Connect with us

Commodities

Column-Australia’s power crisis will lead to more solar and regulation: Russell

Published

on


© Reuters. FILE PHOTO: The Liddell coal-fired power station is pictured in the Hunter Valley, north of Sydney, Australia, April 9, 2017. REUTERS/Jason Reed

By Clyde Russell

LAUNCESTON, Australia (Reuters) – It defies logic that one of the world’s biggest exporters of liquefied natural gas (LNG) and coal is struggling to ensure enough domestic supplies to keep the lights on, but that is Australia’s current reality.

Widespread power blackouts have so far been avoided in the country’s National Electricity Market (NEM), which includes the heavily-populated eastern states, but not the more remote Western Australia state and the Northern Territory.

But this is more likely a matter of some luck as the generation and grid systems are strained by a lack of supply amid outages at coal-fired power plants, high spot prices for natural gas, seasonally lower solar generation and a cold start to winter.

As is often the case, the situation is far more complex than the various politicians, industry lobby groups and commentators would have you believe.

There are several levels of failure at work, chief among them the lack of a coordinated national energy policy between the federal and state governments, resulting in a lack of investment in the electricity sector.

Much of the blame can be laid at the door of the conservative Liberal-National coalition government, which held power at a federal level for nine years until being ousted by the centre-left Labor Party in last month’s general election.

The former government was widely viewed as being in the pocket of the fossil fuel lobby, even going so far as to tout what it called a gas-led recovery from the COVID-19 pandemic, which resulted only in the approval to build a gas-fired power station in New South Wales state that energy analysts said was not needed and would be economically uncompetitive to run.

It’s worth looking at what is not going to happen, what’s likely to happen and what should happen if Australia is to meet the twin goals of reliable and affordable electricity, as well as decarbonising the current coal-dominant generation system.

What won’t happen is that Australia will build new coal-fired or nuclear power plants.

Considerable media attention has been devoted to this idea, but these are irrelevant talking points by conservative politicians, who did little to advance this agenda during their nine years in power.

What will happen is that Australians will vote with their wallets and install even more household solar and batteries in an effort to cut energy bills, which have risen by more than 20% for customers in some areas of the NEM this year.

While this will help ease the pressure on household costs, it does add to the problems of grid management, as solar without battery storage means excess generation in the middle of the day and insufficient electricity at night, or in periods of extended cloudy weather, as sometimes can happen in winter.

This is where the new government can act by directly subsidising household batteries, or working with the state governments to ensure sufficient incentives for consumers to add storage to their solar systems.

The federal and state governments can also act to boost incentives for utilities to install grid-scale batteries and build more wind farms to provide generation when solar output is weak.

REGULATION COMING?

What is also likely to happen is increased regulation in some form or another, given widespread public anger that the country that vies with the United States and Qatar as the world’s biggest LNG exporter, and with Indonesia as the top coal shipper, can’t secure enough supplies at a reasonable cost for domestic use.

Part of the problem last week when the Australian Energy Market Operator was forced to suspend the spot electricity market was that natural gas peaking generators couldn’t make enough money because of the high spot price of gas.

The natural gas lobby argues that there is sufficient supply available to the domestic market, and that most customers are on fixed-price contracts.

That may be true, but the gas lobby doesn’t like to talk about the high price of spot supplies needed when coal-fired generators go offline, as is currently the case.

The industry’s solution is for natural gas storage to be built, which would be able to release supplies in times of stress.

This may work, but conveniently places the cost and operation of the storage onto somebody else, most likely either the market operator or the power utilities, who will just pass the cost along in the form of higher bills for consumers.

What is also possible is that the federal government legislates to force gas companies to guarantee supply at a price that isn’t linked to the spot price of LNG in Asia, as this is too volatile and too high, and likely to remain that way given Europe’s demand for gas as it tries to wean itself off Russian supplies.

Australia’s current problems require both short- and longer-term solutions.

