PAST NEWSLETTERS

Main Takeaways for the week of March 16, 2022

The world is in flux. Iran, India, Saudi Arabia, Qatar, and most importantly China maneuver in an expanding financial conflict centered on Russia’s invasion of Ukraine. Nickel has a tough week as the LME shuts down trading following a huge short squeeze. Joe Manchin expresses opposition to EVs due to China’s deep involvement in the supply chains. U.S. LNG may be in for a heady decade, as more projects approach FID. TC Energy sells 10% of Coastal Gaslink pipeline to First Nations along its route. Guilbeault and Wilkinson can’t agree on Canada’s potential to assist Europe with energy crisis.

Upcoming Event

The 2022 Oil Shock: Consequences for Canadian and Global Energy Security

Zoom Event – March 18, 2022 1300 ET / 1100 MT

Moderator Kelly Ogle (Canadian Global Affairs Institute) discusses the causes and impacts of the current severe undersupply of oil globally, and the implications for Canadian energy security with Kevin Birn (S&P Global Commodity Insights), Sara Vakhshouri (Institute of World Politics), and Gregory Brew (Yale University Jackson Institute for Global Affairs).

Featured Article

Securing European Energy Security with a Transatlantic Energy Security Partnership, by Joe Calnan for The Canadian Global Affairs Institute, released March 11, 2022

VERSUS

How to Wean Europe Off Russian Gas as Swiftly as Possible, by Simone Tagliapietra, Georg Zachmann, and Morgan Bazilian for The New York Times, released March 12, 2022

EIA Today in Energy Chart

From Europe is a key destination for Russia’s energy exports

Headlines

Global Petroleum Liquids

• UAE’s ADNOC warns that energy markets are at risk of undersupply due to long-term underinvestment
• Covid lockdowns in China could significantly hurt economic growth, potentially lowering future oil demand
• India is finding workarounds to import cheap Russian oil, including use of rupee or even yen payments, to sidestep Western sanctions
• OPEC MOM report warns that economic fragmentation combined with rising central bank interest rates could suppress needed oil and gas investment
• High gasoline prices having no visible effect on demand in the U.S. so far

Global LNG

• Venture Global asks FERC to quickly approve a 3.2 mmt increase to the peak capacity of Plaquemines LNG export terminal, with targeted first exports in 2024
• Tellurian’s Driftwood LNG nears FID on an array of 10-year contracts, CEO confirms higher interest from Europe

Global Coal

• China looks to boost domestic coal production by around 300 million tons, enough to end dependence on coal imports

North American Energy Infrastructure

• TC Energy will sell 10% of the Coastal Gas Link pipeline to 20 Indigenous Nations along the pipeline’s corridor

U.S. - China Energy Relations

• S. exports of coal to China increased more than sixfold in 2021, largely due to China’s ban on imports from Australia
• China’s Covid-19 surge could be much worse than omicron surges elsewhere due to low vaccination and low covid-19 exposure among the elderly

EU – Russia Energy Relations

• EU bans steel produced in Russia

U.S. - Canada Energy Relations

• No significant developments

Middle East Energy Geopolitics

• Russia is looking to cooperate more closely with Qatar, following up on their cooperation in establishing OPEC+ in 2016
• Saudi Arabia is accelerating efforts to find a deal with China to price oil sales in yuan, and establish yuan-denominated futures – the “petroyuan”

Central Asia Energy Geopolitics

• No significant developments

Canadian Oil and Gas

• Wilkinson and Guilbault pen oped in favour of CCUS tax credit which “cannot be used for CCUS activities designed to extract more petroleum”
• Guilbeauult and Wilkinson in disagreement on Canada’s potential for assisting Europe on energy

Electricity

• No significant developments

Renewables

• No significant developments

Copper

• No significant developments

Lithium

• Joe Manchin says he is “very reluctant to go down the path of electric vehicles” due to concerns over China dominating battery supply chains

Nickel

• More details emerge on nickel frenzy – short squeeze centered on Chinese metals billionaire

Cobalt

• No significant developments

Carbon/Graphite

• No significant developments

Hydrogen

• Universal Hydrogen establishes facility for airplane hydrogen retrofit kits and hydrogen storage in Albuquerque, New Mexico

Nuclear

• Lawmakers in Japan are pushing for a faster restart of nuclear power plants to reduce spending on expensive fuels

Biofuels

• No significant developments

Quotes

India wants to maintain a positive relationship with Russia because it needs Moscow’s support in resolving its territorial conflicts with its neighbours, especially China. It also wants to continue to enjoy economic and military support from Russia. Furthermore, as Russia repeatedly supported India at the UN on issues like Kashmir, many Indians feel as if it is now their turn to return the favour.

