Europe scrambles for energy before cutting itself off from Russia


Europe is rushing to stock up on oil and natural gas before imposing tougher sanctions on Russian energy, showing the momentum to revamp the world’s energy supply in the wake of the war in Ukraine.

Liquefied natural gas import terminals took in a record amount of chilled fuel for the time of year in April, according to commodity tracking firm Vortexa. Oil imports from non-Russian suppliers, meanwhile, reached their highest level since the start of the pandemic.

Governments and businesses are preparing for the slowdown in Russian imports by seeking alternative sources in the United States, Africa, the Middle East and Asia, as well as pulling more supplies from Europe itself.

The search for new supplies is a boon for energy companies able to sell into Europe’s starving market at historically high prices. The immediate beneficiaries are commodity traders, US LNG exporters, West African crude producers and Indian oil refiners.

Europe is boosting its supplies in anticipation of a likely embargo on Russian oil and a possible halt to gas exports by Moscow. Both steps would amount to rewiring an economy that operated on affordable Cold War-era Russian energy. Berlin says 12% of German oil imports now come from Russia, up from 35% before the February 24 invasion.

Among the winners: BP PLC,

which posted $6.2 billion in underlying first-quarter profit on Tuesday after withdrawing a $25.5 billion charge from its decision to leave Russia.

Chief executive Bernard Looney said BP had sent 55 shipments of LNG to Europe in the past five months, a frenzy of activity for the company’s gas traders. Meanwhile, the company’s four European refineries are making money because the price of the fuel they sell exceeds the cost of the crude they buy.

As Europe rushes to wean itself off Russian energy, US natural gas producers are struggling to meet demand and prices are rising. Factors such as extreme weather conditions and equipment requirements created a bottleneck amid the war in Ukraine. Illustration: Laura Kammermann and Sharon Shi

“Industry margins have risen sharply since the invasion,” chief financial officer Murray Auchincloss said of the refining.

The stampede in Europe is driving up prices for consumers in the United States. Natural gas futures have more than doubled this year and diesel futures have soared 80%, adding to inflationary pressures that the Federal Reserve is trying to stifle with higher interest rates.

Companies and governments are looking to lock in long-term supplies. NextDecade Corp.

announced this week that it had signed a 15-year agreement to supply LNG from its Brownsville, Texas-based LNG export project to Engie SA from 2026.

SHARE YOUR THOUGHTS

What are the implications for investors if Europe reduces its dependence on Russian gas? Join the conversation below.

The deal marks a turnaround for the French power company, which halted negotiations on a multi-billion contract to buy gas from NextDecade at the end of 2020 due to concerns about the environmental effects of fracking.

The decoupling of Europe from Russian energy has accelerated in recent weeks. The European Union is finalizing an agreement to end Russian oil purchases, possibly by the end of the year. Shipments are already on track to plummet when sanctions against state producers Rosneft Oil Co.

and Gazprom Neft starts in mid-May.

The gas market is a bigger concern. Officials and analysts say Gazprom could cut supplies elsewhere in Europe after turning off the taps in Poland and Bulgaria last week. The giant producer said he had not received payment in rubles as required by a Kremlin decree.

To prepare for a future without Russian gas, Europe imports more from afar. Suppliers from North America and Africa stepped in, shipping 81% and 25% more LNG respectively than a year ago, said David Wech, chief economist at Vortexa. The surge has helped boost the shares of LNG exporters, such as Cheniere Energy Inc..

up 38% this year, and Tellurian Inc.

which climbed 68%.

French LNG imports hit a record 2.4 million metric tonnes in April, said Laura Page, senior analyst at vessel tracking company Kpler. Dutch and Belgian imports also reached historic highs, while British imports reached their second highest level on record.

There are limits to the amount of LNG Europe can suck in, with tankers fully booked and import terminals at full capacity. A sign of the bottleneck: the price of gas in Northwestern Europe has risen to a huge premium over the price of imported LNG, according to Spark Commodities.

Utilities and traders who control slots at import terminals can profit from the difference by buying LNG at relatively low prices and selling at a higher price, analysts and ship brokers say.

In oil markets, European imports of crude from Africa rose by half a million barrels a day from the month to January 16, according to Vortexa, while imports from North America and the Middle East increased by 300,000 barrels per day each.

Diesel, on the other hand, comes from refiners in India and the Middle East. The conflict has worsened a months-long fuel shortage as Europe became dependent on Russian refiners when it pushed drivers to switch to diesel cars in the 2000s.

A challenge in attracting diesel imports from distant markets is that spot prices have risen well above delivered prices several months later. Cargo therefore loses value while en route, said Eugene Lindell, an analyst at FGE, an energy consultancy.

“What is happening now in terms of the shortage of diesel in Europe is going to be a difficult task for the global refining system,” said Josu Jon Imaz, chief executive of Spanish oil company Repsol.,

told analysts in late April.

Write to Joe Wallace at [email protected]

Rising demand has helped boost shares of LNG exporters such as Cheniere Energy.


Photo:

Mark Felix/Bloomberg News

Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8


Wj

Not all news on the site expresses the point of view of the site, but we transmit this news automatically and translate it through programmatic technology on the site and not from a human editor.
Back to top button