Putin Raises Stakes in Ukraine Standoff - Energy Intelligence
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February 21, 2022
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CONTENTS Putin Raises Stakes in Ukraine Standoff
Putin Raises Stakes in
Ukraine Standoff Russian President Vladimir Putin decided to support a recommendation from his National Security
Saudi Arabia: Energy Council to recognize the independence of the Donbas and Luhansk republics in eastern Ukraine,
Security Needs ratcheting up tensions with the West and pushing energy prices higher.
Hydrocarbons
Iran to Continue on The declaration, made by Putin in a televised address to the citizens of Russia late Monday is likely
Negotiating Path to trigger the start of the process in Europe and the US to implement sanctions on the Russian
Jera Seeks financial sector and strategic industries, some of which could include portions of its vast energy
Commercial Ammonia trade. However, it is unclear how severely the West might respond to the declaration if there is not a
Supply corresponding movement of Russian troops into Ukraine.
Oil Rises on Russia-
Ukraine Fears The impact of the news on energy markets was mixed.
In Brief Oil prices rose on the news flow despite US markets being closed due to the Presidents Day holiday.
Shell: Europe Will
Have to Compete for Brent front-month crude futures increased by $1.63, or 1.7%, to $95.17 per barrel. US West Texas
LNG Intermediate futures jumped by $1.22, or 1.3%, to $92.29/bbl.
High Prices to Boost
Mena Energy But European gas prices on Monday were torn between bearish fundamentals of milder weather
Investments and higher Norwegian gas flows and the geopolitical uncertainty caused by the potential escalation
TotalEnergies Strikes in Ukraine.
Oil Offshore Suriname
Editor's Note: High wind speeds helped reduce gas demand but prevented some LNG vessels from docking in the
Presidents Day UK, limiting LNG supply intake compared to last week.
Holiday
The month-ahead March gas futures contract at the Dutch TTF hub traded as low as €69 per
Data Snapshot megawatt hour during Monday trading before rising to around €74/MWh in the afternoon, before
Oil and Gas Prices, closing essentially flat at €71.95/MWh.
Feb. 21, 2022
Equity Markets, Feb. Daily nominations for gas transit via Ukraine from Gazprom on Monday were up slightly from
21, 2022 Sunday at 50.5 per million cubic meters, but remain just half of the 110 million cubic meters per day
booked under the five-year transit deal signed in 2019.
Risk of Incursion
In conjunction with signing the decree on recognition of the independence of Donetsk and Luhansk — which is then to be ratified by
the Russian parliament — Putin inked agreements on friendship, cooperation and mutual help with the two breakaway republics. Those
documents could include military support as well.
Putin’s decision raised fears that Russia could move troops into eastern Ukraine, escalating the crisis but falling short of an all-out
invasion of the country.
Early this month, Energy Intelligence laid out three main scenarios for how the crisis could unfold. The report said that a state of high
tensions was most likely, with outcomes depending on US/Nato-Russia negotiations. Without progress that satisfies Moscow’s
demands, the report predicted further escalation, with limited intervention in eastern Ukraine a possibility.
