Reminder from FTChinese.com: If you are interested in more FTChinese.com content, please search for “FTChinese.com” in the Apple App Store or Google App Market to download the official app of FTChinese.com.
The protracted war between Russia and Ukraine has not only changed European geopolitics, but also profoundly affected the energy economy. Due to the interruption of Russia’s natural gas supply to Europe, the European Union was forced to seek energy from the United States, which triggered a series of changes, and the United States became the biggest beneficiary of this series of changes.
The Russian-Ukrainian war broke out on February 24. Russia is the world‘s leading oil exporter, and typically about 40 percent of Europe’s natural gas supplies come from Russia. Russia sends about 150 billion cubic meters of natural gas to Europe every year, and exports 14 billion to 18 billion cubic meters of liquefied natural gas, accounting for more than 40% of Europe’s total natural gas imports. State-run Gazprom exported about 5.8 million tonnes of LNG to the EU in January, down 40 percent from a year earlier, amid tensions between Russia and the EU. At present, Russia has withdrawn its supply to Europe due to the war, and this market has naturally attracted the attention of the United States. In fact, the Nikkei reported as early as February this year that exports of U.S.-made natural gas to Europe have grown sharply. According to survey firm Kepler, about 60% of U.S. LNG exports, or about 4.3 million tons, will be sold to Europe in January 2022, a sharp increase of about 10% from a year ago. In September 2022, U.S. LNG exports Ranked first in the world.
Data released by the International Energy Agency on June 30 showed that for the first time in June, EU imports of liquefied natural gas from the United States exceeded pipeline gas imports from Russia. Affected by the conflict, in March, the European Union decided to buy an additional 15 billion cubic meters of LNG from the United States to reduce imports of Russian natural gas, and expressed its hope to replace one-third of Russia’s natural gas imports with liquefied natural gas from various sources. In response to Western sanctions, Russia in June slashed the amount of natural gas it sends to Europe via the Nord Stream pipeline. Russia also said it suspended gas supplies to Germany in mid-July due to annual maintenance. In addition, Russia has stopped gas supplies to European countries such as Finland, Poland and Bulgaria. Russia’s supply is now almost completely disrupted.
The United States is a populous country, and its energy consumption, both in total and per capita, ranks among the top in the world. The United States is also one of the largest producers and consumers of various energy sources. The United States has abundant shale gas resources, and the natural gas produced is mainly composed of shale gas and tight gas. In September 2019, U.S. oil exports exceeded imports, making the U.S. a “net exporter” of energy. The U.S. Energy Information Administration estimated proven shale gas reserves at 200 trillion cubic feet in its December 2016 issue of “Proved Crude Oil and Natural Gas Reserves in the United States.” Even if there is no war between Russia and Ukraine, the United States is still a huge energy exporter. The U.S. Energy Information Administration had earlier forecast that U.S. LNG exports would reach 11.4 billion cubic feet per day this year. Analysts at Goldman Sachs said that would account for about 22% of the 53.3 billion cubic feet per day (Bcf/d) of global LNG demand expected this year and would outpace two exporters, Australia and Qatar.
U.S. energy tycoon Charif Souki, co-founder and former CEO of Cheniere Energy, the world’s largest LNG exporter, said on September 8: “The United States is sitting on a huge The production cost of natural gas is not high, and the United States is good at building infrastructure, which can be developed at a lower cost and sold to Europe at a high price.” In the case of serious supply and demand imbalances, Italy and other European countries tried to set a natural gas price ceiling, which changed the situation. be meaningless. If the price cap is enforced, other countries will also be willing to pay higher prices for natural gas, thus losing supply. With Europe heading into a harsh winter, the United States will be the most stable supplier of energy for both heating and industrial production, and the continent’s energy crisis will see U.S. producers export natural gas at a significant premium. European Commission President von der Leyen held talks with Azerbaijani President Aliyev in Baku in July. The two sides promised to expand cooperation in the energy field and increase Azerbaijan’s natural gas transmission to Europe. The EU is also actively seeking diesel and other energy support from the Middle East, and it is currently being imported continuously, but it is still difficult to meet the demand for reserves and production. According to data disclosed by Business Insider, American companies can earn more than $100 million in profits for each LNG ship sailing to Europe. Energy expert Laurent Seggren told Business Insider that the companies will fill a large US ship with LNG for about $60 million, while the price in Europe has soared to $275 million. Felix Booth, head of LNG analysis at Vortexa, believes these companies could earn more than $150 million per energy freight order. This rare energy profiteering deal shocked the world. This kind of profit is huge profit for multinational companies in the era of weak globalization, which has driven the revival of the energy market in the United States.
Europe is buying more gas from the U.S. at no cost at a time when Russian pipeline LNG supplies have slumped, bringing unprecedented profits to U.S. gas suppliers. According to the German energy news website IWR reported on August 30, as of August 28, the natural gas storage level of EU member states was 79.94%, which is close to the target of 80% on November 1, but still needs a lot of imports. Commodity traders, including Trafigura and Gunvor, have partnered with some Japanese trading houses that hold stakes in U.S. LNG terminals to supply natural gas energy to Europe. These operators divert cargoes destined for other regions to European markets where they can pay higher prices.