The short term calls for intervention to ensure sufficient natural gas is made available at a price low enough to ensure that peaking gas plant operators can at least cover costs if they are to generate electricity.

The longer term calls for policies to ensure that solar, wind and storage investments are aligned and effectively integrated into the grid, while ensuring that gas-fired peaking plants have sufficient incentive to remain in the market as ageing coal-fired plants gradually exit the system.

Commodities

Why Russian oil and gas price cap is easier said than done

Published

on


© Reuters. FILE PHOTO: Model of petrol pump is seen in front of EU and Russian flag colors in this illustration taken March 25, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

LONDON (Reuters) – G7 leaders have agreed to study possible price caps on Russian oil and gas to try to limit Moscow’s ability to fund its invasion of Ukraine, G7 officials said on Tuesday.

The officials, who include U.S. Treasury Secretary Janet Yellen, say the measure will limit the price that Russia receives for energy while allowing Western consumers to continue getting supply.

Below are some of the most commonly asked questions about the price cap and challenges it could face.

HAS IT BEEN DONE BEFORE?

A somewhat similar mechanism was established as part of the oil-for-food programme by the United Nations in 1995 to allow Iraq to sell oil in exchange for food and medicine.

The programme, introduced by U.S. President Bill Clinton’s administration was meant to meet the humanitarian needs of ordinary Iraqis while preventing Saddam Hussein’s government from boosting military capabilities.

Oil buyers paid money into an escrow account run by BNP Paribas (OTC:BNPQY) bank. The money was used to pay for war reparations to Kuwait, U.N. operations in Iraq and Iraq was allowed to purchase regulated items with any remaining funds.

The programme suffered from widespread corruption and abuse.

While the United Nations was united in opposing Saddam Hussein’s government, the body is divided over Russia’s invasion of Ukraine, which Russia calls a “special military operation”.

China, India and Pakistan are among 35 countries that have refused to condemn Russia. China and India have become the biggest buyers of heavily-discounted Russian oil as Europe cut imports.

WHAT’S THE GOAL OF A BUYERS’ CARTEL?

Western officials say they want to encourage sales of Russian oil at levels slightly above production costs to ensure Russia’s earnings are reduced while it maintains production.

Today, Russia receives more revenue than before the invasion began on Feb. 24 as global price rises have offset the impact of sanctions.

Tamas Varga from oil broker PVM said the price cap idea amounted to evidence that outright bans on Russian oil have been counterproductive as Russian revenues have increased.

But creating a buyers’ cartel to starve Russia of petrodollars while alleviating inflationary pressure from oil prices is challenging.

“The big unknown is Vladimir Putin’s reaction,” said Varga.

If Russian President Vladimir Putin decides to reduce oil or gas exports the plan will backfire and lead to a rise in prices: “It is a nightmare scenario – both for Europe and Russia.”

The Kremlin said on Tuesday that Russian gas giant Gazprom (MCX:GAZP) could seek to revise its delivery contracts if Western countries implemented a price cap on Russian gas.

Kremlin spokesperson Dmitry Peskov said he could not comment on how much the move would cost Russia.

WHAT LEVEL FOR THE CAP?

With benchmark Brent prices at $110-$120 per barrel, Russian oil sells at heavy discounts of $30-$40 per barrel and Chinese and Indian buyers are snapping it up.

“G7 countries want to reduce Russian oil revenues and this implies a price cap well below what buyers are currently paying. Some campaigners advocate for a very aggressive reduction, pointing to Russia’s low production costs and arguing it would continue to sell oil at any price above this level,” said Richard Mallinson from Energy Aspects.

Russian production costs are $3-$4 per barrel and Russian firms could probably profit even if oil prices were $25-$30 per barrel.

The Dutch wholesale gas price for July, the European benchmark, has risen around 43% since the start of the year to $127.60 euros per megawatt hour.

European imports of Russian pipeline gas have dropped sharply after Gazprom this month reduced capacity of the Nord Stream 1 pipeline, which rus under the Baltic Sea to Germany, capacity to 40%.