The other two, less likely, scenarios involved full conflict through large-scale invasion or miscalculation, or quick de-escalation through
negotiation. The report noted that Putin is seeking to take advantage of a period of comparative Russian strength to stem Ukraine’s
Western drift, push back on the eastward expansion by Nato and establish clearer security arrangements.Energy Intelligence late last week reported data showing a sharp rise in Russian fuel shipments to areas bordering Ukraine. Over 12,000 barrels per day of products — primarily jet fuel and diesel, but also some gasoline — were shipped to armed forces in seven regions bordering Ukraine and southern Belarus in January, according to the data. This rose to about 14,000 b/d in the first half of February. These volumes compare with an average of just 3,000 b/d for the whole of 2021. Russia’s Security Council Meets At the meeting Monday members of the Security Council supported the proposal to recognize the independence of Donetsk and Luhansk provinces, which broke away from Ukraine’s control in 2014. They cited the failure of Ukraine to implement the Minsk agreements and increased shelling along the border region by both sides as adding urgency to their decision. Officials acknowledged that their decision would likely draw a sanctions response from the West. Russia's Prime Minister Mikhail Mishustin said this would be painful, but that the government has been preparing for such a scenario for several months through a focus on financial resilience and import replacement. He assured that the government would do everything to cushion the impact of any actions by the US and Europe on Russia’s economy. Nevertheless, Russian stock indexes slumped by about 17% on news of the decision and the value of the ruble plunged. Shares of Russia’s state oil giant Rosneft fell more than 18%, with state gas company Gazprom trading down more than 12%. West Warns of Consequences US President Joe Biden on Sunday called a National Security Council meeting aimed at reviewing the latest intelligence and planning a coordinated response with the European Union, US Secretary of State Antony Blinken told CBS “Face the Nation” Sunday. Blinken reiterated US warnings of “massive consequences” for Moscow if it proceeds with an invasion but stressed on sanctions that “we don’t want to pull the trigger until we have to because we lose the deterrent effect.” Anticipated US sanctions would likely target blocking Russian banks from the US financial system which stands to complicate Russian energy trade and potentially upstream operations for foreign firms in Russia. EU High Representative Josep Borrell said he would introduce a sanctions package to the EU Parliament if Russia were to recognize Donetsk and Luhansk as independent. Austrian Chancellor Karl Nehammer told reporters that certification of Gazprom’s Nord Stream 2 pipeline would be halted if Russian troops were to enter Ukraine. “There is no question about that,” he said, according to wire reports. “That therefore means that Nord Stream 2 is part of the sanctions." Noah Brenner, London and Nelli Sharushkina, Moscow and Bridget DiCosmo, Washington and Jaime Concha, Copenhagen and Vitaly Sokolov, Moscow Saudi Arabia: Energy Security Needs Hydrocarbons Current global market conditions are exposing the fragility of energy security which can only be maintained through investment in the upstream sector, says Saudi Arabia’s energy minister. Speaking at an industry event in Riyadh this week, Saudi Prince Abdulaziz bin Salman highlighted the importance of boosting investments in oil and gas — something that the kingdom and other Mideast Gulf producing states are advancing. “A sharp downturn in oil and gas investment is jeopardizing energy security today and there’s a real risk that the world will not be able to produce all the energy it needs to fuel a recovery,” said Prince Abdulaziz. He added that thanks to a lack of investment, oil and gas consumers are suffering the burden of higher prices. “The campaigning against investment in oil and gas is shortsighted and is already having a negative impact on the recovery and household welfare.” He also noted that it was a mistake to focus on one element of energy production when it comes to the energy transition and called for a more inclusive approach. Clearly oil-producing states have a vested interest in wanting to keep oil relevant for as long as possible, given that it still underpins their state budgets. Yet, it is also true that some states which are pushing for a speedy energy transition are the same ones now asking Opec-plus for more oil to support their economic recovery.
Steady Hand on Output Policy
Delegates from the Opec-plus group told Energy Intelligence that the group is in favor of keeping a steady policy, meaning continuing
the 400,000 barrel per day increments despite pressure from the US and other consumer states to pump more.
However, for months the group has been unable to deliver the full increment as some member states are having difficulties producing
their quotas. The compliance level for the group in January was 129%, according to an Opec-plus source.
“I think our plan is working and I don’t think that the market is hugely undersupplied,” Suhail al-Mazrouei, the United Arab Emirates’
energy minister, said at the Riyadh industry event. “We are on a journey to attend to the market by gradually increasing production and
we think that this plan is attending to the supply and demand.”
One Opec-plus delegate said that the best policy would be to allow the market to “correct itself” as the geopolitical premium
embedded in the price today is more than $7 per barrel.
For Saudi Arabia, maintaining consensus within the group is key to the success of market management and keeping the industry alive.
“We need to keep this consensus-building approach to be with us permanently because without it we will lose sight of our collective
ambition,” said Prince Abdulaziz. “Ask any producer of oil and gas today — if it were not for Opec-plus would they be the chairmen and
the CEOs of today? And the answer: they would have vanished.”
Amena Bakr, Dubai
Iran to Continue on Negotiating Path
Iran will continue negotiating with European delegations until a nuclear deal is reached, a top Iranian official said Monday, even as
Western leaders warn that the talks are at risk of failure unless they succeed very soon.
