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Tag: Liquefied natural gas

  • Drone attack on tanker shows Kyiv’s intent to hit Russian energy shipments

    Drone attack on tanker shows Kyiv’s intent to hit Russian energy shipments

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    KYIV — An overnight naval drone attack against a Russian tanker in the Black Sea signals a potential new front in the Ukraine war, with Kyiv delivering its strongest message to date that it is willing to target Moscow’s all-important shipments of oil and fuel.

    The battle for supremacy in the Black Sea is ramping up fast, with massive implications for global energy and food security. The attack on the tanker off Crimea came only a day after another Ukrainian marine drone — a flat, arrowhead-shaped vessel packed with explosives — targeted a Russian naval base near the port of Novorossiysk, badly damaging a warship.

    “The tanker was damaged in the Kerch Strait during an attack by the Ukrainian Armed Forces,” Russia’s state-run TASS news agency reported on Saturday. “The crew is safe, the Maritime Rescue Center informed us. The engine room was damaged. Two tugboats arrived at the scene of an emergency with a tanker in the Kerch Strait, the question of the towing vessel is being resolved,” it said.

    Russia’s Federal Marine and River Transport Agency reported it was a SIG oil and chemical tanker — a ship whose owner, St. Petersburg-based company Transpetrochart, was sanctioned by the U.S. in 2019 for supplying jet fuel for Russian forces in Syria.

    Tensions are rising in the Black Sea after Russia last month announced it was withdrawing from the U.N.-brokered Black Sea Grain Initiative and started attacking Ukrainian ports on the Black Sea coast and on the Danube River with missiles, destroying tens of thousands of tons of Ukrainian grain.  

    After those attacks and the blockade, Ukrainian officials issued a statement in July that Russian vessels will be no longer safe in the Black Sea. Kyiv’s defense ministry said in a statement that such vessels “may be considered by Ukraine as carrying military cargo with all the corresponding risks” from midnight Friday.

    On Saturday, Kyiv announced a “war risk area” around Russian ports on the Black Sea, specifically citing the ports of Novorossiysk, Anapa, Gelendzhik, Tuapse, Sochi and Taman. The declaration will be in effect from August 23 “until further notice,” it said.

    ‘Completely legal’

    Marine Traffic, an online maritime tracking site, has the latest position of the SIG tanker fixed near the Kerch Strait “at anchor.”  

    Russia’s Marine and River Transport Agency reported all 11 crew members on board were safe and that the tanker was struck in the engine room near the waterline on the starboard side, presumably as a result of an attack by a marine drone. By morning, the water pouring to the engine room has been staunched, and the vessel was afloat, Russian official said.

    Ukraine almost never directly takes responsibility for these kinds of attacks. However, Vasyl Malyuk, head of the Security Service of Ukraine, or SBU, has previously claimed responsibility for the attacks on the Crimean bridge and hinted that there will be more similar attacks soon.

    “Anything that happens with the ships of the Russian Federation or the Crimean Bridge is an absolutely logical and effective step in relation to the enemy. Moreover, such special operations are conducted in the territorial waters of Ukraine and are completely legal,” Malyuk said in a statement on Saturday.

    “So, if the Russians want that to stop, they should leave the territorial waters of Ukraine and our land. And the sooner they do it, the better it will be for them. Because we will one hundred percent defeat the enemy in this war.”

    Waters near Russian-occupied Crimea and the Kerch Strait are Ukrainian territorial waters, according to international maritime law.

    “Since 1991, Russia has systematically used the territorial waters of Ukraine to organize armed aggressions: against the Georgian people and against the people of Syria,” the Ukrainian Defense Ministry said in a social media post on Saturday.

    “Today, they terrorize peaceful Ukrainian cities and destroy grain, condemning hundreds of millions to starvation. It’s time to say to the Russian killers, ‘It’s enough.’ There are no more safe waters or peaceful harbors for you in the Black and Azov Seas,” the ministry said.

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    Veronika Melkozerova

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  • Putin is staring at defeat in his gas war with Europe

    Putin is staring at defeat in his gas war with Europe

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    There’s more bad news for Vladimir Putin. Europe is on course to get through winter with its vital gas storage facilities more than half full, according to a new European Commission assessment seen by POLITICO.

    That means despite the Russian leader’s efforts to make Europe freeze by cutting its gas supply, EU economies will survive the coldest months without serious harm — and they look set to start next winter in a strong position to do the same.

    A few months ago, there were fears of energy shortages this winter caused by disruptions to Russian pipeline supplies.