The EU energy chief said on Monday that “serious disruption” to gas supplies from Russia is likely.

CAN THE CAP WORK VIA SHIPPING INSURANCE?

Imposing a price cap on Russian oil sales could be done via shipping insurance, Louise Dickson from Rystad and Mallinson said.

The International Group of Protection & Indemnity Clubs in London covers around 95% of the global oil shipping fleet.

Russian oil buyers could be offered a waiver from the ban on European shipping insurance, which takes effect in early December, if they are paying at or below the price cap.

However, there are many obstacles.

“The most obvious is that Russia might not agree to sell at those prices, particularly if the cap is very low and close to production cost,” said Dickson.

“In fact, Putin has already shown his willingness to withhold supplies of natural gas to EU countries that refused to meet payment demands”.

The next obstacle would be China, which could accept Russian insurance, said Dickson.

State-controlled Russian National Reinsurance Company (RNRC) has become the main reinsurer of Russian ships.

WILL CHINA AND INDIA COOPERATE?

India has provided safety certification for dozens of ships, enabling Russian oil exports.

“Russia and some buyers are already finding alternatives to European insurance markets, using a combination of local insurers and sovereign guarantees. So this mechanism would not force full participation in a price cap,” said Mallinson.

In addition, European insurers might not want to be responsible for monitoring the price cap and could decide to avoid covering such deals even if waivers are available, he said.

The EU would also need to amend the sanctions it passed at the end of May, which would require unanimous support.

“Given the difficult negotiations in May, some countries are worried about reopening this issue and giving Hungary and others another opportunity to push for concessions,” Mallinson said.

Continue Reading

Commodities

G7 agrees to explore cap on Russian oil price – communique

Published

on

2/2

© Reuters. FILE PHOTO: Yang Mei Hu oil products tanker owned by COSCO Shipping gets moored at the crude oil terminal Kozmino on the shore of Nakhodka Bay near the port city of Nakhodka, Russia June 13, 2022. REUTERS/Tatiana Meel/File Photo

2/2

By Andreas Rinke and Angelo Amante

SCHLOSS ELMAU, Germany (Reuters) – The Group of Seven economic powers have agreed to explore imposing a ban on transporting Russian oil that has been sold above a certain price, they said on Tuesday.

“We invite all like-minded countries to consider joining us in our actions,” the G7 leaders said in the communique.

The war in Ukraine and its dramatic economic fallout, in particular soaring food and energy inflation, has dominated this year’s summit of the group of rich democracies at a castle resort in the Bavarian Alps.

The G7 is looking at price caps as a way to prevent Moscow profiting from its invasion of Ukraine, which has sharply raised energy prices, taking the sting out of Western efforts to reduce imports of Russian oil and gas.

Russian oil export revenues climbed in May even as volumes fell, the International Energy Agency said in its June monthly report.

A ceiling on how much other countries pay Russia for oil would squeeze Russian President Vladimir Putin’s “resources that he has to wage war and secondly increase stability and the security of supply in global oil markets,” a senior U.S. administration official said on Tuesday.

G7 leaders have also agreed to push for a ban on imports of Russian gold as part of efforts to tighten the sanctions squeeze on Moscow, an EU official said on Tuesday.

The war, which has killed thousands and sent millions fleeing, entered its fifth month with no signs of abating.

Firefighters and soldiers searched on Tuesday for survivors in the rubble of a shopping mall in central Ukraine struck by a Russian missile.

TACKLING FOOD INSECURITY

G7 nations want to crank up pressure on Russia without stoking already soaring inflation that is causing strains at home and savaging developing nations.

There is a “real risk” of multiple famines this year as the Ukraine war has compounded the negative impact of climate crises and the COVID-19 pandemic on food security, United Nations chief Antonio Guterres said last week.

G7 leaders pledged $4.5 billion on Tuesday to fight global hunger, according to the communique.

The United States will provide over half of that sum, which would go to efforts to fight hunger in 47 countries and fund regional organisations, a senior U.S. official said.

