Ukraine / Russia

[Handlebar]

There are better O&G experts on this forum, but simplistically, when we say German buys gas from Russia - we really mean various German companies (including state entities) buy gas from various Russian companies (including state entities). The buying/selling between companies is done via fairly standardized contracts. The vast majority of O&G contracts are "settled" in dollars.

For example, if Bob agrees to buy three beanie babies from Sue for a certain number of bitcoins via a contract, Bob can't just unilaterally decide to pay Sue in Swiss Francs of equivalent value - it is up to Bob to bear the cost/risk of converting his Francs to bitcoin prior to payment.

But of course, we are now overlaying complex nation-state posturing (sanctions, war, etc) which often throw typical commercial behaviors to the wind.

In this specific scenario, Poland says its gas buyers have binding contracts with Russian gas sellers to settle all payments in $USD. Russia unilaterally changes its mind and says they will only take Rubles (to force Poland to buy Rubles with dollars/euros to prop up foreign demand for rubles) for payment. Poland offers payment in dollars, Russia refuses payment, Russia terminates supply for "non-payment" by Poland, Poland argues it complied with the contract payment terms and Russia is the one who breached the agreement. Poland is technically correct.

Russia wants to make it harder/more expensive for EU to buy gas, prop up the value of the Ruble, and remind western Europe how vulnerable they are to Russian demands.

Four European Gas Buyers Made Ruble Payments to Russia

Four European gas buyers have already paid for supplies in rubles as President Vladimir Putin demanded, according to a person close to Russian gas giant Gazprom PJSC.

www.bloomberg.com

Just saw this I have not read it

 

[SAJ-99]

Russia wants to make it harder/more expensive for EU to buy gas, prop up the value of the Ruble, and remind western Europe how vulnerable they are to Russian demands.

Russia could get dollars for NG and then go into the market and buy Rubles with it and get the same effect. This is showing the sanctions are having some effect because they want the buyer to do that step for them.

 

[Ben Lamb]

I am not sure how O&G is set up.

Rochambeau

 

[VikingsGuy]

Rochambeau

Or google buddy hackett on Carson for his duck hunter bit.

 

[Handlebar]

Russia could get dollars for NG and then go into the market and buy Rubles with it and get the same effect. This is showing the sanctions are having some effect because they want the buyer to do that step for them.

I am not so sure about that, the ruble is virtually back to levels against both the euro and dollar that it had held for the past 5-6 years.

 

[SAJ-99]

I am not so sure about that, the ruble is virtually back to levels against both the euro and dollar that it had held for the past 5-6 years.

My point is that Russia's ability to transact is being hampered. If they wanted to prop up the Ruble there are multiple ways to do that in a normal environment. They chose this way because some of the other options have been closed off.

 

[VikingsGuy]

They chose this way because some of the other options have been closed off.

And because it reminds Germany and Italy that they have them over a barrel.

 

[Handlebar]

My point is that Russia's ability to transact is being hampered. If they wanted to prop up the Ruble there are multiple ways to do that in a normal environment. They chose this way because some of the other options have been closed off.

I am not necessarily disagreeing with you, although I don't know pre-invasion what other options would have been available. However my thinking has always been that Europe needs the gas it will be a while for they can wean off of it and Russia has gas they could demand payment in Pez candy and the Europeans would ultimately have to pay it

 

[Ben Lamb]

Or google buddy hackett on Carson for his duck hunter bit.

You'd never make it as a Chechen mobster.

 

[VikingsGuy]

I am not necessarily disagreeing with you, although I don't know pre-invasion what other options would have been available. However my thinking has always been that Europe needs the gas it will be a while for they can wean off of it and Russia has gas they could demand payment in Pez candy and the Europeans would ultimately have to pay it

Even with the "producer's leverage", all attempts to move away from dollar settlement have failed. Absent war-like conditions, there is no chance of a Ruble-based trade for all kinds of reasons.

 

[Handlebar]

Even with the "producer's leverage", all attempts to move away from dollar settlement have failed. Absent war-like conditions, there is no chance of a Ruble-based trade for all kinds of reasons.

This is something that I very much hope that you are right about, the ramifications are staggering

 

[Deleted member 28227]

Rochambeau

This ^

 

[Deleted member 28227]

I am not necessarily disagreeing with you, although I don't know pre-invasion what other options would have been available. However my thinking has always been that Europe needs the gas it will be a while for they can wean off of it and Russia has gas they could demand payment in Pez candy and the Europeans would ultimately have to pay it

This is the 2009 pre Nord Stream network. All OG imports have political implications, obviously, but they could have gone through Turkey or North Africa... or we could have pursued LNG... or Germany could have looked at Nuclear.

 

[Handlebar]

This is the 2009 pre Nord Stream network. All OG imports have political implications, obviously, but they could have gone through Turkey or North Africa... or we could have pursued LNG... or Germany could have looked at Nuclear.

View attachment 220539

so do you believe that ultimately the Europeans wean themselves off? Would you fathom a guess on the price ramifications of that, and sorry do you have a map showing gas lines to the east.
Thanks

 

[Deleted member 28227]

so do you believe that ultimately the Europeans wean themselves off? Would you fathom a guess on the price ramifications of that, and sorry do you have a map showing gas lines to the east.
Thanks

Their only real choices are new source of supply or reduce demand. What do you mean by price ramifications?

European natural gas prices have always been like 5x to 10x... or more the price of US gas.

 

[Handlebar]

Their only real choices are new source of supply or reduce demand. What do you mean by price ramifications?

European natural gas prices have always been like 5x to 10x... or more the price of US gas.

View attachment 220540

Thanks for the map, re prices would that 5x to 10x level return in the long term or would it be much higher and stay that way

 

[VikingsGuy]

Thanks for the map, re prices would that 5x to 10x level return in the long term or would it be much higher and stay that way

Over time, actual supply and demand will settle out - sellers will find buyers - and prices will act according to standard economic models. While there are short-term dislocations, a future where India is buying Russian gas and EU is buying more from US/CA LNG, Northern Africa, North Sea, etc. will balance out.

More broadly, a dismantling of price-optimized global trade in pursuit of other issues such as sanctions, domestic manufacturing, carbon economy reduction, etc will add to the final price of all goods. Many are pointing out the downsides of price-driven global supply chains (fair enough) and changes are in motion (some good, some bad). We will soon learn that this will mean higher prices for everything we buy, and as such we will all buy less and GDP will be suppressed - both of which will really hit retirees especially hard (inflation, reduced growth in retirement assets, extra pressure on pension funds and social security).

 

[Deleted member 28227]

Thanks for the map, re prices would that 5x to 10x level return in the long term or would it be much higher and stay that way

Washington Approves More U.S. LNG Exports For Europe | OilPrice.com

In response to Russia’s move to cut off gas to Poland and Bulgaria, the Biden administration has authorized more LNG shipments from two U.S. plants currently in the development phase

oilprice.com

 

[longbow51]

Seems like someone warned Europe about reliance on Russian energy, while shutting down their own due to "greens". It's late and don't really remember details.

 

[Deleted member 28227]

Seems like someone warned Europe about reliance on Russian energy, while shutting down their own due to "greens". It's late and don't really remember details.

Obama tells EU to do more to cut reliance on Russian gas

U.S. President Barack Obama told the European Union on Wednesday it cannot rely on the United States alone to reduce its dependency on Russian energy, as relations with Moscow chill over its seizure of Crimea from Ukraine.

www.reuters.com