    But a combination of mild weather, increased imports of liquefied natural gas (LNG), and a big drop in gas consumption mean that more than 50 billion cubic meters (bcm) of gas is projected to remain in storage by the end of March, according to the Commission analysis.

    A senior European Commission official attributed Europe’s success in securing its gas supply to a combination of planning and luck.

    “A good part of the success is due to unusually mild weather conditions and to China being out of the market [due to COVID restrictions],” the official said. “But demand reduction, storage policy and infrastructure work helped significantly.”

    Ending the winter heating season with such healthy reserves — above 50 percent of the EU’s roughly 100bcm total storage capacity — removes any lingering fears of a gas shortage in the short term. It also eases concerns about Europe’s energy security going into next winter.

    The positive figures underlie the more optimistic outlook presented by EU leaders in recent days, with Energy Commissioner Kadri Simson saying on Tuesday that Europe had “won the first battle” of the “energy war” with Russia.

    EU storage facilities — also vital for winter gas supply in the U.K., where storage options are limited — ended last winter only around 20 percent full. Brussels mandated that they be replenished to 80 percent ahead of this winter, requiring a hugely expensive flurry of LNG purchases by European buyers, to replace volumes of gas lost from Russian pipelines.

    The wholesale price of gas rose to record levels during storage filling season — peaking at more than €335 per megawatt hour in August — with dire knock-on effects for household bills, businesses’ energy costs and Europe’s industrial competitiveness.

    Gas prices have since fallen to just above €50/Mwh amid easing concerns over supplies. The EU has a new target to fill 90 percent of gas storage again by November 2023 — an effort that will now require less buying of LNG on the international market than it might have done had reserves been more seriously depleted.

    “The expected high level of storages at above 50 percent [at] the end of this winter season will be a strong starting point for 2023/24 with less than 40 percent to be filled (against the difficult starting point of around 20 percent in storage at the end of winter season in 2022,” the Commission assessment says.

    Analysts at the Independent Commodity Intelligence Services think tank said this week that refilling storages this year could still be “as tough a challenge as last year” but predicted that the EU now had “more than enough import capacity to meet the challenge.”  

    Across the EU, five new floating LNG terminals have been set up — in the Netherlands, Greece, Finland and two in Germany — providing an extra 30bcm of gas import capacity, with more due to come online this year and next.  

    However, the EU’s ability to refill storages to the new 90 percent target ahead of next winter will likely depend on continued reduction in gas consumption.

    Brussels set member states a voluntary target of cutting gas demand by 15 percent from August last year. Gas demand actually fell by more than 20 percent between August and December, according to the latest Commission data, partly thanks to efficiency measures but also the consequence of consumers responding to much higher prices by using less energy.

    The 15 percent target may need to be extended beyond its expiry date of March 31 to avoid gas demand rebounding as prices fall. EU energy ministers are set to discuss the issue at two forthcoming meetings in February and March.

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    Charlie Cooper

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  • Qatar slams EU corruption accusations, puts energy cooperation in doubt

    Qatar slams EU corruption accusations, puts energy cooperation in doubt

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    Qatar criticized the European Parliament for banning the Gulf state’s representatives at the institution, warning that this “discriminatory” move could harm broader EU-Qatari cooperation where the bloc is dependent on Doha, including with energy.

    The Parliament last week barred Qatari representatives from entering the premises and suspended legislation related to the country that include visa liberalization and planned visits. The moves followed allegations of corruption involving attempts to influence officials at the Parliament.

    “The decision to impose such a discriminatory restriction … will negatively affect regional and global security cooperation, as well as ongoing discussions around global energy poverty and security,” a Qatari diplomat said in a statement on Sunday reported by media. The statement added that the decision “demonstrates that MEPs have been significantly misled.”

    “It is unfortunate that some acted on preconceived prejudices against Qatar and made their judgments based on the inaccurate information in the leaks rather than waiting for the investigation to conclude,” the statement said. The World Cup host “firmly” rejects the allegations “associating our government with misconduct,” it said.

    EU countries have increasingly turned to Qatar in a bid to diversify energy supplies and make up for shortfalls amid Russia’s invasion of Ukraine, with Germany last month signing a 15-year contract for liquefied natural gas (LNG) imports. Doha provided a quarter of the EU’s LNG imports last year.

    Belgian authorities have charged four people with links to the Parliament — including one of the institution’s vice presidents, Eva Kaili — with “criminal organization, corruption and money laundering” over allegations they accepted payments in exchange for doing the bidding of Qatar in Parliament. Kaili has since been stripped of her duties, while authorities have carried out raids on at least 20 homes and offices in Belgium, Greece and Italy in recent days.

