Russia Threatens to Turn Off Europe’s Gas
Russia is threatening to embargo natural gas shipments to the European Union.
This could double gas prices in Europe. Which could spark a recession, chase the rest of Europe’s heavy industry to America, and leave European households facing thousands in electric bills.
Perhaps Europe shouldn’t have closed their coal plants to entertain climate activists.
Putin Tightens the Screws
Last week Vladimir Putin took advantage of the Iran war to tighten the screws on Europe, musing that “perhaps it would be more profitable for us to stop supplying the European market” in favor of other “interesting markets” -- presumably China and Asia.
The context here is natural gas is a much smaller market than oil -- about $150 billion a year exported, compared to $1.3 trillion in oil.
But it’s also an essential market, with about half of natural gas going to electricity generation since gas is much cheaper than oil. The rest goes to heavy industry -- steel, chemicals, fertilizers -- and household heating.
The problem is natural gas is much more rigid than oil, which you can put it on a boat and aim anywhere.
In the case of gas, it’s limited by specialized infrastructure since it requires cooling to negative 260 degrees Fahrenheit to make it liquid. Unlike oil that’s liquid at room temperature.
This means there isn’t a global price for natural gas, it’s different prices everywhere. "Henry Hub” in the US. Japan-Korea Marker -- JKM -- in Asia. And TTF in Europe.
Henry Hub has barely moved on the Iran war, since the US is a net exporter of LNG. So while oil moved 50% -- depending on the hour -- Henry Hub’s only up 10%.
It’s a very different story in Asia and Europe -- TTF was $32 on the eve of the war, spiked to 54, and are now around 49 dollars -- up over 50%.
The problem is Middle East gas was just 8% of Europe’s supply. But Russian gas is almost twice that — about 15%.
In other words, 8% of supply spiked prices by half.
And now Putin’s threatening to triple that hit.
This would gut what’s left of European manufacturing, especially energy-intensive industries like steel, cars, and building materials. As well as chemical-intensive industries including fertilizer for farmers.
That could spike European food prices — which could lead to social unrest that we already saw when the Ukraine war cut strangled Europe’s fertilizer supply.
Trump’s 2018 Warning
It didn’t have to be like this. Back in 2018 Donald Trump warned Germany it would become “totally dependent” on Russian energy if it didn’t start building infrastructure for US gas imports.
Germany’s diplomats smirked at the dumb American.
And they kept smirking when Trump warned Germany to stop demolishing their coal and nuclear plants for the global warming pixie farts.
Of course it played out exactly as he warned: Germany demolished 15 coal plants and all of their nuclear generators, knocking out nearly a quarter of their energy and spiking household electric rates to 3 to 4 times US rates.
And 8 years later Putin’s still blackmailing Europe with gas.
What’s Next
It took the Ukraine war for the EU to finally build terminals to buy American gas. But they were still using cheap Russian gas even though in theory they were at war.
They’ll now scramble to buy American to avoid an industrial wipeout and voters waving electric bills with their pitchforks.
This will take months since LNG supply is generally locked up in long-term contracts.
In the meantime, Europe is left praying for a short war with no backup plan
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