Essay by Eric Worrall
UK PM Liz Truss and the EU plan to impose a Putin Energy Price Cap – but with Chinese hydroelectricity running dry, and Russia sending gas to China via a pipeline, the EU has zero leverage to negotiate a discount.
Putin warns the West will ‘keep freezing’ if energy price caps are imposed – and Russia will stop all gas and oil supplies
Putin said Western attempts to cap prices for Russian oil and gas were ‘stupid’
The Russian leader, 69, warned EU leaders that Russia would walk away from supply contract if EU imposed price caps on the country’s exports of gas and oil
If gas and energy supplies stopped, there would be devastating consequences
By RACHAEL BUNYAN FOR MAILONLINEPUBLISHED: 19:33 AEST, 7 September 2022 UPDATED: 05:36 AEST, 8 September 2022
Russian President Vladimir Putin today warned that the West will ‘keep freezing’ if price caps are imposed on Russia’s oil and gas exports.
Putin told an annual economic forum in the far-eastern port city of Vladivostok that Russia will stop all gas and oil supplies if those price caps go ahead.
The Russian leader, 69, said that European calls for a price cap on Russian gas were ‘stupid’, and would lead to higher global prices and economic problems in Europe.
But EU chief Ursula von der Leyen this morning refused to back down and proposed that member states agree on a price limit on Russian gas imports.
‘The objective here is very clear. We must cut Russia’s revenues which Putin uses to finance this atrocious war against Ukraine,’ the president of the European Commission told reporters.
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This is a crisis which could have been avoided. Putin is responsible for shutting the gas taps, but European and British leaders are responsible for the reckless green energy policies which made their nations so vulnerable to Putin’s games.
Why are UK Prime Minister Liz Truss and the European Union making such a futile stand?
My theory is they are making rookie negotiating mistakes, because as far as I can tell the leaders of the EU and Britain have never run a business. UK PM Liz Truss went straight from being an employee to being a member of parliament. EU President Ursula von der Leyen worked as a physician before going into politics.
Running a business is a tough lesson on the dynamics of negotiation. If you want to negotiate the price down on a vital commodity, or reject someone a price increase, you need to have a backup plan, in case the other party tells you to go to hell, and breaks off negotiations. Which is pretty much what Putin just did.
Europe and Britain have no leverage over Russia, and no backup plan, because Russia no longer needs their business. Russia can sell as much gas as they want to China, via a pipeline which was opened in 2019 (another to be completed by 2025). Russia has also been using gas which used to go to Europe to generate electricity, which is being shipped to China via Russia’s HVDC interconnector.
Britain and Europe could have worked on a backup plan, but they simply ignored the problem instead of trying to find a solution. If Britain and Europe had started issuing fracking permits last February, when Russia invaded Ukraine, some of that gas would now be coming online. Even if they had delayed a few months there would have been a chance to increase supply before February.
But Europe and Britain have run out of time – even if large quantities of fracking equipment was loaded onto an East Coast USA ship today, it would still take at least a week to arrive, and months to install and connect to gas supply lines. There is now no chance of a substantial increase to domestic British and European energy supplies before the coming winter.
Europe claims their gas storage facilities are almost full – but they are still talking about energy rationing, in the wake of Russia’s complete gas shutdown.
Biden promised to ship more US gas, but now the USA itself is running short. Biden recently told US exporters to cut back, because the North East is running short of energy, thanks to all those cancelled US pipelines and cancelled fossil fuel projects.
Australia is supplying a little coal, but it almost certainly won’t be enough – Asia is just as desperate for energy as Europe, and Asia is much closer to Australia. In the time it takes to send a shipment of coal to Europe, the same ship could have carried two loads of coal to Asia, which makes diverting coal to Europe very expensive for Aussie suppliers.
Even if Australia did send more coal, thanks to regulatory hostility to coal and coal plant shutdowns, Europe and Britain likely don’t have enough capacity to use the additional coal Australia could ship, or additional coal they dig up themselves. Gas plants can be converted to burn coal, by installing a gassifier – but it takes months, more likely years, to fabricate the required equipment, and to install it correctly. Gassifiers produce large quantities of deadly carbon monoxide, which has to be correctly managed, so gassifier installation is not something you can rush.
Australia could send more liquified natural gas, but Aussie gas exporters are already at capacity, tied to long term contracts with Asian countries. The same kind of long term contracts Putin advised European leaders to consider.
Britain and Europe’s last hope might be able to buy enough refined diesel from India and China to keep the lights on. Europe and Britain have access to substantial emergency diesel generator capacity. India is making a killing, sidestepping sanctions and processing Russian crude into distillates, and selling their product on the world market. But someone will have to cover the cost of burning diesel for power, the emergency backup generator operators charge orders of magnitude more for their electricity than regular energy suppliers. In any case, It is doubtful sufficient quantities of oil could be shipped to Europe in time to make a difference.
The price cap will fail, and ordinary British and European people will suffer for the stupidity of their leaders.