The G7 is attempting to rally emerging countries, many with close ties to Russia, to oppose Putin’s invasion of Ukraine, and invited five major middle-and-low income democracies to the summit to win them over.

Some are more concerned with the impact of soaring food prices at home, blaming Western sanctions, not Russia’s invasion of one of the world’s top grain producers and blockade of its ports, for the shortages.

Asked if G7 leaders had found a way to let Ukraine export its grain, British Prime Minister Boris Johnson said on Tuesday: “We’re working on it, we’re all working on it”.

G7 leaders also committed on Tuesday to creating an international “Climate Club” to forge cooperation on climate change and made pledges on decarbonising industrial sectors.

Continue Reading

Commodities

G7 agrees to study Russian energy price caps, raise $5 billion to tackle hunger

Published

on

2/2

© Reuters. FILE PHOTO: Yang Mei Hu oil products tanker owned by COSCO Shipping gets moored at the crude oil terminal Kozmino on the shore of Nakhodka Bay near the port city of Nakhodka, Russia June 13, 2022. REUTERS/Tatiana Meel/File Photo

2/2

By Angelo Amante and Philip Blenkinsop

GARMISCH-PARTENKIRCHEN, Germany (Reuters) – G7 leaders have agreed to study placing global price caps on imports of Russian energy to curb Moscow’s ability to fund its invasion of Ukraine and to contribute up to $5 billion to address global food insecurity, officials said on Tuesday.

The war in Ukraine and its dramatic economic fallout, in particular soaring food and energy inflation, has dominated this year’s summit of the group of rich democracies at a castle resort in the Bavarian Alps.

The European Union will explore with international partners ways to curb Russian energy prices, including the feasibility of introducing temporary import price caps, a section of the final G7 communique seen by Reuters said. The officials said this meant both oil and gas.

The G7 has been debating price caps as a way to prevent Moscow profiting from its invasion of Ukraine, which has sharply raised energy prices, cushioning the impact of Western moves to reduce imports of Russian oil and gas.

Russian oil export revenues climbed in May even though export volumes fell, the International Energy Agency said in its June monthly report.

A cap on the price other countries pay Russia for oil would squeeze Russian President Vladimir Putin’s “resources that he has to wage war and secondly increase stability and the security of supply in global oil markets”, a senior U.S. administration official said on Tuesday.

The idea is to tie financial services, insurance and the shipping of oil cargoes to a cap on Russian oil prices. So if a shipper or importer wanted these services, they would have to commit to the Russian oil being sold for a set maximum price.

Italy, whose economy is reliant on Russian energy, pushed to extend the price cap to gas.

Italian Prime Minister Mario Draghi last week warned of the need to tackle energy prices to contain inflation and said the main objection to a gas cap from fellow Europeans was fear it could lead Russia to reduce supplies further.

France has said the price cap mechanism should extend beyond Russian products to reduce prices more broadly, including for the G7 nations that are looking to source energy from elsewhere.

France supports the language in the final communique but it remains unclear how such a mechanism would work and needs “thorough” discussions, a French official said.

G7 leaders have also agreed to push for a ban on imports of Russian gold as part of efforts to tighten the sanctions squeeze on Moscow, an EU official said on Tuesday.

Britain, the United States, Japan and Canada agreed at the start of the G7 summit on Sunday that they would ban imports of newly mined or refined Russian gold, while the European Union expressed some reservations.

TACKLING FOOD INSECURITY

G7 nations, which generate nearly half the world’s economic output, want to crank up pressure on Russia without stoking already soaring inflation that is causing strains at home and savaging developing nations.

There is a “real risk” of multiple famines this year as the Ukraine war has compounded the negative impact of climate crises and the COVID-19 pandemic on food security, United Nations chief Antonio Guterres said last week.

The G7 will commit up to $5 billion to improve global food security, the senior U.S. official said, with the United States providing over half of that sum, which would go to efforts to fight hunger in 47 countries and fund regional organisations.

