The EU's Plan For Russian Gas Halt // Where Does Russian Fuel Go Now? // Haaland Stays Opaque On Offshore Leasing

The EU's Plan For Russian Gas Halt

The European Union is planning economy-wide measures to prepare for a Russian gas shutoff. 

"The European Commission, the 27-nation bloc’s executive arm, sees a sizable risk that Moscow will halt the shipments of the fuel this year in an abrupt and unilateral way," Bloomberg reports. "To prepare for this scenario, the commission plans to recommend additional measures the region should consider to curb gas consumption and lower future costs for businesses and consumers."

“Acting now could reduce the impact of a sudden supply disruption by one-third,” the EU said in the draft document detailing their plans. “Independently of a short-term full disruption, early joint action at EU level at this critical moment of the storage filling process will reduce the need for possible and more painful demand reduction later in the winter, in case of interruption of flows from Russia.” 

The real challenge will come this winter when the lethal cold sets in and heating becomes non-negotiable. The EU has to have enough gas reserves to get by past February.

According to simulations by European gas operators, the EU looks to have anywhere between 65-71% of its storage capacity. Their target is 80%. But if disruptions in supply come later in the fall, then there's less time to remedy the situation. Europe sits in a precarious position. 

According to Bloomberg, here is what the draft guidelines look like:

• "fuel switching, both in industries and power production, to preemptively save gas"

• "market-based measures, including auctions or tender systems, where governments incentivize a cut of consumption by large users, mostly industries"

• "information campaigns to reduce heating and cooling, as well as mandatory limits during an alert level of crisis"

In other words, refiring coal plants, demand response measures, and energy austerity. It's hard to imagine a world where Europe avoids a rising tide of unrest this winter. The document is still subject to change until July 20th.  

Where Does Russian Fuel Go Now?

If Russia's not sending fuel to Europe, where is it going?

The Middle East.

"Flows to the Middle East from Russia have risen every month since February, when the war in Ukraine began. They hit 155,000 barrels a day in June," reports Bloomberg. "By contrast, Europe’s imports slid 30% in the period."

 Jonathan Leitch, an oil analyst at Turner, Mason & Co., told Bloomberg that when it came to diesel-type fuels, the flows from Russia were likely to swell towards the end of the year. "It’s likely that sovereign shipping insurance, primarily from Russia, will be made available to cover such shipments of oil products, he said."

And although flows to the Middle East these flows exceeded 220,000 barrels a day from July 1-10, they're but a fraction of what Europe used to import. 

Haaland Stays Opaque On Offshore Leasing

Deb Haaland, Secretary of the Department of Interior, provided little insight to lawmakers on the DOI holding sales for offshore oil and gas leases during a hearing on July 13. 

"The hearing, convened by a Senate Appropriations Committee panel to discuss the Interior Department's $18.1 billion budget request for fiscal year 2023, quickly homed in on the partisan divide over domestic oil and gas production and how best to rein in gasoline prices," reports SPG, "with lawmakers debating the aptness of comparing the country's reliance on crude oil with heroin addiction."

During the hearing, Democrats pushed for a no-sale option, which Republicans shot down as nonsensical. 

"Questions probing the likelihood that Interior would exercise the option to hold zero lease sales, Interior's consideration of emissions and costs impacts from turning to non-Gulf produced oil, and the potential timing for the restart of lease sales mostly went unanswered as Haaland said she could not prejudge the issue," reports SPG.

But the decision on leasing offshore land will have little to no impact on the immediate crisis as the effects wouldn't be felt for a couple of years. 

"Production through the current decade is largely supported by sanctioned projects and fields earmarked for likely future developments, after which time steeper declines will materialize unless new discoveries are bagged," Platts Analytics' Sami Yahya and Rene Santos said.

But it's in the medium and long-term that the negative effects of leasing could be felt. From leasing to first production takes four to twelve years. If leases are canceled or never held, then, SPG reports, the Gulf Of Mexico could see its production levels halved by 2040. 

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