dirksen. The Senate Energy and Natural Resources Committee will hold a hearing to consider the nominations of Willie Phillips to be a member of the Federal Energy Regulatory Commission, Brad Crabtree to be an Assistant Secretary of Energy for fossil energy and carbon management, and Charles Sams III to be director of the National Park Service.

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