The eighth round of talks in Vienna has continued “between Iran, P4+1 and the representative of [the] EU, from the beginning and this
path will continue unchanged until a result is reached,” Ali Shamkhani, the head of Iran's national security council, said on Twitter.
However, he added that direct negotiations with Washington are not on Iran’s agenda as they “will not be the source of any progress.”
The comments are significant, coming from such a powerful figure in Iran, and given Shamkhani’s past efforts to undermine a return to
the 2015 nuclear deal, known as the Joint Comprehensive Plan of Action (JCPOA).
There are growing indications that efforts to revive the original deal must be concluded in the coming days — whether they succeed or
fail.
Western Warnings
Western officials have repeatedly warned that any deal will soon become obsolete, given the rapid advancements Iran’s nuclear
program has witnessed since Washington withdrew from the JCPOA in May 2018.
“Now is the moment of truth,” German Chancellor Olaf Scholz told the Munich Security Conference on Feb. 19, adding: “If we don’t
succeed very quickly in this, the negotiations threaten to fail.”
Speaking at the same event, Iran’s Foreign Minister Hossein Amir Abdollahian said he was “very optimistic” a good deal could be done.
“We have never been this close to a deal,” he said.
But he also insisted it was incumbent on Western negotiators to show flexibility, including by offering guarantees on the future
commitment of the US to the JCPOA, although he suggested a statement by the leaders of the US Congress might suffice, in what could
amount to a significant compromise.
Remarkable Progress
Striking a similarly positive note on the status of the talks, Iranian foreign ministry spokesman Saeed Khatibzadeh said Monday that
they had progressed “remarkably,” but he cautioned that “the most serious and toughest issues” have yet to be resolved.Among those issues are Iran’s demands on the US to provide guarantees that it will not renege on a new nuclear pact as the Trump
administration did four years ago.
That in itself represents a serious obstacle, with US officials having emphasized from the beginning that they will not be able to do so,
and with Iran’s hard-liners showing themselves unlikely to accept anything less.
During a visit to Qatar for the Gas Exporting Countries Forum, Iranian President Ebrahim Raisi on Monday said any revived agreement
would require the removal of all anti-Iran sanctions, along with valid guarantees among other things.
"In order to reach an agreement, securing the interests of the Iranian nation, especially the removal of sanctions, credible guarantees
and closure of the cases of political claims are necessary," Raisi said at a joint press conference with Qatari Emir Sheikh Tamim bin
Hamad al-Thani.
Iranian Parliament
Calling for the need to secure credible guarantees from Washington, a large majority of Iran’s hard-line-dominated parliament on Feb.
20 issued a statement urging Raisi not to agree to any new nuclear deal without ensuring that Iran's demands are met.
The statement, signed by 250 out of 290 parliamentarians, stressed that guarantees were needed “to ensure the interests of the
Iranian people are protected.”
Ultimately, the decision on whether or not Iran agrees with the US to return to mutual compliance under a revived JCPOA lies with the
country’s Supreme Leader Ali Khamenei.
On Feb. 17, he expressed support for the Iranian negotiating team, saying in a televised speech that they were “working to have
sanctions lifted and to persuade the other side [to do so].”
He also criticized the team that negotiated the 2015 deal for failing to heed his recommendations.
Simon Martelli, London and Oliver Klaus, Dubai
Jera Seeks Commercial Ammonia Supply
Japan's largest power utility Jera has issued a tender seeking long-term supply of ammonia — possibly the world’s first such tender —
as it pursues its 2050 net-zero goal.
Jera, the world’s largest LNG buyer, has sent a request for proposals (RFP) to more than 30 suppliers, to secure up to 500,000 tons per
year of ammonia starting from 2027 until the 2040s. It specified the ammonia should be delivered on an f.o.b. basis, without
destination restrictions.
The RFP marks a concrete step taken by Jera in reducing the carbon-emission intensity of its thermal power plants by 20% by 2030 as
it evaluates zero-carbon fuels and expands renewables. The increasing emphasis on decarbonization has made buyers like Jera
cautious in committing to long-term LNG contracts with destination restrictions.
Climate Commitments
Tokyo has revised its 2030 goal to reduce greenhouse gas emissions by 46% (from 2013 levels), up from the previous 26% target. Yet
Japan remains one of the world’s largest crude importers and its second-largest LNG importer.
