FINANCE

If the US wants to sell more natural gas to Europe, it must compete on the same merits

Published

4 years ago

May 2, 2020

With its abundance of unconventional natural gas, the US has been a net exporter since 2017. It wants to sell much more liquefied natural gas (LNG) to Europe, but here’s the problem: Russia dominates that market. What’s next?

Donald Trump’s pitch to the American people is that the United States would become a dominant energy source – that the country would feed its own needs and then export its unconventional shale oil and gas around the world. But the president’s vision has hit some roadblocks: for starters, Russia’s Gazprom already has deep footprints in Europe and is developing a pipeline that will allow it to double its current capacity – a delivery mechanism that’s cheaper than freezing the gas and shipping it. At the moment, though, there’s a gas glut and a withering market for the fuel.

“LNG demand is weak right now,” said Neil Chatterjee, chair of the Federal Energy Regulatory Commission, in a conference call hosted by the Atlantic Council this week. American “companies are trying to secure long-term contracts and the US is now a net exporter of energy. This has positive benefits economically and geopolitically: it’s an alternative to Russia and it is beneficial to our allies. A resurgence of demand will come.”

But sinking demand is creating uncertainty among LNG producers. And the same jitters apply to Gazprom. While Russia supplies 39 percent of Europe’s natural gas, the continent has alternative suppliers – Norway, Algeria, Qatar and Nigeria – and they provided about 5 percent more from 2018 through the first half of 2019, says Eurostat. The US is also providing 3.4 percent to a market it thinks can be cracked wide open: a third of all its LNG went to the European Union between January and November 2019, the European Commission says.

The Trump administration is arguing that it’s in Europe’s interest to diversify its natural-gas mix – that the competition will force Russia to reduce its prices and make concessions. To that end, the US has tried to stifle Nord Stream 2, the US$10.5 billion pipeline that stretches 745 miles from the Russian gas fields to Germany’s Baltic coast. It’s currently running two years behind schedule, although it could be completed in 2021.

Gazprom is forecasting a steady uptick in the amount of natural gas it now supplies Europe, but the International Energy Agency thinks it might drop a bit, to 33-36 percent of that market.
Playing politics

The Russians say the Americans are playing politics. And the European Union is backing them up. Nord Stream 2 is running late – in part, because the US imposed trade sanctions on Russia in December 2019 to force Europe into buying American. It also means that any third-party supplier or financier has the potential to get squeezed by sanctions. So, Russia is having to go it alone, but US officials say it lacks the technology to complete the job.

“President Putin is furious about Nord Stream 2,” says Angela Stent, a senior fellow at the Brookings Institution, in a conference call with RT. “The Russians see US shale as a major competitor.” German Chancellor Angela Merkel is also critical of the sanctions, saying they have an “extraterritorial effect” that would impact the German utility company Uniper, which is helping to finance the pipeline. It could also affect Shell, OMV and ENGIE, which have money on the table.

The biggest European markets for the US are the UK, Spain and France. But Germany is the most lucrative catch – a country that’s in the process of shutting down all its nuclear and coal plants. It has a goal of replacing much of that energy with renewables. Before that can happen, however, it will look to natural gas to fill the void. Even after that, natural gas will play a major role in its electricity portfolio because it will be needed to back up wind and solar power when the weather does not play ball.

Germany imported nearly US$15 billion-worth of natural gas in 2019. But it has paid 40 percent less in 2020, according to its Federal Office for Economic Affairs and Export Control. Still, if the US wants a cut of that, it has to get its cost down. Right now, by the time natural gas is liquefied, frozen and shipped to Europe, it will run for US$3 to US$4 per million Btus (or British thermal unit – that is, the unit of measurement for energy) , according to ShareholdersUnite.com. And Russia can pipe it in there for less than US$3.

The coronavirus is a dark cloud over the entire market. Before the pandemic struck, Europe had been expanding its LNG import terminals, and the US had approved a dozen export terminals, on top of the five now operating. Lower demand, in combination with excess supplies, is making natural-gas prices cheaper than ever. And that stings both Gazprom and US LNG exporters.

“One of the things we did in the LNG space was to approve 12 LNG export facilities in the last year,” says Chatterjee, of the work done by the Federal Energy Regulatory Commission.

Europe will no doubt benefit from the competition. But the US is not going to gain new markets by bullying Russia and trying to block its Nord Stream 2 pipeline. To win, the Americans must do it the old-fashioned way: create a better product at a cheaper price. And for now, that’s a tough task.

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FINANCE

Global debt balloons to record highs

Published

12 months ago

May 25, 2023

The San Francisco Telegraph

It’s now $45 trillion higher than its pre-pandemic level and is expected to continue growing rapidly, a top trade body has warned

The global debt pile increased by $8.3 trillion in the first quarter of the year to a near-record high of $305 trillion amid an aggressive tightening of monetary policy by central banks, the Institute of International Finance (IIF) has revealed.

According to its Global Debt Monitor report on Wednesday, the reading is the highest since the first quarter of last year and the second-highest quarterly reading ever.

The IIF warned that the combination of such high debt levels and rising interest rates had pushed up the cost of servicing that debt, prompting concerns about leverage in the financial system.

