Does Russia Need To Sell Gas More Than The EU Needs To Buy It?

Tyler Durden's picture




 

Submitted by Nick Cunningham via OilPrice.com,

The Russian occupation of Crimea has raised concerns about the European Union’s dependence on its eastern neighbor for natural gas. The EU gets about 34% of its natural gas imports from Russia, a large portion of which transits Ukraine through a web of pipelines. For Eastern Europe, that dependence is much greater. In the brutally cold winter of 2009 Russia cut off gas supplies to Europe allegedly over a pricing dispute with Ukraine. However, it was also a lesson to Western Europe on its dependence on Russia for energy.

 

Russia has a track record of using its natural gas supplies as a political weapon. The latest incursion into Ukraine has no doubt revived worries among European policymakers that saw what happened back in 2009. Thankfully, Vladimir Putin eased tensions on March 4, indicating that he wasn’t seeking a military conflict. This allowed natural gas prices to fall back a bit after spiking by 10% the day before.

But how vulnerable is Europe to the political machinations of the Kremlin? It appears that this time around the EU is in better shape. A mild winter and stagnant demand have left Europe with higher levels of inventory than in past years. According to a spokeswoman at the European Commission, the EU has 40 billion cubic meters of natural gas on hand in storage, which accounts for 10% of annual demand for the entire European Union.  Those figures vary by country (Czech Republic and Slovakia have 90 days of supplies; Hungary two months; Austria six months), but as a bloc, the EU has 20% greater supplies at its disposal than it did last year.

And it’s not just seasonal patterns that have put the EU in a better spot. Europe has been reducing its reliance on Russian gas for a while now – in 2003 the EU imported 45% of its natural gas from Russia. It’s now down to around one-third.

Europe has been the beneficiary of the shale gas boom in the United States, even though the U.S. hasn’t even really begun to export LNG. The surge in domestic production allowed LNG from other parts of the world – Qatar, for example – to be rerouted to Europe. (Several U.S. members of Congress have tried to exploit the Ukrainian crisis, arguing for the Obama administration to issue a blanket approval for LNG exports in order to isolate Russia. Over the short-term, that is nonsense – it will take years to build the terminals, so issuing licenses for exports won’t do anything to help out Europe. Over the longer-term, that may be a different story). Europe has also undergone a big effort at implementing greater energy efficiency and renewable energy. Moreover, the U.S. has exported more coal to the EU in recent years, which competes with high priced natural gas there.

Thus Europe is more secure than many believe. Moreover, the EU and Russia are so interdependent that it is unlikely Russia will proactively cut off gas supplies to Europe. In fact, Russia is arguably more dependent on the EU than the other way around. Europe has other options. Russia, on the other hand, is heavily dependent on oil and gas, which account for half of the country’s total budget revenues. For Putin, cutting off gas exports to Europe would be akin to him cutting off his nose to spite his face.

“It would be highly counterproductive for Russian interests at a time when Europe is considering how to respond to Russian actions in Crimea, to take steps that would have a major and negative direct impact on Europe,” said Laurent Ruseckas, a senior associate at IHS CERA, as reported by Politico.

The economic damage of energy supply disruptions cuts both ways. Putin likes to play the role of bully, but Russia is not exactly in a strong position in terms of using energy as a political weapon. Whether or not the Ukraine crisis deepens, it is unlikely that Moscow would intentionally turn off the taps for any prolonged period of time.

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Sun, 03/09/2014 - 17:17 | 4528395 johny2
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oil

Sun, 03/09/2014 - 19:01 | 4528435 cossack55
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If NATO gets in the game the Euroboyz might get all the gas they want for free.  Of course, it won't be natural.  

Sun, 03/09/2014 - 17:38 | 4528460 Wolferl
Wolferl's picture

Right. The moment the EU stops buying Russian oil and gas they are insolvent. True, the eastern Europeans will have SOME problems, but winter is over early this year.