Under its latest 2030 power plan, the government introduced a 1% share for hydrogen/ammonia, while doubling the share of
renewables and reducing coal’s share, which accounts for 30% of the country's electricity supply.
Jera's RFP said that either no carbon dioxide should be produced during the production of ammonia or that CO2 should be captured
and stored. The Japanese utility also seeks the opportunity to participate in production projects. Jera expects to short-list "multiple
companies" in May.
Ammonia Pilot Incomplete
The RFP was issued despite Jera and IHI's ongoing work on a demonstration project on co-firing ammonia at Jera's existing coal-fired
Hekinan power plant Unit 4. The plant has planned power generation capacity of 1 gigawatt, over four years until end-March 2025.The plan is to demonstrate an ammonia co-firing rate of 20% in 2024 and switch to full-scale 20% ammonia co-firing in the late 2020s
with the aim of increasing the co-firing rate to 100% ammonia in the 2040s.
If the demonstration plant proves successful, Jera plans to replicate ammonia co-firing in other coal-fired power plants. It is also
looking to co-fire hydrogen in LNG-fired power plants.
Clara Tan, Singapore
Oil Rises on Russia-Ukraine Fears
Oil prices rose on Monday over the standoff between Russia and the West over Ukraine, adding to supply concerns that have kept oil
prices near $100 per barrel.
Brent crude futures jumped $1.63, or 1.7%, to $95.17/bbl by 3:36 p.m. GMT. US West Texas Intermediate crude futures rose $1.22, or
1.3%, to $92.29/bbl.
Russian forces killed a group of five saboteurs who breached the country's southwest border from Ukraine on Monday, news agencies
quoted the military as saying, an accusation that Ukraine called fake news.
French President Emmanuel Macron said earlier on Monday that US President Joe Biden and Russian President Vladimir Putin had
agreed in principle to a summit over Ukraine, but the Kremlin said there were no immediate plans.
US markets were closed on Monday for the Presidents Day holiday.
"Oil prices are once again marching upwards, as the optimism of a Biden-Putin meeting fades, while Opec-plus is continuing to struggle
to hit its quotas which have largely created the severe global energy deficit," said Pratibha Thaker of the Economist Intelligence Unit.
Ministers of Arab oil-producing countries said on Sunday that Opec-plus should stick to its current agreement to add 400,000 barrels
per day of oil output each month, rejecting calls to pump more to ease pressure on prices. Price gains have been limited by the
possibility of more than a 1 million b/d of Iranian crude returning to the market.
Iranian foreign ministry spokesperson Saeed Khatibzadeh said "significant progress" had been made in talks to revive Iran's 2015
nuclear agreement on Monday after a senior European Union official said on Friday that a deal was "very, very close."
Analysts said the market remained tight and any addition of oil would help, but prices would remain volatile in the near term because
Iranian crude was unlikely to return until later this year.
"If a Russian invasion [of Ukraine] takes place, as the US and UK have warned in recent days, Brent futures could spike above $100/bbl,
even if an Iranian deal is reached," Commonwealth Bank analyst Vivek Dhar said in a note. (Reuters)
Tom Pepper, London
IN BRIEF
Shell: Europe Will Have to Compete for LNG
Europe will have to compete for cargoes in an already-tight gas market should supplies from Russia be reduced, due to escalating
tensions over Ukraine, say senior Shell executives.
Shell, which holds the largest portfolio of LNG assets among Western oil firms, has significant capacity but existing contracts and
competing price signals in the spot market will pull gas in different directions, said Wael Sawan, head of Shell’s Integrated Gas,
Renewables and Energy Solutions unit.
“We stand ready to look at options to be able to bring some of the the unparalleled LNG scale that we have globally to be able to supply
Europe as and when we can,” he said during a call with reporters to discuss Shell’s LNG outlook. “But I think it's important to recognize,
it is an incredibly tight supply-demand market at the moment and so those cargoes aren't freely available.”
In a press call earlier this month, Shell CEO Ben van Beurden said that the company has been increasing its LNG sales into Europe as
supplies have tightened.“What we have been doing last year is diverting cargoes from other markets into Europe and into the UK,” he said, estimating that the
UK alone now accounts for 2% to 3% of Shell’s “global energy business.”
