Gas Embargo Would Hit Russia Hardest
statista.com
statista.com
And seize some oligarchs’ assets to help pay for it.
Russia is obviously geographically closer than the US to Europe. Once an investment is made and the infrastructure built, to what extent could American natgas compete with Russian on price if there is a return to normalcy?
There is no answer, unfortunately, in US LNG exports to Europe. That's merely a very small bandaid on a serious energy wound. It's impossible to push US LNG exports high enough to offset the pipeline supply from Russia, no matter what we do.
At best it can relieve a bit of the pricing pressure while Europe figures out something else (nuclear, bolstering their own natural gas production, increased renewables).
The best bet would be for all energy suppliers to max production, however there is good evidence that that is already the case due to preexisting energy shortages.
Next step would be shutting down energy intensive operations such as bitcoin mining, gold mining, driving, potentially some steel production and shipping activities.
edit: spelling
There will be much anger. However, with Covid-19 there was no one really to blame, so people turned against local politicians imposing measures or people turned towards conspiracy theories for explanations and comfort. Here the culprit is clear and has one name.
It seems that Germany thought that Russia was a rational player interested in growing their economy, but it seems that it was just power play for personal aspirations.
Nuclear or not, the horrendous mistake was not reducing dependence on Russian exports even when their aggressive foreign policy was apparent even 10 years ago. That was inexcusible complacency.
I'd imagine Germans would be quick to install electric heating if electricity was cheap, no?
Wouldn't expanding nuclear drive down electricity prices?
In any case, I think electric heating will become much more prevalent anyway since it's necessary for the clean energy transition. But that will take far longer than the current Russia crisis, so it's unfortunately no short term fix.
There are a few special cases though: if you go in southern Europe, especially in Greek islands, you will find a lot of solar water heating. And France has a higher than average electric heating due to its nuclear grid.
By percentage of their gas imports that come from Russia: DE, LT, PL, and IT at about 50%; FR and NL at about 20%.
* https://www.nytimes.com/interactive/2022/02/15/business/ener...
By volume, mostly Germany and Italy:
Hopefully they will do the right thing and support Ukraine anyway they can.
A good indication is going to be if Germany will support the exclusion of Russia from SWIFT:
https://financialpost.com/pmn/business-pmn/germany-open-to-c...
The exclusion from SWIFT will hit Germany hard, as it will also mean the end of gas delivery. The resulting outages, rising gas prices, the profiteering of the new gas vendors will also have an affect of public support for the sanctions.
It will also be a boost for the alternative systems, that China already built.
In the end, this might backfire really hard.
I do however also not have any better ideas. I'm happy that I'm not the one having to make that decision.
Edit: see correspondent bank https://en.m.wikipedia.org/wiki/Correspondent_account
(13 years out of investment banking on the technology side. Never touched SWIFT directly but was involved in more than one in multi-bank project)
Natural gas has a lot of substitutes in electricity generation and other uses, and demand will fall as prices rise (good for global warming anyway). Energy poor households can get help, so no one will freeze to death, without subisizing the natural gas. Spring and Summer are holding which makes this the best time to act.
Advanced market economies like the ones in the EU are very resilient to supply shocks like this and Eastern European countries can be helped.
Over the long term dependence on insane dictators is also bad for the economy and diversification and decarbonization are good!
Compared to what Ukraine is going through right now that's a very small price to pay, it is ridiculous to be standing there on the one hand hand wringing about the Ukrainian hardships and on the other to buy our fossil fuels from the aggressor directly financing the war.
And with cold showers of course.
This is the most clear case of first world problems that I can think of. Places like hospitals and so on is a different matter.
I stand with you!
https://www.theguardian.com/business/2022/feb/25/how-can-eur...
If I lived in Europe I wouldn't care.
No matter the cost (taxes etc.), no matter if I would have to wear multiple jackets at home.
I would still be in favor.
With a full gas embargo, we're one polar vortex anomaly away from protests that will only favour politicians with Russian friends who are already calling for lower sanctions. In the short term this will have an effect, but unless American gas producers artificially lower their gas prices, the long term will only see more Russia-aligned politicians gaining prominence.
Europe's reliance on America and Russia has been a problem for a while and we're seeing the impact of it as we speak.
However, I do believe that "the economy" will be fine, but "the economy" mostly benefits the richest layers of society. That wealth doesn't trickle down.
Is that an option? Through US government subsidies or something similar?
but unless American gas producers artificially lower their gas prices
"Artificial" never works over time. Embracing reality is much more effective.
1. Provide any deserting Russian soldiers with refugee status and $3,000 in cash
2. Enable willing fighters from accross the world to reach Ukraine to defend it
3. Provide Ukraine with real SAM systems like patriots
Thats it, thw war would be over in a week without NATO firing a single bullet.
