Yves here. This piece about the prospects for the already-in-motion energy shock relies on a Bloomberg TV interview of Daniel Yergin, who more or less says, “Yes, it could be worse that the 1970s.”
It’s disturbing to see the business press unwilling to call out LNG hopium, maybe because a lot of people will nevertheless profit from it. There is unlikely to be meaningfully more US supply soon due to shortages of fracking sand, copper, tubing, and equipment. New terminals need to be built in the US, particularly since the ones on the Gulf Coast are awfully remote from Europe. Corresponding ones need to go up in Europe, although not to the same degree. Europe is currently importing markedly less than full capacity, but the countries with the lowest use like Spain and the UK, are not high on the list of needy destinations.
And what about tankers, which as PlutoniumKun has pointed out, will be even slower in coming?
In addition, there has not been much talk of how much more US LNG will cost Europeans than Russian gas. The Russian Energy Ministry estimates the price premium of at least 30% to 40%. But even if it winds up being a mere 25%, that’s a lot more in costs to swallow.
This is a long-winded way of saying that energy hunger is going to look more and more like food hunger, a matter of distribution, and not just gross supplies. And we don’t mean just geographic distribution but also the need of the energy to fit the existing usage infrastructure. Again remember our pet example of diesel. Lots of passenger cars in Europe use diesel because Russian oil is medium heavy and thus a good stock for making diesel. Making diesel from shale oil is inefficient. So Europe will need to get heavy sour crude from somewhere… which adds to complexity and potentially more to costs. I’m sure readers can come up with other examples where retrofitting for the absence of Russian oil and gas and even coal won’t be entirely straightforward.
By Irina Slav, a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. Originally published at OilPrice
- When Middle Eastern oil producers declared an oil embargo on exports to the U.S. in 1973, oil prices soared and the U.S. experienced significant fuel shortages.
- Today’s energy crisis, which includes not only oil but also natural gas and coal, could be even worse than the infamous oil crisis of the 1970s.
- The current energy crisis could soon be made worse as the EU moves to ban Russian coal and the U.S. struggles to meet its LNG commitments.
In 1973, after the Yom Kippur war between Israel and a coalition of Arab countries, Middle Eastern oil producers declared an embargo on oil exports to the United States as punishment for its support of Israel. What followed was an energy crisis of epic proportions. According to Daniel Yergin, the current energy crisis could be worse.
In the 1970s oil crisis, the price of oil soared fourfold over three months following the embargo. At the time, the United States had thought that the lost market share would hurt the producer states financially. But instead, those producers made up for that market share loss with considerably higher prices.
Consumers in the United States, however, suffered a severe blow in the form of fuel shortages and urgent energy conservation measures as the country’s consumption of oil had been growing incessantly for decades thanks to the cheap Middle Eastern oil.
Interestingly, although the embargo did not involve Europe, the continent suffered an even more severe blow because of the way prices rose following the Arab producers’ move. Fuel rationing was put in place and national speed limits were introduced to conserve fuel.
The latter measure, about speed limits, may sound familiar to those following the International Energy Agency’s recommendations for energy conservation: it is one of the ten steps the IEA listed as necessary to reduce the EU’s reliance on Russian fossil fuels.
The fact that today’s shortage involves all the fossil fuels rather than just oil is one of the reasons this crisis could be worse than the one in the 1970s, according to Yergin, who made his comments in an interview with Bloomberg this week.
“I think this is potentially worse,” the expert told Bloomberg. “It involves oil, natural gas, and coal, and it involves two countries that happen to be nuclear superpowers.”
Leaving aside the understandable unease that the latter part of the statement would spark in anyone in Europe or North America, the first one is telling. Europe depends on Russia for close to half of its coal and natural gas imports and about a quarter of its crude oil imports. And the EU just decided to ban Russian coal imports in an attempt to hurt the Russian economy as punishment for Russia’s actions in Ukraine.
Related: Iran Is Ready To Sign The Nuclear Deal But Is Done With Negotiations
Here’s what happened after the announcement of the ban, which has yet to be approved, by the way. Indonesia hiked its own coal prices by 42 percent, Australian coal miners reported they have limited ability to replace Russian coal, and Asian coal prices soared amid reports that European buyers were hunting for replacement coal.
What’s happening in coal is pretty much what will be happening in oil and gas. As Yergin noted in his interview with Bloomberg, the global natural gas market is already quite tight, and there is no ready replacement for Russian gas should it stop flowing. That’s despite efforts on the part of U.S. LNG producers to boost exports.
