Natural Gas

Summer is over and many Europeans may have to keep warm this coming winter by thinking about their summer holidays while wrapped in blankets, praying for a short winter or for the world to come to its senses. It both cases, they may well be disappointed. The never-ending conflicts in the Middle East, mayhem in Libya, uncertainty in the Gulf and a war in Ukraine are all going to take a toll on the energy supplies this winter. Result? Many cold Europeans, many angry Europeans and many very pissed off Europeans. And what does history tell us about cold, angry, pissed-off Europeans?

• Euro left reeling after ECB's liquidity splurge (Reuters)
• Coalition Emerges to Battle Islamic State Militants (WSJ)
• Ukraine Gas Chief Takes on Gazprom in Race With Winter (BBG)
• Nato leaders fail to agree spending targets (FT)
• JPMorgan Had Exodus of Tech Talent Before Hacker Breach (BBG)
• Mercedes-Benz Sales Rise Despite Weak German Demand (WSJ)
• Secret Network Connects Harvard Money to Payday Loans (BBG)
• ICE looks to crack financial data market (FT)

"The West is afraid of a major war and Putin is exploiting that," says one former Kremlin adviser, adding that "his end goal is a Ukraine that is a buffer state between Russia and the West." After the recent rebel offensive, it's now militarily possible to gain full control of Donetsk and Luhansk and to create a 'land bridge' to Crimea, and "without help, Russian troops can roll ever-deeper into Ukraine." As Bloomberg reports, Vladimir Putin will continue his shadow war until he's created quasi statelets in Ukraine’s easternmost regions with veto power over the country’s future, five current and former Russian officials and advisers said. As they ominously conclude, "Ukraine's only way out is to admit defeat... the longer Ukraine waits, the more territory it will lose and the harsher demands it will face." However, as Gavekal explains, Putin may have staved off an immediate defeat but the stakes have undoubtedly been hugely raised - here are 3 scenarios.

If after months of Eurasian axis formation, one still hasn't realized why in the grand game over Ukraine supremacy - not to mention superpower geopolitics - Europe, and the West, has zero leverage, while Russia has all the trump cards, then today's latest development in Chinese-Russian cooperation should make it abundantly clear.  Overnight, following a grand ceremony in the Siberian city of Yakutsk, Russia and China officially began the construction of a new gas pipeline linking the countries. The bottom line to Russia - nearly half a trillion after China's CNPC agreed to buy $400bn in gas from Russia's Gazprom back in May. In return, Russia will ship 38 billion cubic meters (bcm) of gas annually over a period of 30 years. The 3,968 km pipeline linking gas fields in eastern Siberia to China will be the world's largest fuel network in the world.

Thanks to the growing use of fracking, or extracting oil and natural gas from shale formations, shares of U.S. companies which supply sand to energy producers are surging, and as Bloomberg reports, it does not look set to stop anytime soon. “Sand is the new gold,” says Ivaylo Ivanov, founder of Ivanhoff Capital, as Ole Slorer, a New York-based analyst at Morgan Stanley, expects demand for fracking sand in 2016 will be 96 percent higher than last year’s level. Nope, no bubble here...

Last week, Ukrainian Prime Minister Yatsenyuk pushed a bill through the Verkhovna Rada that would see his country’s gas transportation system sold off to a group of international investors. The provisions of the law would permit the transit of natural gas to be blocked. This decision may hurt the fragile industrial recovery in Germany and finish off Ukraine’s potential as a gas transit route to Europe.

Shortly after Obama admitted to the world he has no strategy how to deal with ISIS, about two weeks after the "humanitarian" bombing of Iraq started, he rushed into a meeting of his National Security Council. Two and a half hours later, the meeting has finished and we hope the president finally does have a strategy, one that isn't determined solely by Qatari natural gas pipeline interests.

The surge in North American oil and gas production is arguably the most important development in energy over the last decade. That’s the good news. The not so good news is that North America doesn’t have nearly enough oil and gas pipelines to accommodate its 11-million-barrel-a-day output level. Both are good examples of how pipelines – considered the safest way to move oil and gas – have become politicized and scrutinized, and not without reason. Despite their reliability, pipelines still lead to an unacceptable rate of safety mishaps. They corrode and rupture, which threatens workers and nearby communities. In 2013 alone, over 119,000 barrels of oil were spilled in 623 incidents. America’s existing pipelines are getting older and more prone to corrosion, and over the next five to 10 years, there will be a significant increase in the number of new pipelines. And that is creating a huge opportunity for better pipeline safety technology.