    Qatar also criticized Belgium for keeping the Gulf state in the dark about the investigation, which Belgian authorities said had taken more than a year before they made the first arrest this month.

    “It is deeply disappointing that the Belgian government made no effort to engage with our government to establish the facts once they became aware of the allegations,” the diplomat said in the statement.

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    Victor Jack

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  • Gas supply at center of new US-UK energy pact

    Gas supply at center of new US-UK energy pact

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    U.S. gas companies will be urged to up their exports to Europe via the U.K. under a new transatlantic energy partnership agreed by Rishi Sunak and Joe Biden.

    The new “U.K.-U.S. Energy Security and Affordability Partnership” announced Wednesday includes a commitment from the White House to “strive to export at least 9-10 billion cubic metres of liquefied natural gas (LNG) over the next year via U.K. terminals,” No. 10 Downing Street said. The aspiration includes both gas for U.K. consumption and gas that might be re-exported to mainland Europe via pipeline. 

    The U.K. has three LNG terminals — two in Milford Haven, Wales and one in Medway, Kent — and has become a major hub for LNG supplies to Europe from the U.S.; a vital lifeline as the Continent has sought to replace Russian pipeline gas since Moscow’s invasion of Ukraine.

    The new partnership between the U.S. and the U.K. mirrors in many ways an existing U.S.-EU task force that also focuses on energy security. It will be led by a “joint action group” consisting of senior White House and U.K. government officials, Downing Street said, with the first virtual meeting to be held on Thursday.

    Alongside helping to guarantee U.K. and EU gas supply, it will work on global investment in clean energy and efficiency, plus the promotion of nuclear energy, including small modular reactors, in third countries. British Prime Minister Sunak and U.S. President Biden discussed the partnership at the G20 summit in Indonesia last month.

    “This partnership will bring down prices for British consumers and help end Europe’s dependence on Russian energy once and for all,” Sunak said. “Together the U.K. and U.S. will ensure the global price of energy and the security of our national supply can never again be manipulated by the whims of a failing regime. We have the natural resources, industry and innovative thinking we need to create a better, freer system and accelerate the clean energy transition.”

    The LNG commitment will be dependent on U.S. gas exporting companies. As is the case with its task force with the EU, the U.S. government will likely play the role of encouraging companies to direct their cargoes to the U.K.

    The two sides will “proactively identify and resolve any issues faced by exporters and importers,” Downing Street said, adding: “We will look to identify opportunities to support commercial contracts that increase security of supply.”

    Adam Bell, a former U.K. government energy official and now head of policy at the Stonehaven consultancy, said there was a “diplomatic upside” to the U.K. facilitating gas flows to the EU: “Especially this winter when we’ll want pipes to flow the other way; Europe has the stores that we don’t.” The U.K. would also benefit from shipping charges as the gas passes through its network, Bell added.

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    Charlie Cooper

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  • Europe accuses US of profiting from war

    Europe accuses US of profiting from war

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    Nine months after invading Ukraine, Vladimir Putin is beginning to fracture the West. 

    Top European officials are furious with Joe Biden’s administration and now accuse the Americans of making a fortune from the war, while EU countries suffer. 

    “The fact is, if you look at it soberly, the country that is most profiting from this war is the U.S. because they are selling more gas and at higher prices, and because they are selling more weapons,” one senior official told POLITICO. 

    The explosive comments — backed in public and private by officials, diplomats and ministers elsewhere — follow mounting anger in Europe over American subsidies that threaten to wreck European industry. The Kremlin is likely to welcome the poisoning of the atmosphere among Western allies. 

    “We are really at a historic juncture,” the senior EU official said, arguing that the double hit of trade disruption from U.S. subsidies and high energy prices risks turning public opinion against both the war effort and the transatlantic alliance. “America needs to realize that public opinion is shifting in many EU countries.”

    The EU’s chief diplomat Josep Borrell called on Washington to respond to European concerns. “Americans — our friends — take decisions which have an economic impact on us,” he said in an interview with POLITICO.

    The biggest point of tension in recent weeks has been Biden’s green subsidies and taxes that Brussels says unfairly tilt trade away from the EU and threaten to destroy European industries. Despite formal objections from Europe, Washington has so far shown no sign of backing down. 

    At the same time, the disruption caused by Putin’s invasion of Ukraine is tipping European economies into recession, with inflation rocketing and a devastating squeeze on energy supplies threatening blackouts and rationing this winter. 

    As they attempt to reduce their reliance on Russian energy, EU countries are turning to gas from the U.S. instead — but the price Europeans pay is almost four times as high as the same fuel costs in America. Then there’s the likely surge in orders for American-made military kit as European armies run short after sending weapons to Ukraine. 