Another energy expert, David Blackmon, went a step further this week on the Energy Transition podcast, saying that the U.S. did not have the physical means to fulfill the promise President Biden made to the EU of supplying an additional 15 billion cubic meters of gas in the form of LNG. Blackmon noted the time it takes to boost gas production and expand liquefaction capacity as well as the limited LNG tanker fleet and already existing LNG export commitments to other buyers.
In this environment of tight fossil fuel supply and demand that seems to significantly exceed this supply, things are already critical without any oil or gas embargos, which a senior EU official mentioned might become “necessary” at some point. The cost of living is rising across the continent, and governments are struggling to rein it in. If the EU goes down the embargo road the results could be disastrous, as virtually every analyst has been warning for weeks.
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The fact that today’s shortage involves all the fossil fuels rather than just oil is one of the reasons this crisis could be worse than the one in the 1970s, according to Yergin…
“I think this is potentially worse… …It involves oil, natural gas, and coal…
Worse for us proles, he means:
Report: Ukraine Crisis Profiteering by US Oil Giants
there are two main tactics that fossil fuel giants use to benefit investors: “First, they repurchase shares of their own stock and retire them, reducing the number of shares outstanding and driving up the value of each share remaining in investors’ hands.”
“Second, they increase dividends, the quarterly payments investors receive for owning shares,” the report continues. “Oil and gas dividends, historically bigger than other sectors’, have spiked in recent months, outstripping every other industry group.”
https://consortiumnews.com/2022/04/07/report-ukraine-crisis-profiteering-by-us-oil-giants/
OK, so US oil and gas are booming and shareholders are getting rich off of the Ukraine crisis (“don’t stop now, baby!”)– is King Coal making a comeback too?
Just a small correction. Where you wrote:
‘Making diesel from shale gas is inefficient’
my guess is that you meant to write:
‘Making diesel from shale oil is inefficient’
Natural gas being quite a thing now (with very good analysis and links in previous paragraphs) slipped inadvertently into the oil analysis.
Yes, tight oil (shale oil) is very light. It needs mixing with heavy crudes if you are to produce much diesel, or even gasoline (depending on the grade). Its essentially kerosene. You can distill it to produce more diesel, but you need purpose built refineries, and there aren’t any – hence the need to mix it in with Venezuelan or Canadian crude.
It is possible to turn shorter-carbon chain shale oil directly into diesel…but since diesel is way more energy dense, you wind up with way less by volume. And I assume the process takes energy too.
Yes, its possible – the problem is that (so far as I know) it needs quite specialised refineries, and right now, they don’t exist. It would take a few years to build them.
There is also the energy issue that its technically possible to ‘frack’ heavier oils – its just much more expensive and energy intensive to force them out of the bedrock. The lighter the oil, the more you’ll get out of any one frack well.
oops, yes, fixed thanks!
Also, those LNG ships would be vulnerable at sea it would seem. And quite the show near a coast.
Boom.
https://youtu.be/DF55PFU3nrk
LNG is never carried in road tankers like that – it would be LPG (although the two terms are often used interchangeably, even by people who should know better). LNG must be kept at very low temperatures, hence the need for specialised tankers. LPG is usually propane or butane (often called wet gas in the industry), not methane (natural gas). The latter requires much lower temperatures and higher pressure to be stored as a liquid, hence the need for much more specialised handling.
The biggest ship gas explosions have usually been in oil tankers, where gas has built up in voids. This was the probable reason for the Betelguese blowing up, killing 49 people.
I don’t know about other countries, but in the US it is perfectly acceptable to transport LNG (methane) by road tankers. If you see placards labeled UN1971 or UN1972 on a tank, that tank contains LNG.
PHMSA, a DOT subagency, has regulations that determine how it must be transported.
https://www.ecfr.gov/current/title-49/subtitle-B/chapter-I/subchapter-C/part-172 Just look up the citation on the Hazmat table (172.101) and it will lead you to all the regs for LNG.
I can stand corrected on this – its not my area of expertise – but my understanding was always that UN1971 or UN1972 were liquid mixes (including methane) at low temperatures and high pressures, but not cryogenically cooled pure methane to the levels required in shipbound LNG. Cryogenically cooled pure methane differs from other forms of cooled/compressed gas in that its at atmospheric pressure, so it does not need high pressure vessels – the requirement is for vacuum sealing to keep the temperature low. Thats always been the distinction I’ve been taught, but maybe the terms have moved on from when I was last dealing with this professionally (quite a long time ago)
There may be some confusion with the general terms used as there are lots of variations on dry/wet gases and methane/propane/butane mixes and as I stated the terms LNG and LPG are often used interchangeably. I’ve never seen any proposals to transport pure cryogenic methane by anything but ship due to the sheer size of the vaccum vessels required, but maybe its different in the US.
