The last year or so has been one of a building energy crisis. Whilst there has been an effort by central bankers and governments to blame the war in Ukraine the low in the oil price over the past year was mid August 2021. It was already on the rise as were gas prices. This was exacerbated by the political rhetoric at COP26 last November.
The UK Presidency has worked hard to end unabated coal power, the most polluting fossil fuel. 65 countries have now committed to coal phase out, including more than 20 new commitments at COP26.
It feels like a comedy sketch now as we look at subsequent events and there was more.
We cannot stop at coal. We need to phase down the use of all fossil fuels across the energy sector. At COP26, 34 countries and 5 public finance institutions committed to end direct public support (c.$24 billion annually) for the international unabated fossil fuel energy.
That has rather morphed into President Biden trying to persuade the Gulf States to produce more oil which is awkward on two counts. They must be wondering why he has been so anti US production? Also there is this as reported by @Amena_Bakr.
The US wants more oil from Opec Plus, the EU wants more oil from Opec Plus, the G7 wants more oil from Opec-Plus. And Opec-Plus is running low on spare capacity…using what they have left might cause more panic to an already volatile market.
As you can see they may well drive oil prices even higher which has happened as they have been debating this at the current G7 meeting. Also there has been this reported by Reuters.
“I had a call with MbZ,” Macron was heard telling U.S. President Joe Biden on the sidelines of the G7 summit, using shorthand for UAE leader Sheikh Mohammed bin Zayed al-Nahyan. “He told me two things. I’m at a maximum, maximum (production capacity). This is what he claims.”
“And then he said (the) Saudis can increase by 150 (thousands barrels per day). Maybe a little bit more, but they don’t have huge capacities before six months’ time,” Macron said.
Rationing?
Monty Python came up with the ministry for silly walks whereas the present G7 meeting seems determined to come up with silly ideas.
According to a draft text seen by the Financial Times, leaders will explore the “feasibility” of introducing temporary price caps on imports of energy — a reference to a US-led push for a ceiling on the Russian oil price. A G7 official said earlier that capitals agreed it was a good idea, but a “great deal of work” remained to be done to make it a reality.
The obvious problem here is highlighted by oilprice.com
The United States, the UK, and, more recently, the EU, have all imposed bans on the imports of Russian oil and oil products, but China and India have stepped up their purchases as Russian crude trades at a sharp discount to the international benchmark.
How do you impose a price cap on something you are not buying? If they thought they could persuade China then they have already scored something of an own goal,
This suggests two things: one, that there is no point in trying to convince China to stop buying Russian oil, at least not in the conventional way of simply asking or offering something in return. There is little G7 could offer in return, especially now that it is challenging Beijing’s Belt and Road initiative with a war chest of $600 billion to be spent on infrastructure projects in the poorer countries of the world. ( oilprice.com)
They get onto pointing out that the price cap would be likely to have the reverse effect on world oil prices.
The price cap idea also assumes that Russia will choose to continue selling its oil rather than halting all exports and watching how Brent crude hits $200 in weeks. This possibility was noted by energy industry executives, by the way.
Actually there are other problems with world oil production.
Ecuador’s energy ministry warned Sunday that oil production had reached a “critical” level and could be halted entirely within 48 hours if protests and roadblocks continue “Oil production is at a critical level,” the ministry said in a statement. ( ForexLive )
Libya too.
OIL MARKET: I said this again. While everyone focuses about Russia, do not forget about Libya, where things are going from bad to worse. On Monday, Mustafa Sanalla, the chairman of the national oil company admitted: “The situation is very serious” ( @JavierBlas)
It looks as though output has halved since mid-April giving another reason why oil prices are high and production responding less than you might think.
Then the issue of asking for more production outside Russia collides with this.
French officials focused during discussions on Monday on ways of moderating prices via higher output. In particular, France wants to explore ways of bringing production from Venezuela and Iran, both subject to US sanctions, back on the market. ( Financial Times).
The European Union and the US
These two parties issued a statement yesterday. The situation is especially acute in Europe at the moment.
This was most recently demonstrated by the politically motivated acute disruptions of gas supplies to several European Union Member States.
Another way of looking at this is that my country the UK has been exporting the maximum amount of power it can via the interconnectors in recent days ( circa 5GW). As I type this it is 4.3 GW and we have even been running a small coal plant (0.23 GW ) ti help too. It is hard to describe the past political rhetoric this contradicts but this is my present favourite.
The EU could hit Britain and Jersey’s energy supply over the UK’s failure to provide sufficient fishing licences to French fishers, France’s EU affairs minister has said.
Clément Beaune, who is a close ally of the French president, Emmanuel Macron ( The Guardian from last October).
Returning to the statement why should fossil fuel producers help you when you are saying this?
The United States and the European Commission are also taking decisive action to reduce overall demand for fossil fuels in line with the Paris Agreement and our shared goal of net zero emissions no later than 2050.
As to smart thermostats surely they cost rather than save energy.
We will encourage Member States and European and U.S. companies to reach an initial goal of deploying at least 1.5 million energy saving smart thermostats in European households this year.
The reality is that rationing looks to be on its way or if you prefer the euphemism.
energy demand response solutions.
LNG is good
Since March, global LNG exports to Europe have risen by 75 percent compared to 2021, while U.S. LNG exports to Europe have nearly tripled.
LNG is bad
Mindful of the environmental impact of LNG production and consumption,
Comment
The central issue is that we are being led by people who cannot admit their mistakes. Thus they continue to make them. A price cap plan would likely send the oil price even higher and a lot higher as people scramble to buy. In time there would be more production but not for a while because of the anti fossil fuel policies of the same group of politicians. The absolute mess here is highlighted by this from the BBC about my home country the UK.
The Jackdaw field, east of Aberdeen, has the potential to produce 6.5% of Britain’s gas output.
The regulatory approval comes as the UK government seeks to boost domestic energy output following Russia’s invasion of Ukraine.Shell’s proposals were initially rejected on environmental grounds in October.
Thus they seem set to make this even worse.
The G7 leaders were meeting four months into a war in Ukraine which has pushed up the price of food and hydrocarbons, triggering fears of a global recession. ( Financial Times)
We seem to be sanctioning ourselves……