    It’s all got too much for top officials in Brussels and other EU capitals. French President Emmanuel Macron said high U.S. gas prices were not “friendly” and Germany’s economy minister has called on Washington to show more “solidarity” and help reduce energy costs. 

    Ministers and diplomats based elsewhere in the bloc voiced frustration at the way Biden’s government simply ignores the impact of its domestic economic policies on European allies. 

    When EU leaders tackled Biden over high U.S. gas prices at the G20 meeting in Bali last week, the American president simply seemed unaware of the issue, according to the senior official quoted above. Other EU officials and diplomats agreed that American ignorance about the consequences for Europe was a major problem. 

    “The Europeans are discernibly frustrated about the lack of prior information and consultation,” said David Kleimann of the Bruegel think tank.

    Officials on both sides of the Atlantic recognize the risks that the increasingly toxic atmosphere will have for the Western alliance. The bickering is exactly what Putin would wish for, EU and U.S. diplomats agreed. 

    The growing dispute over Biden’s Inflation Reduction Act (IRA) — a huge tax, climate and health care package — has put fears over a transatlantic trade war high on the political agenda again. EU trade ministers are due to discuss their response on Friday as officials in Brussels draw up plans for an emergency war chest of subsidies to save European industries from collapse. 

    “The Inflation Reduction Act is very worrying,” said Dutch Trade Minister Liesje Schreinemacher. “The potential impact on the European economy is very big.”

    “The U.S. is following a domestic agenda, which is regrettably protectionist and discriminates against U.S. allies,” said Tonino Picula, the European Parliament’s lead person on the transatlantic relationship.

    An American official stressed the price setting for European buyers of gas reflects private market decisions and is not the result of any U.S. government policy or action. “U.S. companies have been transparent and reliable suppliers of natural gas to Europe,” the official said. Exporting capacity has also been limited by an accident in June that forced a key facility to shut down.

    In most cases, the official added, the difference between the export and import prices doesn’t go to U.S. LNG exporters, but to companies reselling the gas within the EU. The largest European holder of long-term U.S. gas contracts is France’s TotalEnergies for example. 

    It’s not a new argument from the American side but it doesn’t seem to be convincing the Europeans. “The United States sells us its gas with a multiplier effect of four when it crosses the Atlantic,” European Commissioner for the Internal Market Thierry Breton said on French TV on Wednesday. “Of course the Americans are our allies … but when something goes wrong it is necessary also between allies to say it.”

    Cheaper energy has quickly become a huge competitive advantage for American companies, too. Businesses are planning new investments in the U.S. or even relocating their existing businesses away from Europe to American factories. Just this week, chemical multinational Solvay announced it is choosing the U.S. over Europe for new investments, in the latest of a series of similar announcements from key EU industrial giants. 

    Allies or not?

    Despite the energy disagreements, it wasn’t until Washington announced a $369 billion industrial subsidy scheme to support green industries under the Inflation Reduction Act that Brussels went into full-blown panic mode.

    “The Inflation Reduction Act has changed everything,” one EU diplomat said. “Is Washington still our ally or not?”

    For Biden, the legislation is a historic climate achievement. “This is not a zero-sum game,” the U.S. official said. “The IRA will grow the pie for clean energy investments, not split it.” 

    But the EU sees that differently. An official from France’s foreign affairs ministry said the diagnosis is clear: These are “discriminatory subsidies that will distort competition.” French Economy Minister Bruno Le Maire this week even accused the U.S. of going down China’s path of economic isolationism, urging Brussels to replicate such an approach. “Europe must not be the last of the Mohicans,” he said.

    The EU is preparing its responses, such as a big subsidy push to prevent European industry from being wiped out by American rivals. “We are experiencing a creeping crisis of trust on trade issues in this relationship,” said German MEP Reinhard Bütikofer. 

    “At some point, you have to assert yourself,” said French MEP Marie-Pierre Vedrenne. “We are in a world of power struggles. When you arm-wrestle, if you are not muscular, if you are not prepared both physically and mentally, you lose.”

    Behind the scenes, there is also growing irritation about the money flowing into the American defense sector.

    The U.S. has by far been the largest provider of military aid to Ukraine, supplying more than $15.2 billion in weapons and equipment since the start of the war. The EU has so far provided about €8 billion of military equipment to Ukraine, according to Borrell.

    According to one senior official from a European capital, restocking of some sophisticated weapons may take “years” because of problems in the supply chain and the production of chips. This has fueled fears that the U.S. defense industry can profit even more from the war. 