Doing some quick googling, I can see that there are lots of companies promoting ‘LNG’ as a fuel – I’d always assumed that they were really referring to butane/propane mixes, but some claim to be mostly methane. I doubt pure methane is used for all sorts of reasons, but again, this is not my area of expertise so I’d be happy to be corrected on this.
LNG is not my area of expertise either – nuclear/radioactive materials was my thing – but I had to be Hazmat certified for my job which means I had to sit through all those Hazmat classes every year. It always used to shock me what was allowed to be transported on US highways and by rail. I’m amazed at what I still remember from those classes!
I have a natural gas / LNG question. How much energy is contained within a cubic meter of natural gas, compared to a cubic meter of LNG? I’ve been trying to figure it out from online sources but am sure PK or another commenter knows the correct answer.
This would help answer questions such as how many LNG shiploads would be needed to supply a specific block’s gas needs.
From memory, by volume, it is compressed to about 600x its gaseous state. In other words, a cubic metre of LNG is equivalent to 600 cubic metres of gas.
I thought that NG was distributed only by the gas pipelines used to supply domestic methane and believed LNG ended its liquid life always in coastal re-gasification plants. Nevertheless trucks that use NG as fuel use it in LNG form (more dense that compressed gas LNC), distributed very much like gasoline or diesel in stations. Crio-resistant gloves needed! Yet I don’t know how it is distributed to the stations, though it must be through very cold containers. It read somewhere that LNG could be more affordable than diesel for large trucks (>18t) making more than 100.000 km per year though now the times they are changing. Know nothing on the economics of truck fuels but I would like to know what the reasons are behind that reasoning. Less reloads?
Having owned a natural gas Honda Civic, I can say those use compressed natural gas. While the expanded fuel tank also took up much of the trunk space, it had a only a 180 mile range.
That is almost certainly compressed natural gas, which is a sort of ‘half way’ liquified methane, usually with some other gases mixed in I think. Its not cryogenically frozen, so is several times less dense than LNG. Its also possibly LPG. The number of different product names given to the variations is very confusing (I’d no idea how confusing it is now until I did a look around at some standard sources – I can see I’m very out of date in my knowledge on this).
I have to admit that after doing some searching, my assumptions are probably out of date. I’ve always assumed that ‘gas’ as used in Europe anyway for cars was primarily butane and pentane. But it does seem that compressed methane is increasingly used either by itself or in a mixture with other ‘wet’ gases.
I don’t have time to do a deep dive into this, but the sources I see are vague at times about just what they are selling. My understanding has always been that LNG is the only gas which does not require a heavy pressure vessel (pressures are generally below 10bar), but does require vacuum storage. A number of sources describe methane being sold in a chilled and compressed state for vehicles. So I think I’ll have to withdraw what I said earlier, I think that in some countries at least, pure LNG is used as a vehicle fuel.
when LNG fails:
https://en.wikipedia.org/wiki/Cleveland_East_Ohio_Gas_explosion
the explosion(s) were felt 200 blocks to the East…
Cuyahoga County Coroner Dr. Samuel Gerber estimated that the initial death toll stood at 200; however, Gerber was quoted stating the magnitude of the fire and the intense temperatures had the power to vaporize human flesh and bone, making an exact count impossible until weeks after the disaster.
And the worst news of all is that the price of wind and sunshine is rocketing (sarc tag)
A reasonably well connected Irish economist has claimed that Ireland will face a diesel crunch within weeks. Ireland is the canary in the (European) coal mine as its at the end of the supply chain for a lot of oil products.
My suspicion is that the slow European response is due to desk bound analysts looking at overall oil supplies and assuming that its all fungible and transportable. Its not. Most refineries are locked into specific grades and sources of oil. I think an energy crunch will hit Europe a lot earlier than expected. Europe may not be as car dependent as the US, but rationing of diesel will hit a lot of rural and outer suburban voters very hard. They will not forgive their governments for this. Right wing (And some left wing) politicians here are already blaming the Greens for… well, something. Its clearly all environmentalists fault that diesel is so expensive.
On a political level, the media here is full of glowing stories about cuddly Ukrainian refugees being welcomed with open arms (always accompanied by photos of cute blonde children). But almost every casual conversation I’ve had lately seems to involve a lot of angst around how the hell a country which can’t provide enough housing for its own (there is an enormous housing shortage here) can deal with a substantial influx of refugees. Politicians are playing with fire.
I believe that measures to ensure diesel supply to: agricultural and livestock producers, fishermen, homes heated by it (my lord!) and trucks, to say the least, will have to be implemented, and at reasonable prices.