The G7 is attempting to rally emerging countries, many with close ties to Russia, to oppose Putin’s invasion of Ukraine, and invited five major middle-and-low income democracies to the summit to win them over.

Some are more concerned at the impact of soaring food prices on their populations, blaming Western sanctions, not Russia’s invasion of one of the world’s largest grain producers and blockade of its ports, for the shortages.

Asked if G7 leaders had found a way to let Ukraine export its grain, British Prime Minister Boris Johnson said on Tuesday: “We’re working on it, we’re all working on it”.

The G7 leaders have also agreed to take a more coordinated approach to challenging China’s “market-distorting” practices in global trade, the U.S. official said.

“You’ll see leaders release a collective statement, which is unprecedented in the context of the G7, acknowledging the harms caused by China’s non-transparent, market-distorting industrial directives,” the official said on Tuesday.

Among their commitments was one to accelerate efforts to remove forced labour, including state-backed forced labour, from global supply chains, the official added

Continue Reading

News

Cryptocurrency2 days ago

Dogecoin price could rally 20% in July with this bullish reversal pattern

Dogecoin price could rally 20% in July with this bullish reversal pattern Dogecoin (DOGE) looks ready to extend its rebound...

Stock Markets2 days ago

Easing chip shortages to help Volkswagen in H2 – CEO

© Reuters. FILE PHOTO: Volkswagen logo is pictured at the 2022 New York International Auto Show, in Manhattan, New York...

Economy2 days ago

Futures rise as easing China COVID curbs lift travel, leisure stocks

© Reuters. A trader works on the floor of the New York Stock Exchange (NYSE) in New York City, U.S.,...

Economy2 days ago

Euro below $1.06 as Lagarde keeps July policy options open

© Reuters. A shopper pays with a ten Euro bank note at a local market in Nice, France, June 7,...

Economy2 days ago

China’s economy recovering but foundation not solid, premier says

© Reuters. FILE PHOTO: Chinese Premier Li Keqiang is seen on a screen as he attends a news conference via...

Cryptocurrency2 days ago

3 charts showing this Bitcoin price drop is unlike summer 2021

3 charts showing this Bitcoin price drop is unlike summer 2021 Bitcoin (BTC) bear markets come in many shapes and...

Stock Markets2 days ago

Reliance Chairman Mukesh Ambani steps down as director of telecom arm

© Reuters. FILE PHOTO: Mukesh Ambani, Chairman and Managing Director of Reliance Industries, arrives to address the company’s annual general...

Stock Markets2 days ago

UBS Downgrades Ebay, Farfetch to Neutral on Guidance Risks

© Reuters. UBS Downgrades Ebay (EBAY), Farfetch (FTCH) to Neutral on Guidance Risks By Senad Karaahmetovic UBS analyst Kunal Madhukar...

Stock Markets2 days ago

Bank of America Clients are Selling This Rally

© Reuters. Bank of America Clients are Selling This Rally By Senad Karaahmetovic Bank of America strategist Jill Carey Hall...

Stock Markets2 days ago

Michelin to hand over Russian operations to local management

© Reuters. FILE PHOTO: The logo of French tyre maker Michelin is seen on tyre of a Formula E racing...

World2 days ago

U.S. Capitol riot panel promises new evidence at surprise Tuesday hearing

2/2 © Reuters. FILE PHOTO: A video of former U.S President Donald Trump speaking is shown on a screen during...

Economy2 days ago

Stocks, oil higher as China relaxes quarantine rules

2/2 © Reuters. FILE PHOTO: A man wearing a protective mask, amid the coronavirus disease (COVID-19) outbreak, walks past an...

Cryptocurrency2 days ago

FTM Begins to Retest Previous Highs As Correction May Be Over

FTM Begins to Retest Previous Highs As Correction May Be Over Fantom (FTM) seems to be retesting previous highs. FTM...