    The Pentagon is already developing a roadmap to speed up arms sales, as the pressure from allies to respond to greater demands for weapons and equipment grows.  

    Another EU diplomat argued that “the money they are making on weapons” could help Americans understand that making “all this cash on gas” might be “a bit too much.” 

    The diplomat argued that a discount on gas prices could help us to “keep united our public opinions” and to negotiate with third countries on gas supplies. “It’s not good, in terms of optics, to give the impression that your best ally is actually making huge profits out of your troubles,” the diplomat said.

    Giorgio Leali, Stuart Lau, Camille Gijs, Sarah Anne Aarup and Gloria Gonzalez contributed reporting.

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    Barbara Moens, Jakob Hanke Vela and Jacopo Barigazzi

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  • Why cheap US gas costs a fortune in Europe

    Why cheap US gas costs a fortune in Europe

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    The EU is under immense pressure to cap the price of imported natural gas to contain energy costs — but many of the companies making a fortune selling cheap U.S. gas to the Continent at eye-watering markups are European.

    The liquefied natural gas (LNG) loaded on to tankers at U.S. ports costs nearly four times more on the other side of the Atlantic, largely due to the market disruption caused by a near-total loss of Russian deliveries following the invasion of Ukraine.

    The European Commission has come under fierce pressure to sketch out a gas price cap plan, but some countries, led by Germany, worry such a measure could prompt shippers to send gas cargoes elsewhere. The Commission is also reluctant, and its proposal issued Tuesday sets such demanding requirements that they weren’t met even during this summer’s price emergency.

    But a large part of the trade is in European hands, according to America’s biggest LNG exporter.

    “Ninety percent of everything we produce is sold to third parties, and most of our customers are utilities — the Enels, the Endesas, the Naturgys, the Centricas and the Engies of the world,” said Corey Grindal, executive vice president for worldwide trading at Cheniere Energy, rattling off the names of big-name European energy providers.

    Cheniere, which this year saw 70 percent of its exported LNG sail to Europe, sells its gas on a fix-priced scheme based on the American benchmark price, dubbed Henry Hub, which is currently at about $6 per million British thermal units.

    On average, the price across all Cheniere contracts is 115 percent of Henry Hub plus $3, Grindal said. That works out to about €33 per megawatt-hour. For comparison, the current EU benchmark rate, dubbed TTF, is €119 per MWh.

    It’s a big markup for whoever is reselling those LNG cargoes into Europe’s wholesale market, profiting from fears that there may not be enough gas to last the winter.

    Despite fears that any EU cap will send gas to higher bidders in Asia and result in bloc-wide shortages, Grindal gave a resounding “no” when asked if a cap would have any impact on how Cheniere does business with European companies.

    “Our balance sheet is underpinned by those long-term contracts,” he added.

    Translation: If buyers choose to trade their precious cargoes away for higher profits beyond Europe once they receive them, that’s their decision.

    Blame game

    “The United States is a producer of cheap gas that they are selling us at a high price … I don’t think that’s friendly,” said French President Emmanuel Macron | Ludovic Marin/AFP via Getty Images

    The difference between U.S. and EU gas prices hasn’t gone unnoticed by European politicians — but most of the finger-pointing has been at American producers rather than the resellers closer to home.

    “In today’s geopolitical context, among countries that support Ukraine there are two categories being created in the gas market: those who are paying dearly and those who are selling at very high prices,” French President Emmanuel Macron told a group of industrial players last week. “The United States is a producer of cheap gas that they are selling us at a high price … I don’t think that’s friendly.”

    Macron’s dig conveniently ignored that the largest European holder of long-term U.S. gas contracts is none other than France’s own TotalEnergies.

    At the company’s latest earnings call last month, TotalEnergies CFO Jean-Pierre Sbraire trumpeted the fact that the firm’s access to more than 10 million tons of U.S. LNG annually “is a huge advantage for our traders, who can arbitrage between the U.S. and Europe.”

    “And now, given the price of LNG, each cargo represents something like $80 million, even $100 million. So, when we are able reroute or to arbitrage between the different markets, of course, it’s a very efficient way to maximize the value coming from that business,” Sbaire added. “Cash flow generation of this order of magnitude marks the start of a new era for the company.”

    Spain’s Naturgy — which has some 5 million tons of U.S. LNG a year from Cheniere under contract — has also earned nearly five times more trading gas so far this year compared with 2021 thanks to “the increased spread between [Henry Hub] and TTF,” it wrote in its half-year report.