The logic is that this war is as close as it gets to 0% approval, and many soldiers arent happy aboit either. If they had a way to avoid killing their 'slavic brothers' that does not lead to being stuck in a gulag, a significan portion would take it. I am not sure how much money theid need, but compared to cost of a war, this is cheap. Kremlim would be bleeding manpower.
> without NATO firing a single bullet
"Not technically NATO" but "organized by NATO-member countries" is an exceptionally dangerous line to tread.
The idea of bribing Russian soldiers radically underestimates the brutal control exerted by the Kremlin over the Russian people. It also sells the Russian people short, implying individual corruption when many are patriots who oppose war against their Ukrainian cousins but are not able to speak out.
The idea that bringing in freelance freedom fighters is going to end the war "in a week" is facile and ludicrous.
This post is unserious and offtopic.
And note that in the past, home heating with coal (which is available locally) was common. We gradually moved from coal to gas for heating and now also for electricity generation, and that is something that cannot be reverted over one year.
With Soviet gas. There was never a full Western embargo of the USSR, especially after detente. Trade directly between the USA and USSR averaged about $4 billion per year (1980 dollars) in the late 70s. Not large but also not insignificant.
In many ways the USSR was also a petrostate. Some, then and now, have argued this propped up the USSR beyond its natural life expectancy.
We need to mass produce and build designs we already have
How exactly? They still have the gas and Europe has no fertiliser or heat.
Eventually mainstream economists will realise that you only export to import and that imports are a real benefit whereas exports are a real cost.
To win in international trade you want as many imports for as few exports as possible.
If Russia isn’t importing anything then it has no need to export at all.
There are plenty of jobs going making armaments and equipment for the Russian war machine, so nobody in Russia is going to be short of a job either.
Russia has no need of the West’s money. It has its own and can ensure people need to obtain it by imposing the necessary level of taxation.
Which if you don’t pay in roubles gets you a stretch in the gulag.
It really is time for some people to re-read Keynes’s “How to pay for the war”
The West can effectively devalue the Ruble, cripple their economy, and make them an economic pariah for generations. It would be possible to cut their economy in half in real-terms, even with China helping them.
The USSR was far mightier - both militarily and economically - than modern Russia and we economically contained them. We can break modern Russia if necessary.
And China? They're dealmakers and they will sell out Russia if presented the right deal, it's primarily a question of what they would want. The West and its affluent allies have more to offer China than Russia does by a factor of 20x.
It's possible to almost entirely isolate Russia if we need to do it.
No, they want Taiwan and US wouldn't consider that. China wouldn't sell out Russia for anything other than World domination, they are Chinas only friendly big neighbor and their best companion against the US.
And how is that a problem for Russia. They are self-sufficient in everything they need.
If Europe stops buying Russian gas, then there is only so much they can ship to china through existing infrastructure. Worse Europe may block the transit of Russian gas through their borders.
This would be a lose lose situation for everyone, but It’s a test of European and eventually American will to do without vs the Russian governments failure to pay its obligations. How long will the oligarchs tolerate austerity for Ukraine?
Fuel dependency will definitely drop in the coming decade, what Russia has beyond it?
Logistics for one thing. Where/how are they going to sell that gas? Western Canada has plenty of gas too. It cannot be used to supply Europe because of logistics.
Russia may be able to do its own thing inside Russia for a long time, but in the meantime the world moves on and leaves them behind. It would be unwise of Russia to let it come to this. But then again a madman is a madman ...
It's no secret many of the economies in the West are so-so (from Covid). What short term impact will these sanctions have on the countries issuing them? What about longer term (e.g., The Fed over-compensates).
In a global economy, these sanction actions have international reactions.
That would have drug NATO into the war, and probably acted as a deterrent.
FYI: today "Ukraine" is preferred over "The Ukraine" because "The Ukraine" can be understood to imply a region rather than a country.
I'm guessing "the Ukraine" will be a hard word to change in "The United States of America" though. "United States of America" could mean the old confederacy, or the Dakotas or something (assuming they're united in some cause)
Along similar lines, couldn't "ukraine" mean any of the Russian borders?
No, it wouldn't. Unless a NATO country is attacked, NATO cannot do anything. Individual countries can, though.
Pro Forma: To anyone who gets upset, the following is not an opinion over the war either for or against. Just some thoughts from a random person who likes energy and is a geopolitical realist.
First the good news: Europe can wean itself off Russian gas, but only over the course of a decade or more. Specifically Europe would have to:
- Build nuclear power plants
- Build LNG plants
- Build coal plants (coal is easy to store, just a pile. This gives it massive strategic importance)
- Accept even higher energy prices
- Probably accept that CO2/GDP will go up. NatGas is very clean wrt to CO2 compared to coal.