Sun, 03/09/2014 - 18:42 | 4528615 CrashisOptimistic
CrashisOptimistic's picture

Tyler please, just stop dealing with oilprice.com.  They are worthless.

Item 1, the numbers for "Europe" don't delineate.  They throw England's access to LNG into the mix and that drags down the number to 34% and they then celebrate, but it ignores how many countries are over or nearly 50% reliant.  Germany.  Austria.  Bulgaria.  Poland.  Hungary.  Greece.  What's the point of celebrating "Europe" if all those folks can't get gas.

Item 2.  As for seasonal, yeah, natgas is for heat.  But it also makes electricity.  The green folks hate coal.  They WANT nat gas electricity.  So does Gazprom.

Item 3. And the height of this oilprice.com worthlessness is the issue of what hurts whom.  Who says Russia optimally cuts off Europe?  Optimally, they restrict.  They slow flow.  They cut amounts down maybe 15-20%, which is not enough to fund LNG transport from elsewhere.  Then prices rise and GDP falls as factories have to ration electricity.

And with higher prices, the restricted flow reduces Russia's revenue by NOTHING.  5 units at $20 is $100.  4 units at $25 is $100.

BTW the North Sea is dying.  Oil output and gas output falling.  Norway's supply to Germany, ditto.

And also btw, 6 weeks ago I saw a Russia to Europe export figure of 4-5 million bpd of crude.  Then 1 week ago, when the narrative needed support, it was "less than 2 mbpd".  Russia exports what, 7 million bpd?  Germany gets over 700K bpd.  The Dutch 550K bpd and they are right next to the North Sea.  Poland 450K.  Finland, Spain, France, Italy, UK, Sweden, Hungary . . . all well over 100K bpd.  This doesn't even count Belarus and countries that are part of Europe but in the Russian sphere.

Those numbers are from the EIA.  It is way over 2 mbpd.

 

 

 

 

Sun, 03/09/2014 - 19:22 | 4528779 Wolferl
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What we are talking about is a conflict of a few months. Europe, the EU has gas in storage for about 3 -6 months. And there are enough coal and nuclear powerplants who don´t produce much now, that can replace that natgas powerplants. And you can bring in more natgas via serveral existing LNG hubs all around Europe. Europe is much less dependant on Russian energy than most think. 

Sun, 03/09/2014 - 20:13 | 4528916 Robinhood
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Really?

http://www.eia.gov/dnav/ng/ng_pri_sum_dcu_nus_m.htm

almost double the price? duh, really maks sense to me?

Sun, 03/09/2014 - 21:19 | 4529110 Wolferl
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Those are the prices in the US. They have nothing to do with the EU.  Natgas is much more expensive here than in North America, LNG somewhat cheaper.

Sun, 03/09/2014 - 22:04 | 4529215 Robinhood
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Then the EU must be able to defy the laws of thermodynamics. LNG is manufartured from natgas through the use of energy to cool it to its liquid state. The cooling process is not free. Good luck with your cheeper than natgas LNG!

Sun, 03/09/2014 - 23:11 | 4529399 Flakmeister
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People confuse LPG, CNG and LNG all the time...

US LNG exports are a non-factor in this and will be going forward...

Mon, 03/10/2014 - 06:06 | 4529734 Wolferl
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Just read what i write. If you are able to read. Didn´t write a word that LNG is cheaper than natgas. But the actual price of LNG and Natgas in Europe has nothing to do with the actual price in the US. Just like the price of crude oil is different in Europe and the US.

Sun, 03/09/2014 - 22:03 | 4529230 Tall Tom
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If it goes to a Hot War I am hoping that the Ukranians BLOW UP THE GOD DAMNED PIPELINES.

 

Both the EU and the Russians can go fuck themselves.

 

You want to support EVIL? Well. PUKIN IS AN EVIL BASTARD. (So is OBAMA.) If you want to support EVIL then you need to reap EVIL.

 

Enjoy your little war. The USA needs to stay out and tell all of you to go fuck yourselves.