• Clearly it's time to bomb Assad (on Qatar instructions): Islamic State executes dozens of Syrian army soldiers (Reuters)
• Ukraine Declares Russian Invasion as Sanctions Threat Raised (BBG)
• Ukraine Reports Russian Invasion on a New Front (NYT)
• German Unemployment Rises as Risks to Economy Build (BBG)
• Ebola spreads to Nigeria oil hub Port Harcourt (BBC)
• FBI Probes Possible Hacking Incident at J.P. Morgan (WSJ)
• FBI, Secret Service investigate reports of cyber attacks on U.S. banks (Reuters)
• If you like your Venezuela, you can stay in Venezuela: Airlines Abandon Fliers Amid Currency Dispute (WSJ)
• Boomer Wealth Dented by Mortgages Poses U.S. Risk (BBG)
• People Aren't Buying Guns (BusinessWeek)

• Islamic State executes soldiers, takes hostages at Syria base (Reuters)
• Buffett Burger King Funds Flip Obama’s Inversion Calculus (BBG)
• Equities Reach Record $66 Trillion as S&P 500 Hits 2,000 (BBG)
• Central Banks Playing Own Version of Plaza-opoly With FX (BBG)
• Russia court closes McDonald's branch for 90 days (Reuters)
• Finland Says NATO an Option After Russia ‘Violates’ Border Laws (BBG)
• Netanyahu Hit With Domestic Criticism Over Gaza Truce (BBG)
• Biggest Danish Fund Readies for Rate Shock as Exit Narrows (BBG)
• Nonprofit Hospitals' Profits Fall (WSJ)

• Jackson Hole Theme: Labor Markets Can’t Take Higher Rates (BBG), or anything else for that matter
• Kidnappers free American missing in Syria since 2012 (Reuters)
• More unpatriots: Burger King in merger talks with Canada's Tim Hortons (Reuters)
• California Quake to Cost Insurers Up to $1 Billion, Eqecat Says (BBG)
• Congo declares Ebola outbreak in northern Equateur province (Reuters)
• Missouri Governor Defends Ferguson Prosecutor (BBG)
• Kuroda Douses Japan Stimulus Expectations (WSJ)
• London Jihadi Call Vies With Banks in Canary Wharf Shadow (BBG)
• Netanyahu Signals Expansion of Air Attacks in Gaza (WSJ)
• Libya's Islamist Militias Claim Control of Tripoli (WSJ)

• Ukraine accuses Russia of invasion after aid convoy crosses border (Reuters)
• Hunt for Foley’s Killer Spans Old Policing and Tech Tools (BBG)
• U.S. Probe Examines GM Lawyers (WSJ)
• Argentina accuses U.S. Judge Griesa of "imperialist" attitude (Reuters)
• Violence-weary Missouri town sees second night of calm (Reuters)
• Geneva Banks Break 200-Year Silence to Unveil Earnings (BBG)
• Richest Jailed Putin Foe Says Ukraine Fears Sparked Prosecution (BBG)
• Disclosure of Failed Attempt to Rescue James Foley Is Criticized (WSJ)
• Execution of U.S. journalist reveals the changing business of war coverage (Reuters)

• FTW: Europe Stocks Rise as Data Signals Need for Stimulus (BBG)
• More de-escalation: Dozens die in Ukraine in street battles, Donetsk shelling (Reuters)
• Calm largely holds in Missouri after grand jury opens shooting investigation (Reuters)
• Attorney General Eric Holder Vows Thorough Probe of Ferguson Shooting (WSJ)
• World’s Biggest Wealth Fund Slows Emerging Market Investment (BBG)
• Market Chilly to Argentine Debt Proposal (WSJ)
• Israeli air strike kills three Hamas commanders in Gaza (Reuters)
• Retooled Hamas Bloodies Israel With Help From Hezbollah (BBG)
• Investors Pour Into Vanguard, Eschewing Stock Pickers (WSJ)
• Fed Debates Early Rate Increases (WSJ)

While everyone's (algorithmic) attention will be focused on today's minutes from the July 29-30 FOMC meeting for views on remaining slack in U.S. economy following recent changes in the labor market (especially a particularly solid JOLTS report which indicates that at least on the openings front, there is no more) and any signal of policy change by the Fed ahead of Fed Chair Janet Yellen’s speech in Jackson Hole on Aug. 22, a curious thing happened overnight when a few hours ago the BoE's own minutes show the first vote split since 2011, as Weale and McCafferty argue for a 0.75% bank rate. Then again, if the Russians are finally bailing on London real estate, the inflationary pressures at the top of UK housing may finally be easing. In any event, every FOMC "minute" will be overanalyzed for hints of what Yellen's speech on Friday morning will say, even if stocks just shy of all time highs know quite well she won't dare say anything to tip the boat despite her warnings of a biotech and social network bubble.

Ukraine’s next crisis will be a devastatingly economic one, as violent conflict destroys critical infrastructure in the east and brings key industry to a halt, furthering weakening the energy sector by crippling coal-based electricity production.