It’s more than just rural and suburban voters. Europe does have a higher percentage of automobiles that use diesel, but there are applications that will affect everyone.
Diesel fuel is used heavily in logistics to transport goods and perhaps even more importantly, in agriculture.
I suspect that the politicians who were the most “hawkish” about Russia are going to get the blame, alongside the Greens.
I don’t know about you guys but based on the fact that our leadership class is unable to understand the consequences of the radical decisions that they are making – nor apparently are willing to understand – that it might be a good idea to go long on wood-burning stoves, wool and any other warming mechanism that does not require access to an electrical grid or even an internet connection for that matter. What do you know. We are back to the same solution that was rammed down our throats by this same leadership class during the present Pandemic – ‘You are on your own.’ Nice to know.
When their Upton Sinclairish salaries depend on such, and their time frames are driven by re-election cycles, there isn’t much left for consideration about the future, with or without their posterity.
The same holds true for their
friendsenablers in the media and on Wall Street. The latter group insults people with more specialized vocabulary but the impact is still the same.Because they, and the intelligentsia advising them, is completely detached from the goings on in the wider economy. After all, they have a multitude of online services that can deliver anything they desire at the push of a button.
More and more it seems like the proverbial west is heading towards situation akin to the French revolution (though certain things also brings to mind the later years of the Chinese empire), and i think Pelosi already pulled a Marie Antoinette move during the start of the pandemic.
A series of crop failures on account of Icelandic volcanoes blowing up real good in 1783-85 was a leading cause for the French Revolution, as bread had risen to 50% more than the daily wage due to a lack of wheat.
We’ll be seeing all sorts of horrible inflation, some of it justified-some of it because of piling on by retailers…
think anyone is having second thoughts about elevating a former small town beauty queen, Hollywood wanna be, & Dating Game contestant to Energy Secretary?
Geez PK, your war media propaganda sounds like a mirror to ours. It is nauseating. My hubster is a vidiot; I’m the book freak. Yes, this is much worse than the 1970s fight with OPEC.
We spent yesterday afternoon in Boise, Idaho, helping out a friend whose RV had mechanical difficulties, fortunately making it to a Cummins (the diesel engine company) facility and being booked in for repairs.
Boise is a boom town; when we lived in Southern California, I was forever running into people who were planning on moving to Idaho. Well, they have moved.
My impression of Boise was that it is filled with automotive stuff: big truck and agricultural equipment dealerships (lots of John Deere and Caterpillar), Cummins, of course, and RV dealerships with football-sized lots filled with enormous vehicles. Idaho is, of course, the potato capital; lots are processed here into fries (chips to you UK people) and Tater Tots, frozen and trucked to the rest of the US.
Behemoth dump trucks loaded with potatoes roar by; farmers are discing and plowing the fields, preparing for spring potato planting. Heavy traffic congestion, even in the middle of the day. And, on a ‘surface road’ paralleling the Interstate, which runs right through Boise, was what must be the biggest automotive/truck/bus grave yard on the planet, lining both sides of the street, replacing the rock/sand/sage brush that is the original Boise landscape. And, construction work going on to ‘improve’ the Interstate.
Rising gasoline and diesel prices are going to make a lot of people here very unhappy.
It sounds like you didn’t have time to go to downtown Boise! Having lived in Boise for 8 years, I can tell you Boise is an odd combination of High Tech and farming. JR Simplot, a privately owned ag conglomerate, has its offices here as does Micron. HP used to make its printers in Boise. It used to be more like Seattle with its indie bands and techies, but it is changing and becoming more sedate – probably because a lot of the tech stuff is moving overseas.
But you are right – all the farmers are now preparing their fields for planting. It is interesting though that about 27% of the potato farmers own 66% of the acreage, meaning they have huge farms, over 1000 acres, and need big machinery which of course means a lot of diesel.
https://www.researchgate.net/figure/Distribution-of-Idaho-Potato-Farms-by-Size_tbl2_46534712
In the lines of ’79 you had it made if you had a diesel VW Rabbit, as there was no shortage of diesel, and they were selling new for a few thousand over MSRP, such was the demand.
It is going to be quite different this go round, we’ll use up 1/3rd of our strategic stockpile in the next 6 months just attempting to keep the status quo seeming normal, along with all grades of oil under duress not just gasoline.
There’s also scads of people in SoCal that have long commutes that eat up $6 a gallon gas to the point where they might be breaking even on the day after figuring their gas expense versus salary, as food prices are going through the roof, too.