Sun, 03/09/2014 - 20:20 | 4528940 downwiththebanks
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The US had plenty of oil in 1973.  When the headlines blow up, so do prices.  Image matters now, not reality.

And, as s poster above noted, the reality here isn't too pretty for Europe either, when you get past the math gymnastics the site uses.

Sun, 03/09/2014 - 23:20 | 4529424 Flakmeister
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CIO, 

       you are absolutely correct in your long term assessment. However, few see any outages longer than current levels of storage...

You also leave the Netherlands out of your equation: significant exports, production from Groningen is steady for many years. a sign of being well managed (pun intended)....

The problem is that 80% Russian oil comes to market via pipeline. They have no say about how the split is made at the other end, e.g.  there would be no shortage of willing brokers, Chinese or otherwise...

Mon, 03/10/2014 - 04:05 | 4529663 trader1
trader1's picture

i've posted before, and i'll post again.

see page 10 of http://www.fas.org/sgp/crs/row/R42405.pdf

Germany consumes < 40% of Russian NG, accounting for < 9% of primary energy.  

 

Mon, 03/10/2014 - 10:31 | 4530200 Flakmeister
Flakmeister's picture

Good link...

Mon, 03/10/2014 - 07:34 | 4529781 123dobryden
123dobryden's picture

very funny

"And with higher prices, the restricted flow reduces Russia's revenue by NOTHING. 5 units at $20 is $100. 4 units at $25 is $100."

 

FYI although actual price may fluctuate like you said, the price  of gas depends not on current price but on the price on the contract. That i can assure you that at least as is the case with my country, bordering with ukraine, the price is set for long period and actual price and contract price can fluctuate 20-30%

moreover, Gazprom was sued by several sompanies, including RWE and have to pay back 1.5 bilion EUR for setting the price too high

you obviously know very little about this issue

Sun, 03/09/2014 - 19:36 | 4528810 Urban Redneck
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The City of Lights would be romantic by firelight (particularly if you're into raping, pillaging, and plundering in an FSA Zombie Apocalypse sort of way).

The EU needs oil and gas BTUs more than Russia needs foreign fiat currency. The Russians can play it profitably, or they can go M.A.D. -- either way they have the strong hand to play.

Sun, 03/09/2014 - 22:12 | 4529248 Tall Tom
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Then let them play it. You really need not care. Ukraine needs to blow up them God Damned Pipelines. Then Europe does not get the BTU's and Russia does not get FIFTY PERCENT OF ITS REVENUES. (That ought to put a lot of austerity on the Russian Population.)

 

And since Russia's Ruble is not the Reserve Currency they cannot just print. (That will solve any argument.)

 

Fuck PUKIN.

Fuck Obama.

Fuck the EU

And fuck Yellin (Little Bernanke)

Sun, 03/09/2014 - 20:17 | 4528933 zigizigi
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Russian central bank keeps the interest rate around 8% while ECB - around zero. And that was historically higher. That means that any big Russian business is forced to borrow money in European banks. If they go bankrupt they won't be paying off their debts any longer. Who's in trouble now? That's right, EU banks. And it doesn't matter that Russian factories and mines are collateralized. In case of real economic war Putin will just nationalize them.

Any sanctions against Russia from the EU will backfire. So the only winning party in EU vs Russia economic war is US.

Sun, 03/09/2014 - 23:58 | 4529501 angel_of_joy
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US might not be such a great winner after all, not when it comes to oil & gas anyway. The numbers for the shale oil & gas resources in US seem to be vastly overstated, in real terms. There will be no Happy Hour this week...

http://www.testosteronepit.com/home/2014/3/6/shale-oil-gas-not-a-revolut...

 

Mon, 03/10/2014 - 00:10 | 4529519 Flakmeister
Flakmeister's picture

Berman is always a good read....

The reserves are indeed overstated, in 5 years time people not in the loop will be questioning the wisdom of LNG exports...

