As expected, the US and the EU announced a political accord aimed at freeing Europe from dependence on Russian gas, a pact Joe Biden and Ursula von der Leyen pitched as an epochal shift.
“The United States will work with international partners and strive to ensure additional LNG volumes for the EU market of at least 15 billion cubic meters in 2022, with expected increases going forward,” the White House said, in a factsheet. The European Commission, in turn, will look to secure demand for 50 billion cubic meters of additional US LNG until “at least 2030.”
Benchmark European gas futures dropped double-digits, extending Thursday’s decline.
Both the US and the EU pledged to “immediately” make recommendations for reducing aggregate gas demand. Planning and approval of renewable projects will be “expedited” and strategic cooperation enhanced.
At the same time, Germany plans to cut imports of Russian gas near zero within two years, and may halve oil imports from Russia within months. By the end of 2022, Russian gas may account for less than a third of Germany’s imports, down from more than 60% (figure below). Germany will stop buying Russian coal altogether by early summer.
“By the middle of the year, Russian oil imports to Germany are expected to be halved,” Spiegel said, quoting a memo attributed to the economy ministry. “By the end of the year, we aim to be almost independent [and] by autumn, Germany can be independent of Russian coal.”
Later, Economy Minister Robert Habeck essentially confirmed the plans, citing progress on LNG terminals. Although Germany still believes “an immediate embargo would have too serious economic and social consequences,” according to the ministry memo, Habeck called Russian gas “largely replaceable.”
Germany is considering a trio of floating LNG terminals and “currently examining possible locations on the North Sea and Baltic Sea where these can be used in the short term,” the ministry memo went on to detail, suggesting that “in some cases,” the facilities could be ready for the winter of 2022/23.
Gazprom shares plunged in Moscow amid the deluge of headlines. More broadly, Russian equities fell in their second day of tightly-controlled trading following a month-long halt. Gazprom’s Friday losses wiped out a Thursday re-opening bounce (figure below).
Putin instructed the sovereign wealth fund to buy local shares in order to prevent a collapse. Short selling isn’t allowed and foreigners aren’t permitted to exit positions. Only 33 of 50 stocks are open for (truncated) trading.
There was no immediate word on who the “international partners” cited by the White House in the fact sheet on the gas accord are, but Germany recently engaged Qatar. One imagines the US won’t have much patience when it comes to suppliers who exhibit anything like recalcitrance. It sounds as though the Biden administration is done “asking” when it comes to sourcing additional energy supplies.
Of course, strong-arm tactics won’t solve logistical problems, and as Bloomberg noted Friday, “the additional imports from the US will take time to start, with Europe constrained by the current regassification capacity, number of terminals and interconnectors.” US gas exporters will meet German buyers in Berlin next week. One way or another, Europe intends to replace some 65% of Russian gas imports in 2022.
Frankly, I’m not inclined to explore “the other side” of the story if that means embarking on a quest to explain why Putin is “holding the cards” or insist that Europe will forever be hostage to the whims of an autocrat due to the necessity of importing energy the world needs to phase out anyway.
The fact is, Putin has succeeded in doing what millions of climate activists, scientists and Progressive politicians the world over have so far failed to do. He lit a fire under efforts to cut dependence on fossil fuels not just over the long-term, but over the medium-term too.
In the near-term, his efforts to hold Europe hostage instead kickstarted a mad dash to reduce demand for Russia’s most important exports to zero. Here again, the stark reality for Russia is that the US produces quite a bit of energy itself. Americans aren’t going to freeze. Although replacing Russian gas in Europe won’t be easy, there are plenty of sellers in the world. All of them need dollars and euros. Some of them need US weapons and security guarantees. And a few of them have their domestic currencies pegged to the greenback.