    Long-term contracts with the U.S. weren’t always so profitable. In fact, from 2016 to at least 2018, buyers were mostly losing money on the fixed deals, leading some to sell them off.

    In 2019 Spain’s Iberdrola, for example, pawned off its 20-year Cheniere contract to Asian trader Pavilion Energy, which is now benefiting from selling into a high-priced global market.

    In the U.K, Centrica tried — and failed — to sell off its LNG portfolio in 2020 when government-ordered lockdowns drove real-time prices through the floor. That included a 20-year fixed Cheniere contract set to run through 2038.

    Now that real-time prices have shot back up, Centrica — part of Shell-owned British Gas — is reaping the rewards and eagerly snapping up more long-term contracts, most recently a 15-year deal with U.S. LNG exporter Delfin beginning in 2026.

    “This is a really important profit stream for us,” Centrica CFO Chris O’Shea told investors on a Friday trading update call.

    Unlike some producers — for example in the Middle East — which restrict the final destination of the LNG to consumers in Asia and prevent it being sold onward at a higher price, American gas changes ownership the minute it’s loaded onto a ship and comes with no strings attached.

    That leaves buyers free to redirect the precious supply wherever it’s most profitable — sometimes at the expense of their downstream clients, if it’s cheaper to break those pre-existing domestic delivery commitments.

    “We can only control what we can control,” said Cheniere’s Grindal. “U.S. LNG is destination-free.”

    But as far as getting it on the ship at previously agreed prices, “our focus is being that reliable supplier, being committed to the obligations that we’ve made to our customers, and we’re committed to doing everything that we can to help the EU in this situation.”

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    America Hernandez

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  • France plays bad cop as transatlantic trade tensions ramp up

    France plays bad cop as transatlantic trade tensions ramp up

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    PARIS — U.S. President Joe Biden needs to watch out; France is resuming its traditional role as Europe’s troublemaker on the transatlantic trade front.

    It had seemed like the bad blood between Brussels and Washington was easing on Biden’s watch. Facing a common foe in China, the EU and the U.S. last year struck a truce on the tariffs that former President Donald Trump slapped on European steel and aluminium. Over this year, Russia’s war against Ukraine has meant that America and Europe needed to present a united front, at least politically.

    Cracks are now starting to re-emerge, however. The EU is furious that the U.S. is pouring subsidies into the homegrown electric car industry. Accusing Washington of protectionism, Europe is now threatening to draw up its own defenses.

    Unsurprisingly, French President Emmanuel Macron is leading the charge. “The Americans are buying American and pursuing a very aggressive strategy of state aid. The Chinese are closing their market. We cannot be the only area, the most virtuous in terms of climate, which considers that there is no European preference,” Macron told French daily Les Echos.

    Upping the ante, he called on Brussels to support consumers and companies that buy electric cars produced in the EU, instead of ones from outside the bloc. 

    There are good reasons why the Europeans are fretting about their trade balances.

    The war has delivered a huge terms-of-trade shock, with spiraling energy costs hauling the EU into a yawning bloc-wide trade deficit of €65 billion in August, from only €7 billion a year earlier. In one manifestation of those strains, Europe’s growing reliance on American liquefied natural gas to substitute for lost Russian supplies has re-ignited tensions.

    Macron’s comments are a reflection of EU consternation over Washington’s Inflation Reduction Act, which incentivizes U.S. consumers to “Buy American” when purchasing a greener car. The EU argues that requiring that car needs to be assembled in North America and contain a battery with a certain percentage of local content discriminate against the EU and other trade partners.

    The European Commission hopes to convince Washington to find a diplomatic compromise for European carmakers and their suppliers. If not, that leaves the EU no choice but to challenge Washington at the World Trade Organization, EU officials and diplomats told POLITICO — even if a new transatlantic trade war is the last thing both sides want to spend their time and money on.

    Macron’s comments “are clearly a response against the Inflation Reduction Act,” noted Elvire Fabry, a trade policy expert at the Institut Jacques Delors in Paris. “Macron plays the role of the bad cop, compared to the European Commission, which left Washington some political room to make adjustments,” she noted. 

    ‘American domination’

    The Commission hopes to find a diplomatic compromise with the U.S. for European carmakers and their suppliers | Ludovic Marin/AFP via Getty Images

    France has traditionally been the bloc’s most outspoken country when it came to confronting Washington on a wide range of trade files. Paris, for instance, played a key role in killing a transatlantic trade agreement between the EU and U.S. (the so-called “TTIP”). Its digital tax angered U.S. Big Tech and triggered a trade war with the Trump administration.

