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Post Card from Stavanger: Winter Storm Warning

Takeaways on the European energy crisis from the ONS 2022 Conference.

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Published September 9, 2022 | 4 min read
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Key Points

  • By raising gas output close to 10% since April, ONS host Norway is seen as playing a crucial role in helping break European reliance on Russian energy supplies.
  • Sticking with the “spring will come” theme, several speakers suggested that the current crisis could serve as a catalyst to push governments to accelerate energy transition policies.
  • Other participants struck a much more somber note – beyond the rolling gas cut-offs, they indicated that Russia will likely activate its clandestine intelligence and military assets in other producer states to curtail global supplies and propel prices higher.
  • There were also divergent views on whether Europe will go forward with its December 5 oil sanctions, which could displace 2 mb/d of Russian oil.
  • While many market participants are entirely skeptical that a “full sanctions launch/no price cap” scenario could come to pass, policymakers in Washington and Europe are sticking to their guns that sanctions are locked and will launch even if the price cap plan flounders.

Against the backdrop of the worst energy crisis in a generation, making it through winter was a core concern of the government ministers, industry executives, and policy analysts who gathered at the ONS 2022 Conference in Stavanger, Norway. While some of the speakers emphasized European unity and resiliency, others warned that the worst is yet to come as Russia seeks to impose exorbitant economic costs on the West.

1)

The ONS host, Norway, was widely lauded for answering Europe’s emergency call, becoming the number one supplier of natural gas to the continent in the wake of the Russia/Ukraine war.

By raising gas output close to 10% since April, the Nordic nation is seen as playing a crucial role in helping break European reliance on Russian energy supplies. The European leaders at ONS acknowledged that they are staring down several tough winters and indicated that soaring electricity prices may necessitate the imposition of price caps.

Nevertheless, their talking points were generally optimistic, with the Belgian Prime Minister Alexander De Croo insisting, “We’ve got this if we stick together.” German officials pointed out that they have met their gas storage goals and are implementing their new LNG infrastructure, including four FSRUs, in record time by using emergency authority to clear federal, state, and local regulatory hurdles. Sticking with the “spring will come” theme, several speakers suggested that the current crisis could serve as a catalyst to push governments to accelerate energy transition policies.

2)

Other participants struck a much more somber note about the crippling costs of the Russia/Ukraine conflict.

Leading Russia experts insisted that the high storage levels are no cause for complacency, warning that Putin will escalate his energy war to sow division and discord in the Western alliance and trigger a popular backlash against military assistance for Ukraine. Beyond the rolling gas cut-offs, they indicated that Russia will likely activate its clandestine intelligence and military assets in other producer states to curtail global supplies and propel prices higher.

Libya, Iraq, and Venezuela are all seen as providing fertile ground for Russia’s asymmetric, disruptive capabilities because of preexisting political and societal cleavages as well as the presence of Kremlin-linked armed actors (including the Wagner group). Moreover, they indicated that Putin will seek to stymie the revival of the JCPOA, not only to prevent Iranian barrels from coming onto the market but also to further his goal of building a global anti-Western alliance.

3)

There were divergent views on whether Europe will go forward with its December 5 oil sanctions, which could displace 2 mb/d of Russian oil.

German officials were adamant that the EU has every intention of moving forward with the seaborne oil embargo as well as the sanctions on providing shipping and insurance services to move Russian barrels to third countries. They insisted that any move to repeal or water down these measures would require unanimity amongst the member states and that Poland, Estonia, Lithuanian, and Latvia would block any move to walk back these punitive measures. The UK apparently is also fully on board with replicating the EU measures.

In addition, the officials expressed optimism that the EU would be able to craft a workable oil price cap plan with Washington to enable the displaced barrels to move to Asian markets and prevent major market dislocations. They did concede that there is more flexibility on the voluntary move by Germany and Poland to end Russian pipeline imports as it falls outside the EU legal framework. Some German industry officials are complaining that the cessation of imports through the northern line of the Druzhba pipeline will put them at a competitive disadvantage to their counterparts in Hungary and Slovakia who will continue to receive flows through the southern line of the pipeline.

4)

The energy executives in attendance, on the other hand, expressed skepticism that Europe would fully implement the sanctions and seemed confident that there would be an eleventh hour climb down.

They maintain that European governments are singularly focused on gas at the moment and have not fully processed the oil market implications of the December 5 sanctions. The industry executives also continue to contend that it will be exceedingly difficult to implement a workable oil price cap plan because India and China are unlikely to participate due to the close ties with Russia, and in the case of China, escalating hostility towards the United States.

5)

We continue to highlight the importance of the December 5 sanctions decision and see a “full sanctions launch/no price cap” scenario as exceedingly bullish for oil prices.

While many market participants are entirely skeptical that such a scenario could come to pass, we continue to highlight that policymakers in Washington and Europe are sticking to their guns that the sanctions are locked and loaded and will launch even if the price cap plan founders.


This content is based on commentary and analysis from the ONS 2022 Conference hosted in Stavanger, Norway from August 29, 2022 to September 1, 2022. For more information about the conference, please contact your RBC representative.

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