Mon, 03/10/2014 - 07:37 | 4529787 123dobryden
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i agree, yet Russia is very weak and vulnerable, dont let yourself be fooled by properly trained KGB agent...

coutry has one of the highest wealth distribution inequality with 1% owning 35% of houshold wealth

 

Sun, 03/09/2014 - 20:26 | 4528961 whatsinaname
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bunkum.. US NG inventories hit a 10 year low for this time of year. The winter has been pulling a lot of NG demand forward and normalising inventories to historical levels. This ought to be good for some of the coal companies that have been hurting last year or so.

Sun, 03/09/2014 - 20:43 | 4529008 Nassim
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When the Ukrainians would not pay and grabbed gas destined for Europe - that was some sort of "Russia cutting off gas". They are doing the same thing right now, not paying bills and dipping into their huge stores of Russian-owned gas.

This article is pure propaganda!

Sun, 03/09/2014 - 17:17 | 4528398 cossack55
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End game says screw the Eurotrash.

Sun, 03/09/2014 - 17:31 | 4528441 agent default
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There seems to be a misunderstanding here.  If the EU gets too irritating, nat.gas is the last thing they need to worry about.  Russia will escalate militarily to the point the EU will cry mommy.

Sun, 03/09/2014 - 19:01 | 4528716 css1971
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Seriously. Russia have no interest in military escalation and neither does Europe. They want to sell gas to Europe for as much as they can get away with, War is a losing proposition for everyone involved.

Sun, 03/09/2014 - 19:59 | 4528873 KickIce
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Well, except the banks.  But I wonder if even they are avoiding war this time around because it would mean the end to their fiat gravy train.

Sun, 03/09/2014 - 17:21 | 4528411 Dewey Cheatum Howe
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The Asian market is well underserved and underdeveloped... The westward expansion has hardly begun as of yet.

Sun, 03/09/2014 - 17:23 | 4528416 angel_of_joy
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If everything is so hunky-dory, I wonder what stops EU from boycotting the Russian gas right now ?!

P.S. The whole LNG bedtime story will become beyond silly, first time an LNG tanker (or storage facility) blows up in the middle of a very populated European harbor. Hint: it would make Fukushima look almost tolerable...

Sun, 03/09/2014 - 18:49 | 4528675 css1971
css1971's picture

Nah, the gas cloud would find an ignition source long before it reached the populated areas. Big boom and roaring fire though.

 

Here's one the Chinese made earlier:

http://www.youtube.com/watch?v=tLGM_2l0zok

Sun, 03/09/2014 - 19:51 | 4528850 0b1knob
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Natural gas is lighter than air, so it goes straight up into the atmosphere.   A leak (ignited or not) doesn't spead out.

Now propane, thats a very different (and heavier than air) gas.  Just look at the way the feds go crazy every time a propane tank truck goes missing.

Mon, 03/10/2014 - 00:15 | 4529517 angel_of_joy
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LNG stands for Liquefied Natural Gas, as in liquid not gaseous. This is how it is transported AND stored in tanks.

When it warms up and re-becomes gaseous, it only needs a concentration in the air of 5-15% to become flammable.

Now, you saw the explosion in the link above (in China) caused by a tanker truck. Imagine a tanker ship, thousaunds of times bigger, getiing into trouble in a port like Rotterdam...

Sun, 03/09/2014 - 22:47 | 4529343 CrashisOptimistic
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Germany has no LNG port.

Sun, 03/09/2014 - 17:26 | 4528418 JaKst3r
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Hmm, what would be the outcome of leaving the Gaz on, but dumping $200bn in UST?

Sun, 03/09/2014 - 17:26 | 4528425 hookah
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And who will buy those worthless bonds if you dump that much?

Sun, 03/09/2014 - 17:27 | 4528427 JaKst3r
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Im guessing it wouldnt be China or India...

Sun, 03/09/2014 - 17:45 | 4528477 Keyser
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They don't need a buyer. The very act of dumping them on the market would cause UST's to crash. 

Sun, 03/09/2014 - 18:21 | 4528587 indygo55
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"And who will buy those worthless bonds if you dump that much?"