    More recently, during its rotating Council of the EU presidency, Paris focused on trade defense measures, which will give Brussels the power to retaliate against unilateral trade measures, including from the U.S.

    New tensions are bad news for the upcoming meeting of the Trade and Tech Council early December, which so far has had trouble to show that it’s more than a glorified talking shop. 

    France won’t be left alone in a possible trade war on electric cars. According to Fabry, these tensions will bring Paris and Berlin closer, as the German car industry is also particularly affected by the U.S. measures.

    But the “Buy American” approach is not the only bone of contention. The fact that Europe is increasingly relying on gas imports from the U.S. brought European discontent to the next level.

    Although gas import prices fell in September from their all-time highs in August, they were still more than 2.5 times higher than they were a year ago. And, taking into account increased purchase volumes, France’s bill for imports of LNG multiplied more than tenfold in August, year on year, by one estimate.

    Economy and Finance Minister Bruno Le Maire last week warned that Russia’s war against Ukraine should not result in “American economic domination and a weakening of Europe.” Le Maire criticized the U.S. for selling LNG to Europe “at four times the price at which it sells it to its own companies,” and called on Brussels to take action for a “more balanced economic relationship” between the two continents.

    That very same concern is shared by some Commission officials, POLITICO has learned, but also among French industrialists.

    It is “hardly contestable” that the U.S. had some economic benefits from the war in Ukraine and suffered less than Europe from its economic consequences, said Bernard Spitz, head of international and European affairs at France’s business lobby Medef. 

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    Giorgio Leali and Barbara Moens

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  • China’s COVID lockdowns spell relief for Europe’s energy security worries

    China’s COVID lockdowns spell relief for Europe’s energy security worries

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    China’s President Xi Jinping has some good news for Europe — his country’s draconian zero-COVID policies aren’t likely to be dropped.

    That’s a relief for European buyers of liquefied natural gas, as China’s economic slowdown has freed up LNG cargos crucial to replacing the Russian gas that used to supply about 40 percent of European demand.

    “Regardless of what you think about the Chinese zero-COVID policy, simply looking at it only from the perspective of European gas supplies, it would be very helpful if China continued this policy,” said Dennis Hesseling, head of gas at the EU’s energy regulator agency ACER.

    Xi took to the stage Sunday to kick off the week-long 20th Communist Party congress, and he doubled down on the zero-COVID approach, calling it a “people’s war to stop the spread of the virus.” 

    The once-in-five-year summit is “mostly a political meeting for within the party itself” but it does send crucial signals, said Jacob Gunter, a senior analyst at the China-focused MERICS think tank. So far it indicates China plans to “stick with [zero-COVID] for a while,” he said, adding that’s partly because government pandemic messaging has so spooked the population that lifting it would cause “chaos,” while Chinese vaccine hesitancy also remains high.

    Since the outbreak of the pandemic in 2020, China has ruthlessly pursued its policy of crushing the coronavirus, involving snap lockdowns of entire cities accompanied by mass testing, surveillance and border closures. The slowdown in growth and depressed demand led to China’s LNG imports sinking by one-fifth, or 14 billion cubic meters, year-on-year for the first eight months of 2022, according to Jörg Wuttke, president of the EU Chamber of Commerce in China.

    China and the EU each imported around 80 million tons of LNG in 2021, but China’s imports will fall to 64 million tons this year, according to data by market intelligence firm ICIS. That’s helping the EU buy gas on the global market and using it to fill the Continent’s storages ahead of the winter heating season.

    “Europe is lucky that China has a severe economic downturn which will last well into 2023,” said Wuttke, adding that the drop in demand from China — historically the world’s largest LNG importer — is “roughly equivalent to the entire annual LNG imports of Britain.”

    2023 worries

    China’s President Xi Jinping | Anthony Wallace/Pool/AFP via Getty Images

    With EU gas storage now over 90 percent full, the conversation in Brussels has already begun to shift to securing enough supplies for next year. At last week’s summit of EU energy ministers, International Energy Agency chief Fatih Birol warned that “next winter may well be even more difficult.”

    As things stand, Beijing’s LNG imports are likely to rise back to 2021 levels next year, according to senior ICIS gas analyst Tom Marzec-Manser, with deliveries typically increasing around the winter season and then likely to ramp up again next summer.

    China has already ordered its state-owned gas importers to stop reselling LNG to the EU to preserve stocks for the winter season at home.

    But if the zero-COVID policy is scrapped, that could lead “to a step-change in growth again,” said Marzec-Manser.

    European countries are well aware of this risk.

