Thursday 24 February 2022

Mr Putin's Gas

What plans does Little Volodya have for his gas weapon?   (Methane, that is: large-scale chemical warfare doesn't seem too likely right now.)  Gazprom's great selling point has always been reliability - better, for example, than the Dutch, who in their heyday as an exporter would always interrupt external sales rather than deliveries to their own people.  With Russia it was the exact opposite: Russians could freeze in order to support hard currency sales.  Notwithstanding Putin has been holding back gas for many months now, he's always met minimum contractual obligations and curiously, just today, westward flows of Russian gas are the highest they've been for several days.

"Suspending" Nord Stream 2, as the Germans have done, is virtue-signalling, but meaningless in practical terms:  they'll un-suspend it at the first convenient juncture.  Ol' Uncle Joe Biden said something at the weekend rather bellicose about NS2 but I kinda doubt he has in mind blowing it up, easy and rather satisfying though this would be (there's a James Bond film involving a Russian gas pipeline, as I recall).

So: will Putin turn off the taps, as that long-running and rather prescient little graphic in the opening credits of HIGNFY has it?  More constructively, he may satisfy himself with the dramatic price hike that's already happened, of course.  

One thing's for sure, the Germans (and many others) are in absolutely no position to forgo that gas voluntarily, as we've noted here before.

Which leads us to consider a Big Accident.  If there's too much high-explosive shit flying about in Ukraine, well, all that infrastructure is really quite fragile (although not too difficult to repair).  Quite a big chunk of Russian exports still transit Ukraine, albeit NS2 is designed to put paid to that.  Who knows what any number of rogue actors might think of doing in that very large country, in the fog of war?  There are plenty of people who could profit handsomely from a Big Accident ...

"Short gas" may describe all our positions as consumers right now.  Won't be many commodities traders short gas at the moment, though.



James Higham said...

Just hope they take out those US Covid labs first. The rest is not our biz.

rwendland said...
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rwendland said...

I'm intrigued by Russia's plan, announced March 2021, to build many new LNG liquefaction plants. Four plants making 70 MTA (million tons per annum) on stream from 2024 to 2027, with possibly five more giving another 140 MTA 2030 to 2035. So seems like Russia thinks the pipeline business might diminish, or that they want the flexibility of delivering Northern and Baltic sources to Asia for better prices.

The official line is "key drivers ... are global LNG market trends, which are showing a steady increase in LNG demand."

Do you think this is a significant mid-term move ND? Could it have been in anticipation of the backwash from the booms in Ukraine?

Nick Drew said...

They are watching global LNG traders making a fortune, Mr W, arbitraging the three markets (USA, EU, J/K)

some traders having been making $10m on a single cargo, pure margin

flexibility is the name of the game for the "net zero" future, given that wind & solar are contributing "negative flexibility" in ever-increasing amounts

pipelines are not exactly the definition of flex, either ... (nor nukes)

jim said...

I didn't think he would do it - or at least would limit himself to the separatist areas. Maybe that will be the end game after all the compromises and negotiations. But Putin almost certainly wants a bit more that the separatist areas - but hopefully not the whole of Ukraine. Much bellicose talk from the usual suspects but no one is going to do anything of any significance, the chess game is over. An opening was left and he took it.

There is one 'bonus', clearly we have a large and expensive establishment of military and intelligence types who are of no practical use at all - except as maintainers of 'The Establishment'. This does not just apply to the UK, but to the US and the EU states. A mass sacking and cut back would save money and send a message. Too big already and failed at the job and no backup plan. Might help with the gas price.

The interesting question is the end game. Where is Putin going to stop?

Don Cox said...

Putin might be satisfied if he recovered the iron curtain boundary as it was in 1955. But he would feel safer if he ruled the whole of the EU.

Don Cox

dearieme said...

As long as he doesn't cross the Rhine, Don, maybe we could live with it.

rwendland said...

You wouldn't have believed it. Apparently Gazprom gas flows through Ukraine increased yesterday by more than a third. European suppliers with options under Gazprom long-term contracts had been holding off using the options hoping for price falls in a warmer March. The invasion has changed their minds about March prices, and they are trying to fill their boots (storage) quickly with gas now.

According to Telegraph/Oxford Institute for Energy Studies:

"Flow of Russian gas through Ukraine soars despite invasion"

Nick Drew said...

Yup, "curiously, just today, westward flows of Russian gas are the highest they've been for several days"

The words "mealy" "mouth" and "Germany" will be featuring in many a sentence in the days to come

dearieme said...

Frau Merkel had been a Young Communist, remember, and speaks fluent Russian.

On the other hand so many in the old West Germany enjoyed Moscow gold that she might not matter much.