From Why is India standing with Putin’s Russia?, by Somdeep Sen for Al Jazeera

Measures that make life miserable for ordinary Russians might have the opposite of their intended effect: they might rally the public behind Putin. Over the last 20 years, the Russian leader has built a powerful propaganda machine—one that has been working overtime since the Ukrainian invasion began. Right now, about half of Russians support the war. (Among them, initially, was my mother-in-law. She has a university degree but believed Putin’s claim that Ukraine and NATO had attacked Russia and that Russia was just defending itself. It took some time for my wife to convince her that Putin had attacked Ukraine and not the other way around.)

From Why Strangling Russia’s Economy Could Backfire, by Maxim Mironov for Foreign Affairs

According to the Energy Information Administration (EIA), around 257 bcm/yr of LNG export facilities are awaiting final investment decision in the United States, meaning that they can’t justify building the facility, due to lack of demand certainty. With 50 bcm/yr of additional contracts from the European Union, many of these projects would be instantly viable. These contracts would solidify Europe’s contribution to a transatlantic energy security alliance.

From Securing European Energy Security with a Transatlantic Energy Security Partnership, by Joe Calnan for the Canadian Global Affairs Institute

Europe’s farewell to Russian gas will be a long goodbye; it will take most of the decade for the continent to wean itself from those supplies, which now account for more than 40 percent of its gas imports. So for now, Europe will keep buying from Russia as the war in Ukraine expands. And if energy prices continue to rise, the amount of money Europe pays to Russia each day will keep increasing, and could average $850 million per day in the first half of 2022, according to our calculations.

From How to Wean Europe Off Russian Gas as Swiftly as Possible, by Simone Tagliapietra, Georg Zachmann, and Morgan Bazilian for The New York Times

For the above reasons, if China does not take proactive measures to respond, it will encounter further containment from the US and the West. Once Putin falls, the U.S. will no longer face two strategic competitors but only have to lock China in strategic containment. Europe will further cut itself off from China; Japan will become the anti-China vanguard; South Korea will further fall to the U.S.; Taiwan will join the anti-China chorus, and the rest of the world will have to choose sides under herd mentality. China will not only be militarily encircled by the U.S., NATO, the QUAD, and AUKUS, but also be challenged by Western values and systems.

From Possible Outcomes of the Russo-Ukrainian War and China’s Choice, by Hu Wei for The U.S.-China Perception Monitor

A crisis can be an opportunity, but a sense of urgency does not mean that all options are equal. Success depends on three factors. First, a proposal must be technically mature. It takes preparation to carry out a major project. Second, political support is essential. Gas prices are high, but everyone understands today’s prices are unsustainable. Public finance will be needed. And third, a project must face obstacles that can be overcome – political expediency can solve some problems, but not others.

From A new impetus for gas in the Eastern Mediterranean?, by Nikos Tsafos for ekathimerini.com

It is not in Beijing’s interests to rely solely on an anti-Western alliance with Moscow. Russia may possess a mighty military, but its economy is in long-term structural decline, with a G.D.P. not much larger than that of Spain. For all the talk of ties with Moscow, it is worth remembering that China’s economic interests with Russia are dwarfed by those it shares with the West. In 2021, trade between China and Russia may have jumped by 36 percent compared to the prior year, to $147 billion — but that’s still less than a tenth of the combined trade with the United States ($657 billion) and European Union ($828 billion).

From It’s Time to Offer Russia an Offramp. China Can Help With That., by Wang Huiyao for The New York Times

At the current price of nickel, the brokers themselves wouldn’t be able to pay their margin calls, they told the LME. Four or five of the brokerages that are LME members would have failed, a shock that could have devastated the global metals industry. The price move on March 8 “created a systemic risk to the market,” the LME said two days later. The exchange had “serious concerns about the ability of market participants to meet their resulting margin calls, raising the significant risk of multiple defaults.” Despite that, Chamberlain insisted to Bloomberg TV on March 9 that the solvency of the LME itself was never in doubt.

From The 18 minutes of trading chaos that broke the nickel market, by Jack Farchy, Alfred Cang, and Mark Burton for Bloomberg