Those additional LNG cargoes could be enough to bring Europe’s gas storage levels back up into the five-year average, said Steve Hill,
executive vice president energy marketing. But prices will need to remain elevated to draw those cargoes to Europe.
Noah Brenner, London
High Prices to Boost Mena Energy Investments
Energy investments in the Middle East and North Africa (Mena) region are expected to continue rising on the back of higher oil and gas
prices this year, says Arab Petroleum Investment Corp. (Apicorp) in a report.
“Despite the volatility in commodity prices which is expected to persist throughout 2022, the good news in the short term is that oil
and gas prices will likely remain elevated throughout the year, providing support for energy investments including renewable energy
and ESG [environmental, social and governance]-related projects,” Apicorp CEO Ahmed Ali Attiga said.
Benchmark Brent crude is expected to average between $65-$75/bbl in 2022, with gas prices in Asia and Europe expected to cool
down after recent peaks, Apicorp said.
As a result, Mena energy investments are forecast to grow from the $805 billion that Apicorp estimated last year would be spent over
2021-25, which was up from the $792 billion forecast a year earlier over 2020-24.
Apicorp did not say by how much it expected investments to increase over 2022-26.
Regional power sector investments are also seen increasing with a greater focus on renewables that will lead to the addition of a
combined 20 GW of solar power over the next five years, Attiga added.
The multilateral development bank is owned by 10 member states of Opec and has an asset base of around $8 billion. It raised $750
million in October from its first green bond issue.
Oliver Klaus, Dubai
TotalEnergies Strikes Oil Offshore Suriname
TotalEnergies and APA have struck oil at the Krabdagu-1 well in Block 58 offshore Suriname.
The Krabdagu-1 well was drilled to a depth of 780 meters and encountered approximately 90 meters of net oil pay in good-quality
Maastrichtian and Campanian reservoirs. Located 18 km southeast of Sapakara South, the discovery follows previous finds at Maka,
Sapakara, Kwaskwasi and Keskesi, and the Sapakara South-1 appraisal well.
“This result encourages us to continue our exploration and appraisal strategy of this prolific Block 58 in order to identify sufficient
resources by year-end 2022 for a first oil development,” said Kevin McLachlan, senior vice president, exploration at Total.
Drilling and logging operations will continue, using the Maersk Valiant drillship. Operations will be carried out on Krabdagu-1 to
appraise the resources and productivity, and at least three further exploration and appraisal wells are planned to be drilled in 2022 on
the block.
Total is the operator of Block 58, with a 50% interest, while APA holds the remaining 50%.
Tom Pepper, London
Editor's Note: Presidents Day Holiday
Today's issue is published as a joint edition of Oil Daily and International Oil Daily due to the Presidents Day holiday in the US. The
usual review of oil and gas prices is not included.DATA SNAPSHOT Oil and Gas Prices, Feb. 21, 2022 Today's issue is published as a joint edition of Oil Daily and International Oil Daily due to the Presidents Day holiday in the US. The usual review of oil and gas prices is not included. Equity Markets, Feb. 21, 2022 Today's issue is published as a joint edition of Oil Daily and International Oil Daily due to the Presidents Day holiday in the US. The usual review of oil and gas prices is not included. Copyright Notice Copyright © 2022 by Energy Intelligence Group, Inc. ISSN 1540-8108. International Oil Daily® is a registered trademark of Energy Intelligence. All rights reserved. Access, distribution and reproduction are subject to the terms and conditions of the subscription agreement and/or license with Energy Intelligence. Access, distribution, reproduction or electronic forwarding not specifically defined and authorized in a valid subscription agreement or license with Energy Intelligence is willful copyright infringement. Additional copies of individual articles may be obtained using the pay-per-article feature offered at www.energyintel.com Other publications: EI New Energy, Energy Compass, Energy Intelligence Finance, Jet Fuel Intelligence, LNG Intelligence, NGW's Gas Market Reconnaissance, Nefte Compass, Nuclear Intelligence Weekly, Oil Daily, Oil Market Intelligence, Oil Markets Briefing, Petroleum Intelligence Weekly, World Gas Intelligence. Web Site: www.energyintel.com
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