Stock Markets2 days ago

White House says companies investing $700 million to boost EV charger production

2/2 © Reuters. FILE PHOTO: A electric vehicle charger is seen as a vehicle charges in Manhattan, New York, U.S.,...

Cryptocurrency2 days ago

SEC Chief Gary Gensler Labels Bitcoin a Commodity, but Other Cryptos Securities

The U.S. regulator has determined: bitcoin is a commodity. Other cryptocurrencies can be securities SEC Chair Gary Gensler reiterated that...

Stock Markets2 days ago

Explainer-Why the survival of Scandinavian airline SAS hinges on Denmark

© Reuters. FILE PHOTO: A Scandinavian Airlines (SAS) plane is refuelled at Oslo Gardermoen airport, Norway, November 7, 2019. REUTERS/Lefteris...

Forex2 days ago

Lira Weakens as Corporates Keep Buying Dollars Despite New Rule

© Bloomberg. An electronic board displays exchange rates information at a currency exchange bureau in Istanbul, Turkey, on Friday, June...

Stock Markets2 days ago

Russia fines foreign firms for alleged data storage violations

© Reuters. FILE PHOTO: Attendees walk past a Twitch logo painted on stairs during opening day of E3, the annual...

Stock Markets2 days ago

Siemens to invest in Volkswagen’s N.American charging network

© Reuters. A electric vehicle charger is seen as a vehicle charges in Manhattan, New York, U.S., December 7, 2021....

Commodities2 days ago

Why Russian oil and gas price cap is easier said than done

© Reuters. FILE PHOTO: Model of petrol pump is seen in front of EU and Russian flag colors in this...

Stock Markets2 days ago

FTX-Robinhood Rumors: Piper Sandler Sees ‘Win-win’ Situation, Others Less Optimistic

© Reuters FTX-Robinhood Rumors: Piper Sandler Sees a ‘Win-win’ Situation, Others Less Optimistic By Senad Karaahmetovic   Robinhood (NASDAQ:HOOD) shares...

Stock Markets2 days ago

Lufthansa CEO apologises for summer travel chaos

© Reuters. FILE PHOTO: CEO of German air carrier Lufthansa Carsten Spohr delivers a speech at the ILA Berlin Air...

Commodities2 days ago

G7 agrees to explore cap on Russian oil price – communique

2/2 © Reuters. FILE PHOTO: Yang Mei Hu oil products tanker owned by COSCO Shipping gets moored at the crude...

Cryptocurrency2 days ago

Uzbekistan warms up to Bitcoin mining, but there’s a catch

Uzbekistan releases requirements for miners Uzbekistan’s National Advanced Projects Agency (NAPP) has required miners to register and use solar power...

Cryptocurrency2 days ago

Ethereum’s Price Action Suggests Better Upside Potential

Ethereum’s Price Action Suggests Better Upside Potential At the moment, ETH’s price is closer to a bottom than a new...

Stock Markets2 days ago

From Peru to Uganda, activists call on Deutsche Bank to drop fossil finance

4/4 © Reuters. Ankuash Mitiap Kapuchak and Shapiom Noningo Sesen, indigenous leaders from Peru and Ricardo Perez of the environmental...

Politics2 days ago

Factbox-Four key races in Illinois, Colorado midterm primaries

© Reuters. FILE PHOTO: An American flag flies outside of the U.S. Capitol dome in Washington, U.S., January 15, 2020....

World2 days ago

Rescuers dig for survivors after Russian missiles demolish Ukrainian shopping mall

6/6 © Reuters. Rescuers work at a site of a shopping mall hit by a Russian missile strike, as Russia’s...

Stock Markets2 days ago

Renault teams up with Atos on data gathering

© Reuters. FILE PHOTO: The Renault logo on the Renault Scenic Vision concept-car is seen at its exhibition space, at...

Cryptocurrency2 days ago

Cardano Has Highest Development Activities in 30 Days: Report

Cardano Has Highest Development Activities in 30 Days: Report Sanbase reports a list of the top 10 coins with the...

Trending