The geopolitical competition induced by Russia’s war with Ukraine has exposed the vulnerability of European energy sources. After losing Russia, an important energy supplier, the bottleneck of the EU’s development is undoubtedly revealed. There is a huge gap left in the market, and it is clear that US energy suppliers will not miss the “bonus” brought by the war. Under the background that the United States has achieved energy abundance, long-term management of strategic energy reserves, and full guarantee of its own energy security, the United States is fully equipped to export large quantities of natural gas and other energy sources to Europe. While arms assistance to Europe continues to “maintain” the war, the United States has also followed suit in its energy and economic diplomacy with Europe. Promoting natural gas and other energy exports to Europe will help revitalize the U.S. job market and stimulate economic development under the epidemic. In fact, America’s foreign policy has never lacked sophisticated economic strategy design, which has fostered a number of giant multinational corporations. In terms of energy exports to Europe, the United States has obtained more than simple commercial interests:
1. The United States gains a new competitive advantage or further influences Europe. For a long time, the main US policy towards Europe has been to exercise military influence through NATO, or to intervene in specific geopolitical conflicts, but economically the two sides have produced fierce competition. Due to the weakness of European energy exposed by the conflict between Russia and Ukraine, the United States has the opportunity to participate in the competition for Europe’s huge natural gas energy market. As the EU pursues strict low-carbon and emission reduction measures, it is difficult for the EU to import a large amount of highly polluting energy such as oil and diesel, which creates institutional conditions for the US to intervene. In addition, due to various reasons, countries including oil-producing countries in the Middle East and South America are unable to make up for the market vacancy caused by Russia’s “cutting gas” to Europe in the short term. American companies have obtained a large number of medium and long-term orders, huge profits and stable demand, which gives the United States another important economic leverage in the competition with the European Union. This leverage can even affect European industrial development and future environmental protection and industrial policies design.
Second, it may greatly promote the construction of US energy infrastructure. Since Russia-EU relations are unlikely to improve in the short term, this means that demand in this European market will continue. But energy infrastructure has a long cycle from investment to actual production. For example, the construction period of LNG facilities takes 3-4 years, and the production capacity cannot be increased immediately. New equipment invested in 2022 will not be able to supply gas until at least 2025. Due to Europe’s huge population and developed manufacturing industry, its demand for natural gas is stable and huge, and its huge demand will prompt more dollars to return to the United States, boosting the US economy. It can be expected that more domestic and multinational capital will flow to energy infrastructure, and energy infrastructure in major natural gas producing regions such as Texas, Pennsylvania, Oklahoma, and Louisiana is expected to achieve new upgrades or improvements. Renovation, and then improve the overall level of energy infrastructure construction in the United States.
3. Effectively promote the “re-industrialization” of the United States. The energy industry is a system-integrated industrial system, involving equipment manufacturing, electrical, exploration, intelligence, labor, transportation and many other industries. Through the opportunity of energy production and supply, the United States can further promote “reindustrialization”, promote employment in related fields and promote the development of energy financial credit, which will further consolidate the United States‘ status as a major energy exporter. U.S. LNG plant capacity utilization rates have remained high since late June, according to Platts data. In order to quickly grab the energy dividends under the war, American energy companies have suppressed energy investment. For example, the Golden Pass LNG company jointly established by energy giants Qatar Energy and Exxon Mobil, the project has an annual export capacity of 18 million tons of liquefied natural gas and is expected to be put into production in 2024. The project, located in the US state of Texas, is worth $10 billion, with Qatar Energy holding a 70% stake and Exxon Mobil holding a 30% stake. Other energy giants have also turned to U.S. and even Canadian natural gas sources. The energy industry may become an important driving force for the “reindustrialization” of the United States.
Fourth, promote the United States to gain new advantages in the global geo-economy. The conflict between Russia and Ukraine has made energy and bulk agricultural products more and more prominent, especially the close relationship between energy and national security is more recognized by all countries. The dependence of European manufacturing on natural gas and the lack of strategic energy reserves have exposed its vulnerability, and European manufacturing will be passive. There is economic cooperation between the US and Europe, but more competition. In the new asymmetric dependence of Europe and the United States, the United States is more likely to manipulate the new “weapon” of energy supply, deeply intervene in the EU’s economic governance system, and affect the European economy. Especially in the fields of automobiles, aviation manufacturing, and new energy equipment, due to the extremely high production costs, the traditional advantages of Europe will be greatly offset in the competition with similar products from companies such as the United States.
To sum up, the war contributed to the energy crisis in Europe, and Russia’s death was like a drain on Europe’s development, which reflected the destruction of globalization by the violent form of war, and the United States became one of the biggest beneficiaries of the war. From the perspective of energy alone, it can be seen that the US policy towards Europe in the context of the Russian-Ukrainian war is undeniably carefully designed for commercial interests. Through the Russian-Ukrainian war, the multinational energy companies in the United States will further expand and have a greater say in the global energy market. The profit-grabbing model of the United States‘ “combination of government and business” is the economic dividend of its superpower. War is the fastest and most direct way to promote the transfer of international power and wealth, and it is also an important basis for the establishment of the United States and its continued global dominance.
(Wang Yingliang, part-time researcher of Shandong University (Weihai) Institute of Global Competence, researching industrial investment and national competition, WeChat account Porsche910114. This article only represents the author’s personal views. Responsible editor email[email protected]）