When a barrel hit -$43 or whatever it was, the cheapest place to buy go-juice was $1.57 a gallon and i’d have bought a few thousand gallons at that price, but where are you going to put it, and gas goes bad relatively quickly.
I am really too young to clearly remember the fuel crisis except everyone was miserable. Empty stations and cars with long, long waits for the gas along with rationing.
I can hear the cries of Communism, Freedom, Fascism that come from anything like that today.
Somehow, I do not hear any future cries for nationwide public transportation or a crash program for energy efficiency in cars.
Well thus far i have yet to hear about widespread rationing, nor people dancing jenkka on the highways.
Go long on bicycles. From a personal use point of view, and depending on terrain, a decent bike with panniers can make a good commuter/shopping for anything within ~10km, 20 if your a bit more gung ho. It can really reduce motor vehicle usage. And if there is no gas at all it still goes.
It’s so fun to be reliving the 1840’s. We’re gonna get an equities bubble crash, a credit crunch, global famine and eventually revolutions all over the world (that will probably just get brutally crushed like in 1848).
I think the situation with European gas imports is complicated and the biggest impacts might be outside Europe. The amount of gas imported from Russia is about 80bcm. Port LNG facilities capacity is not fully utilised in Europe with in theory 80bcm not being utilised currently. Free capacity is mainly in Spain, the UK and France but interconnector pipelines have significant capacity. An example of pipelines are The interconnector pipe from Bacton(UK) to Zeebrugge(Netherlands) and the BBL pipeline from Bacton(UK) to Anna Paulowna(Netherlands) both with 20bcm capacity. Utilizing this theoretical available port capacity is not realistic but could be increased 30bcm if LNG is available.
https://www.iea.org/reports/a-10-point-plan-to-reduce-the-european-unions-reliance-on-russian-natural-gas
https://www.reuters.com/business/energy/brimming-european-lng-terminals-have-limited-space-more-gas-2022-02-17/
That leaves Europe still 50bcm short. Consumption can be reduced 15bcm by switching out LNG power stations and leaving nuclear power stations running. Since home energy costs across Europe have risen roughly 70 percent over the last few months which has meant European consumers are getting serious about reducing usage. Typically home and business heating thermostats are being turned down 2 degrees and clothing laundry is being optimised which is reducing consumption by 25bcm. Wind power sources could be left switched on instead of getting switched out for load balancing. Rationing and work from home policies seem likely in some places regardless of juggling.
Europe then still has a problem with who will be selling extra LNG. Some may come from Qatar as India gets priced out of the market and switches to Russian sources. Some may come from North Africa or Nigeria but I think Europe will price other countries out of the market forcing them to try to get Russian Oil. Russia has a number of oil terminals and port facilities on the Black Sea coasts which have issues so switching is not straight forward. The CPC terminal near Novorossiysk has weather damage issues. Russia and its oil buyers are also facing issues with getting oil tankers and financing.
https://www.reuters.com/business/energy/russian-oil-buyers-struggle-with-payments-vessels-bp-annuls-loadings-traders-2022-02-28/
My best guess is that the energy prices have seen a permanent rise in Europe and the biggest shortage impacts will be shifted to places like Africa, Pakistan and India. In my book it is a catastrophe rather than a crisis and whilst flows can theoretically shift around piped and ship tankered oil have different issues not least of which is timing (sea time). Oil and coal are different issues although it is worth noting Eastern Ukraine has significant reserves of coal. Europe will drag its heels on sanctions involving LNG but the German nation will now be motivated to avoid energy blackmail.
Since you are knowledgeable, can you answer my natgas/LNG question:
How much energy (in joules, or another format) is contained within a cubic meter of natural gas, compared to a cubic meter of LNG?
Wikipaedia suggests. LNG takes up about 1/600th the volume of natural gas in the gaseous state.Using the median value of 0.45 kg/litre, the typical energy density values are 22.5 MJ/litre.
http://lng.elgas.com.au/energy-content-lng
This link I think will give a more technical answer.
https://barentsnaturgass.com/natural-gas-facts/
Zeebrugge is in Belgium.
I thought most lng was tied up in long term contracts and therefore shipments can’t be shifted to high price eu.
It seems now is the time to get solar on the roof (if located in a sunny area). You can charge your car, run your house and be protected from future energy shocks. Lots of slightly used solar panels are available on craigslist.
I’m guessing Saudi Arabia and its royal family weren’t sanctioned back in 1973. Or had their funds in U.S. banks confiscated.
Didn’t the US ship all if not most of the gold in Fort Knox to the Saudis already in exchange for oil?
Compounding any shortages in coal, oil and gas would be ransonware attack like the one that happened last May in the US.