The FED of course. They will buy Russian and Chinese as well. Eventually the dollar will have ZERO confidence and NO ONE will want the dollar. THEN its game over for the dollar.

Sun, 03/09/2014 - 18:45 | 4528664 CrashisOptimistic
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USTs are not in the equation at all.  Russia can't sell.  Neither can China.

There is no other financial instrument large enough for that amount of money.  It is in USTs because it has to be.  You don't think they would like to be out?  They can't be out.  Nothing has changed in this.

There is nowhere else to put that money -- other than spend it on things of value, like food and oil production.

Sun, 03/09/2014 - 19:39 | 4528821 Urban Redneck
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Excess Reserves can easily absorb the sale. Go back to the Great Depression, and look at the opportunities for those had currency, as opposed to debt.

Sun, 03/09/2014 - 19:44 | 4528830 Schmuck Raker
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"Russia can't sell." Uhmm... no, they can, they have.

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012...

Sun, 03/09/2014 - 22:57 | 4529363 Tall Tom
Tall Tom's picture

Hell China dumped a bunch last December and sold 'em to Brussels.

 

CrashIsOptimistic knows this.

 

http://www.zerohedge.com/news/2014-02-18/china-sells-second-largest-amount-us-treasurys-december-and-guess-who-comes-rescue

 

Look at the article...

 

On the SECOND POST HE COMMENTED...

 

Exactly.  This obsession with monetary ebbs and flows, looking for evidence of the Big Smash, is wasted time.

MONEY is not going to cause the upheaval.  Money can be changed and created by decree.  It didn't exist in the garden of eden and it doesn't have to mean anything you don't decree it to mean.

Money is not going to be the source of devastation.  Oil is.

 

CrashIsOptimistic is just trolling misinformation. It is evidential that he knows otherwise.

 

REMEMBER THAT YOU CAN SEARCH OUT PREVIOUS POSTS AS IT IS EVIDENCE.

 

Anyone who is spewing Propaganda will be tried and convicted of Treason after the oncoming Collapse. We have the internet and a record thereof. IPs will not be too hard to track after the seizure of the NSA Database.

 

We did try and convict Tokyo Rose and Berlin Betty after the Second World War. There is legal precedent.

Mon, 03/10/2014 - 00:17 | 4529527 CrashisOptimistic
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Selling some is not the same as selling all.

I guess I'm going to Tall Tom jail.  How's the food there?

Wed, 03/12/2014 - 01:38 | 4537476 Schmuck Raker
Schmuck Raker's picture

@Crash IsO, Right, so let us ignore Tom's convictions.....

In ONE month Russia was able to dipose of ten percent of their TSY holdings. It would take them TEN months to dispose of all. I don't think the FED would have a problem keeping up.

Your assertion was :"It is in USTs because it has to be.  You don't think they would like to be out?  They can't be out."

That is false.

I'm no economist.... but that is wrong, near as I can tell.

 

[BTW: via Tom quoting you: "Money is not going to be the source of devastation.  Oil is."

I ask; Doesn't it really boil down to which of the two are more fungible at the moment?]

Sun, 03/09/2014 - 21:57 | 4528913 KickIce
KickIce's picture

Who knows, but I would think a vote of "no confidence" from the world's second largest economy and whatever Russia is would rattle most heroin, er QE dependent investors.

Mon, 03/10/2014 - 00:17 | 4529524 angel_of_joy
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There is nowhere else to put that money

Gold ?

 

 

Sun, 03/09/2014 - 17:27 | 4528429 cossack55
cossack55's picture

You forgot to demand payment in gold or Rubles

Sun, 03/09/2014 - 17:29 | 4528436 JaKst3r
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or BTC? lolz

Sun, 03/09/2014 - 18:47 | 4528670 CrashisOptimistic
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Gold has no value to Russian civilization.

Fighter aircraft might.  They could demand payment thus, but only in aircraft already built and in the opponent's inventory.

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