“With financial conditions at their most restrictive levels since the 2008-09 financial crisis, a credit crunch would prompt higher default rates and result in more ‘zombie firms’ – already approaching an estimated 14% of US-listed firms,” the IIF said.

Despite concerns over a potential credit crunch following recent turmoil in the banking sectors of the United States and Switzerland, government borrowing needs to remain elevated, the finance industry body stressed.

According to the report, aging populations and rising healthcare costs continue putting strain on government balance sheets, while “heightened geopolitical tensions are also expected to drive further increases in national defense spending over the medium term,” which would potentially affect the credit profile of both governments and corporate borrowers.

“If this trend continues, it will have significant implications for international debt markets, particularly if interest rates remain higher for longer,” the IIF cautioned.

The report showed that total debt in emerging markets hit a new record high of more than $100 trillion, around 250% of GDP, up from $75 trillion in 2019. China, Mexico, Brazil, India and Türkiye were the biggest upward contributors, according to the IIF.

As for the developed markets, Japan, the US, France and the UK posted the sharpest increases over the quarter, it said.

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FINANCE

Nigeria takes step to combat fuel shortages

Published

12 months ago

May 24, 2023

The San Francisco Telegraph

The West African country has built a giant oil refinery to cover domestic demand

Nigeria will commission its new Dangote Petroleum Refinery on Monday in hope of alleviating the chronic fuel shortages that have turned Africa’s biggest oil producer into a fuel importer.

The processing plant, which has capacity of 650,000 barrels per day, is expected to cover all of the country’s fuel demand, according to Nigerian media.

Built by Dangote Group, a conglomerate owned by billionaire industrialist and Africa’s richest man Aliko Dangote, at the Lekki free trade zone near the city of Lagos, the refinery is being touted as a way to end the country’s reliance on imports for nearly all of its refined petroleum products.

The giant complex is one of Nigeria’s single largest investments. It comprises a 435-megawatt power station, a deep seaport and a fertilizer unit. Initially, $12 billion was earmarked to build the refinery, but the project ended up costing $19 billion after years of delay.

Crude processing is scheduled to begin in June, although the research consultancy firm Energy Aspects said that commissioning was an intricate process and that the facility may only start operating later this year. It is expected to reach about 50-70% of processing capacity next year and full capacity by 2025.

The refinery will produce Euro-V quality gasoline and diesel, as well as jet fuel and polypropylene, the company said, adding that the facility was “designed to process a large variety of crudes including many of the African crudes, some of the Middle Eastern crudes and the US Light Tight Oil.”

Despite being Africa’s biggest oil producer, Nigeria imports petrol, diesel, and processed petroleum products because many of its own refineries have dilapidated over the years.

Russia accounts for lion’s share of India’s oil imports – Reuters

Dangote expects the new plant to cover Nigeria’s domestic fuel needs and produce extra volumes for export. It is also expected to boost the market for Nigerian crude to $21 billion per year, the company added.

The Nigerian National Petroleum Corporation has a contract with Dangote to supply some 300,000 barrels of crude per day. However, theft, pipeline vandalism, and underinvestment poses a threat to achieving full output, economist Kelvin Emmanuel told Reuters.

In April, Nigerian oil production slumped under 1 million bpd, below Angola’s output, data showed.

According to Emmanuel, Dangote might be importing oil from international trading companies such as Trifigura and Vitol, as the refinery has not yet signed agreements with oil majors in Nigeria.

Meanwhile, Energy Aspects expects the Dangote refinery to not only solve Nigeria’s fuel shortages but also to reshape the gasoline market in the Atlantic basin.

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FINANCE

US will default if debt deal fails – treasury secretary

Published

12 months ago

May 24, 2023

The San Francisco Telegraph

The current borrowing limit is a constraint on Washington’s ability to meet its obligations, Janet Yellen insists

America’s chances of paying its bills after June 1 are “quite low,” US Treasury Secretary Janet Yellen warned on Sunday in an interview with NBC’s ‘Meet the Press’.

According to Yellen, if Congress fails to reach an agreement on raising the country’s $31.4 trillion borrowing limit by that time, it will be forced to default on “some bills” shortly after.

“There’s always uncertainty about tax receipts and spending. And so it’s hard to be absolutely certain about this, but my assessment is that the odds of reaching June 15, while being able to pay all of our bills, is quite low… My assumption is that if the debt ceiling isn’t raised, there will be hard choices to make about what bills go unpaid,” Yellen said.

The treasury secretary did not say which ‘bills’ she had in mind, but noted that the government’s most immediate obligations range from paying interest on outstanding debt to “obligations to seniors who count on social security, military, contractors who’ve provided services to the government.”

She added that “there can be no acceptable outcomes if the debt ceiling isn’t raised.”

The administration of US President Joe Biden and Republicans led by House Speaker Kevin McCarthy have been at an impasse over raising the debt ceiling for several months, despite warnings that the US could face its first-ever default unless it is raised by June 1.

Republicans are refusing to agree to the move unless Biden agrees to government spending cuts and curbs on social programs.

Some lawmakers have called on Biden to invoke his powers under the 14th Amendment to the Constitution and bypass Congress and unilaterally raise the debt ceiling. However, Biden told reporters on Sunday that while he has considered doing so, there is likely not enough time before the deadline.

Biden and McCarthy are scheduled to meet again on Monday to discuss the matter.

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