- It's also not obvious that there is gas readily available to be LNGed. (See second list below)
All of these take ten years at best given the regulatory and political realities in Europe. They are also massively expensive and it's not obvious to me that the Europeans have much money left (a lot of that money is in Russia's state coffers). These are things Europe should have done ten years ago.
But it gets worse; the available supply in the short term is tragic for the EU:
- Russian gas that isn't piped doesn't have an LNG terminal (yet). It's therefore a massive hole in global supply. Therefore, the EU would be competing with Japan, Korea, India, etc for Qatari and Australian gas. Prices would increase massively and expect the Asian countries to get very aggressive to protect their supplies.
- The US has little LNG presence. This is because (I believe) until recently it was illegal to export nat gas. Therefore LNG terminals have to be built in the US.
- The export ban and lack of LNG terminals in the US has shielded nat gas users in the US. It's also, effectively, a massive subsidy to American industry. It's not obvious what political support exporting gas will have from the non energy-sector. Heavy industry needs gas and American's want to get back to "building things".
- Currently the US energy sector isn't benefitting from the high energy prices because production is tapped out due to lack of investment in the last five years. Specifically, the US' industry is not obviously sustainable (financially) and banks are getting shy. Expect them to get more shy if interest rates rise.
- On top of that there is a shortage of "shale sand" needed to extract shale oil. US gas is a byproduct of oil extraction.
- Keystone. Or the lack thereof. Oil and gas are somewhat exchangeable goods (in an expensive pinch, you can burn oil in many gas plants. You can also crack oil. The EU is in an expensive pinch). The more oil you make available into the market, the lower nat gas prices gets. Keystone is dead, limiting Canada's ability to export oil
So the EU is not in a good place strategically. How about the Ruskies?
I believe that Russia can more readily wean itself off of the European consumer than vice versa.
- Russian financial reserves are massive. Much larger with respect to her needs than the EU's gas reserves wrt to EU's needs. Look up Russian foreign reserves wrt to Russia's GDP. Remember, Russia only has to supplant 3% (?) of her GDP, not all of it. It appears to me that Russia can stay solvent far longer than EU can stay thawed.
- China is not going to stop buying Russian gas. Neither is India. Or Korea. Or Japan.
- Russia can have LNG terminals too. A short pipeline and a LNG terminal in Murmansk and a lot of the gas that would have gone to Germany can be shipped out.
- Russia has a lot of gas. Gas production requires continual investments. It appears to me that Russia's capacity to produce gas is not resource limited but capital goods limited. By redirecting investments (again, not financial investments, excavator time) to gas fields west of the Urals to those east of the Urals, Russia can tack east.
I'd love to have ppl comment on which ever of those points they disagree with.
This means the steps to solving this should begin with addressing those:
- Move heating systems away from gas (and oil). Heat Pumps are probably the best way moving forward.
- Moving the industry of gas and oil. Parts can probably be somewhat easily electrified, but parts like fertilizer and other chemical production probably should be converted to hydrogen. (Hydrogen generated from electricity, not gas, since that's a bit useless)
This means quite a bit more need for electricity where some of your proposals come in:
- Building nuclear power plants. Will probably take >15 years, so probably not helping much. Extending the runtime of existing plants might help, but I'm not sure how much.
- More coal. Will likely work. Capital costs are likely too high to use them instead of gas plants for filling gaps in renewable supply instead of investing in storage.
Some further important steps:
- Massive expansion of renewables. Very cheap and possible intermittency issues are likely not as important for producing hydrogen and gas. With sufficient overproduction and interconnection in europe the need for storage can be greatly reduced.
- Storage including Power to Gas. Meshes well with renewables. Especially Power-to-Gas will benefit from existing, then less used, infrastructure.
In general, LNG terminals are likely very helpful, especially for the next few years and high energy prices are probably going to happen.
I doubt that Russia can wean itself of Europe that easily. China won't be able to (fully) fill the gap (around 70% of russian gas is exported to europe) and is likely not that interested on heavily depending on foreign energy. LNG terminals are also very limited in capacity compared to pipelines and with europe switching more to LNG terminals a lot of new ships need to be built. Furthermore, if europe is successful in weaning off of fossil fuels, other countries are likely also going to reduce the need for gas due to scaling and learning effects (Renewables, especially solar, have seen huge cost reductions in the last 20 years and are killing of coal plants in Australia and electric cars are very likely going to kill of combustion engine cars in the next 10 years).
It's going to be very hard for both.
Stop trading with murderers. Rally the people to conserve energy. Rally allies to shore up LNG (Liquefied Natural Gas) supply into Europe. Maneuver the subsidies so that the western world shows solidarity and stands united in sacrificing and sharing the burden. Putin invades because he thinks the west doesn't have the strength to cut gas. Reinstate when Russian attacks stop on Ukraine. Show him he's wrong and we have a much better chance at reversing this atrocity.