Russia Re-Ups Its Gas for Rubles Program // German Union Head: Entire Industries Will Collapse // American Energy Consumption Since 1776

Russia Re-Ups Its Gas for Rubles Program

Russia has decided to extend its gas-for \-rubles program after taking over the Sakhalin-2 LNG project.

"The proposal for demanding payments in rubles for LNG came from Kiril Polous, who is in charge of Gazprom’s long-term development programs, during a parliament energy committee meeting," reports Oilprice.com.

Last week, Putin announced that a new, state-run company would take over control of Sakhalin, like forcing out Shell (which already signaled its exit from the project at the beginning of the Ukraine war) and Japanese firms Mitsui and Mitsubishi.

“If the Sakhalin project, which has supplied Japan at competitive prices, is in such a state of limbo, spot prices are at risk of rising further, which could even trigger a panic in the market,” said Hiroshi Hashimoto of the Institute of Energy Economics in Japan.

The gas-for-rubles payment system is already in effect. But Gazprom has ceased sending natural gas to countries that have refused to bend the knee--Poland, Bulgaria, Finland, and customers in the Netherlands, Denmark, and Germany.

Last month's gas flows to Europe dropped considerably. According to SPG, "Russian gas deliveries to Europe fell sharply on June 16 when Gazprom cut supplies through Nord Stream to just 40% of capacity, citing maintenance issues with a key compressor station."

Nordstream 2 is set to close for two weeks of maintenance this month, but there's great uncertainty about whether or not the pipeline will come back online. In which case, Europe will struggle to refill its reserves in preparation for winter. Indeed, Q3 looks tight for Europe.

"In the power sector," reports SPG, "efforts to reduce gas-for-power demand have been compromised by record-low nuclear availability and sub-par hydro resource. As a result, gas and power prices across Europe are more than four times higher year on year, while EUA carbon prices have climbed 47% over the same period."

The effort to avoid Russian energy will continue to ravage the European economy and create political turmoil throughout the region.

German Union Head: Entire Industries Will Collapse

Germany's industrial titans teeter on the verge of collapse according to the head of the German Federation of Trade Unions, Yasmin Fahimi.

“Because of the gas bottlenecks, entire industries are in danger of permanently collapsing: aluminum, glass, the chemical industry,” said Fahimi, “Such a collapse would have massive consequences for the entire economy and jobs in Germany.”

Fahimi said that the energy crisis is pushing inflation to worrying highs. Bloomberg reports that she is "calling for a price cap on energy for households. The rising costs for Co2 emissions mean further burdens for households and companies, Fahimi added. The crisis could lead to social and labor unrest, she said."

Economics Minister Robert Habeck said over the weekend that the German government is puzzling out ways it can "address the surging costs both utilities and their customers face." He did not provide details. Habeck has also warned that German utilities are in danger of cascading failures.

“If one company were to fail, or other companies were to fail, it’s like a domino effect that would very quickly lead into a deep recession,” he said.

American Energy Consumption Since 1776

The real energy transition was from wood to fossil fuels, from a scattered agrarian economy to systemized web of industry. We now live in a vastly interconnected country with expansive federal powers and private companies that tower like behemoths over those early mills and smiths present at the founding. Looking at the graphs below makes it clear what a change this was.

We can see the dawn of the industrial age. With it came incredible wealth, convenience, health, and possibility. But it also came with new power dynamics, systems of order, and political questions about the relationship between liberty and equality.

The American ethics of thrift and self-reliance have sat in tension with its entrepreneurial and commercial spirit--especially after the advent of consumerism after World War II.

And America has since lost its youth. The frontier closed long ago. Man has met the stars and our flag sits in suspended animation on the surface of the moon. And whereas America was once seen as a wild expanse ripe with renewal, we now seem stuck in a present of our own making but beyond our understanding. The great motor arm of Change that pushed the nation onward has stopped.

Perhaps, after celebrating our nation's birth, we must ask what our founding fathers would make of our current predicament. Energy has given us great freedom--for that we should be grateful. But what does freedom mean to us today? On what does it rely? And what shall be done with it?

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Conversation Starters

• Venezuela's largest oil refinery halted production yesterday due to a blackout. "Blackout in the Amuay refinery. An electrical problem. Total blackout. In Amuay, the distilling and catalytic plants might be affected, which is currently producing about 80% of the country's gasoline," said an unnamed source.

• Irina Slav has written a sobering piece on the realities of the energy transition. I highly recommend it.

• Iran has further cut the cost of its oil to compete with Russia and China. According to Vandana Hari, founder of Vanda Insights in Singapore, “The only competition between Iranian and Russian barrels may end up being in China, which would work entirely to Beijing’s advantage. This is also likely to make the Gulf producers uneasy, seeing their prized markets taken over by heavily discounted crude.”

Crom's Blessing