    In a presentation given by ACER during last week’s informal Energy Council, ministers were told that “China’s COVID-driven demand decline in LNG volumes is currently being absorbed” by the bloc. “This raises questions as to when China’s LNG demand may turn back towards normal growth rates,” it added.

    Although Russian shipments have fallen to less than 9 percent of EU demand, some Kremlin gas is still getting through. But “that may not be available at all next year,” said ACER’s Hesseling, adding that if there is no Russian gas and Chinese demand comes roaring back, more radical energy-saving measures would be needed in the EU.

    EU leaders will meet later this week to discuss further measures to tackle sky-high energy prices in Europe, including measures for next year such as joint gas purchasing.

    According to one senior EU diplomat, “competition from Asia [is] mentioned constantly,” adding that “it’s quite evident” a change in Beijing’s lockdown policy “may raise global demand and raise prices.”

    “China is indeed a competitor and that needs to be taken into account whatever we might be doing,” they said.

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    Victor Jack

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  • Putin threatens Europe again as Brussels braces for winter

    Putin threatens Europe again as Brussels braces for winter

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    The EU’s energy crisis response is getting bigger, slowly. But so, too, is the threat posed by Russia’s freeze on Europe’s gas supply.

    A new package of measures to bring down the price of gas and protect consumers this winter and beyond — including plans to fully leverage the EU’s collective buying power — will be formally proposed by the European Commission next week.

    But there remains uncertainty about key aspects of the package — including whether the preferred intervention of many countries, an EU-wide cap on gas prices, will be part of it, and if so, in what form. It could also take until November to get next week’s proposals fully signed off and operational, officials said.

    Even as energy ministers deliberated over the measures in Prague on Wednesday, Russia issued new, veiled warnings about the depths of Europe’s vulnerability.

    Speaking at an energy conference in Moscow, the head of Gazprom Alexey Miller warned European homes could still freeze this winter even though EU countries have nearly filled their gas storage capacity.

    At the same event, Vladimir Putin discussed the sabotage of the Nord Stream pipelines — an act that many Western governments suspect was the work of Russia. Then he added pointedly that the incident had shown how “any critical infrastructure in transport, energy or communication infrastructure is under threat — regardless of what part of the world it is located, by whom it is controlled, laid on the seabed or on land.”

    Noting that one of the pipelines is still potentially operational after the attack, Putin insisted Russia was ready to send gas through it to ease Europe’s pain this winter — bringing his overarching strategy of gas blackmail against Europe right up to date.

    “The ball, as they say, is on the side of the European Union. If they want it, let them just open the tap,” Putin said. “We are ready to supply additional volumes in the autumn-winter period.”

    Putin may still be hoping that when the reality of winter without Russian gas begins to bite, European governments will be more open to such overtures ­— and more willing to rein in support for Ukraine in exchange for an energy lifeline.

    For the EU’s part, Energy Commissioner Kadri Simson was clear that while the bloc faced “difficult times,” countries would withstand the challenges ahead if they “act together, decisively and in solidarity.”

    Speaking at the close of an informal summit of EU energy ministers on Wednesday, she added that the next crisis package will also contain a proposal for a new benchmark price for gas and further measures to reduce demand across the bloc.

    But while a row over capping the price of gas has dominated the debate in recent weeks, momentum has shifted to the idea of joint purchasing on the international market. It is hoped that through this measure the bloc can avoid the situation seen this year when member states outbid one another for supplies when filling gas storage facilities ­— driving up the price for all.

    European Commissioner for Energy Kadri Simson | John Thys/AFP via Getty Images

    In an informal policy paper issued on Wednesday, Germany and the Netherlands set how such a measure could work, by beefing up the existing EU Energy Platform, which was established months ago but then barely used. Efforts to buy gas jointly should be coupled with better EU-wide coordination of gas storage next year, the German and Dutch paper said.

    The proposals point to the extent to which the EU is no longer simply planning how to survive this winter without rolling blackouts. It’s now firmly planning for a crisis next winter too.

    Executive Director of the International Energy Agency Fatih Birol, who also attended Wednesday’s summit in Prague, warned ministers that “the next winter may well be even more difficult.”

    That message was echoed in a sobering briefing from the EU Agency for the Cooperation of Energy Regulators, which outlined how challenging 2023 and potentially 2024 could be for the bloc’s energy supply. Amid an expected surge in demand in Asia for liquefied natural gas (LNG), the EU will face greater competition for limited LNG supplies from sources such as the U.S. and Qatar.

    In short, every molecule of gas that remains in European storage after this winter might be vital — and Vladimir Putin knows it.

    Victor Jack and America Hernandez provided additional reporting.

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    Charlie Cooper

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