Energy Supply Screwed for Europe as Battlefield Conditions Deteriorate for Ukraine

Recent reports over the past 24 hours talk of summit-level political and military discussions within Russia and with their equivalents in Belarus. These are indicative of likely war planning and possibly augur the advance of the much-purported and predicted Russian offensive which some sources consider is likely in February but which may have more surprise leverage if it can be launched much sooner, while the ground is still frozen.

Battlefield developments still mainly suggest continuing, but slow Russian advances, although it is also clear that Ukraine is committing to continued defense of Bakhmut. It is building fortifications in central Bakhut, in anticipation of a Russian strike to occupy it. Some sources consider these to have been built too late, in haste and rather sloppily, especially when compared with the more robust fortificiations that Russia is building in a number of zones, including Russian-held Melitopol, which is seen as a potentially vulnerable area in the event that Ukraine does launch an offensive from Zaporizhzhia down through Melitopol to cut off the Azov land route between Crimea and the Russian mainland - a development that Ukraine’s Commander in Chief, General Valerii Zaluzhnyi recently told The Economist will not be possible without a huge escalation in the flow of western weapons to Ukraine.

Meanwhile, a number of reports today show that the energy crisis is not going away anytime soon. Although conflicting, their totality suggests that European countries are beginning to eat into their oil and gas reserves as temperatures plummet, that even if they manage to survive the winter, they will then face the challenge of having to rebuild sufficient reserves in time for the winter of 2023-2024. Why is this a challenge? Because the extent of Europe’s dependence on cheap Russian gas has already fallen from around 45% to 10%. This has increased the prices that Europe must pay for LNG imports from Qatar, US, and Australia, by a factor of six. (New sources of supply are constantly being talked about: including, for example, from Azerbaijan, and from the Eastern end of the Meditteranean, but it will take time for these to be constructed and implemented). So far as Europe’s switch to greater dependence on non-Russian LNG supplies is concerned, Europe does not yet have the necessary number of LNG terminals, nor is it certain that there are a sufficient number of suitably insured tankers to supply the quantities of natural gas needed to meet European demand by the end of 2023.

The considerably higher prices and the continuing constraints on supply of LNG therefore represent what is in effect a huge drain on European state resources, industry and residential customers. European states have erected subsidy programs to reduce some, but certainly not all of the pain (at the expense of much higher European budget deficits that will ultimately act as a further impetus to deindustrialization and lack of competitiveness), and this has been sufficient for some European industrialists to relocate to the US and to other countries that can still offer (relatively) cheaper energy. Some such countries, like the US, are also experiencing pressure on energy prices as prices on the global markets continue to rise, and they will likely continue to do so in the event that the passing of peak production of North American shale oil and gas is confirmed. All of these pressures are taking place within the even greater pressure bubble of climate change and the intensifying efforts around the world to reduce dependence on fossil fuel, which in turn is beginning to strongly demotivate potential future investments in oil and gas exploration.

In the meantime the EU, having remained silent in the face of US inspired sabotage of Nord Stream 1 and 2 pipelines, and having pursued a reckless policy of announcing several months in advance that it intended to bring an end to imports of Russian energy by pipeline and shipping (thus inspiringf Russia into reducing supplies before European countries could conveniently replenish their own reserves) is making matters even worse for itself with oil and gas price “caps,” whose intended purpose of interfering, in Europe’s favor, with free market trade between the NATO-orbit and what one might loosely describe as the BRICS-orbit, will very likely be counterproductive. The oil cap has already been agreed (after a great deal of bickering) at $60 dollars a barrel; the natural gas cap is still being negotiated in measures of energy-per-hour. It seems highly unlikely that China or India will pay serious attention to the caps since they already have access to Russian supplies at very good rates and will continue to have such access at rates that compare very favorably with the costs of LNG from Qatar, the US, and Australia. Further, these countries stand to gain by the resale to Europe of Russian oil and gas, suitably mixed with other sources that are not subject to the EU caps, at far higher rates than Europe originally paid.

In the meantime the EU is, to coin a metaphor, pouring oil on the fire, in the wake of disclosures of Qatari bribing of EU politicians. EU proposed measures to sanction Qatar accordingly have invited a backlash from Qatar, which is threatening to reduce its supply of LNG to Europe.

Particularly in the US, also in continental Europe, less so in the UK, there are increasing signs of self-doubt about the wisdom of NATO’s policy in its proxy war with Russia over Ukraine. These accompany much more somber noises coming from Ukraine (as much as these can be heard through the propaganda din of arch-spinmaster Zelenskiy, who would like his people to believe that Ukraine can take Crimea even while Ukraine’s energy and transportation systems appear headed for total collapse) to the effect that without far more substantial western aid than the west can supply, Ukraine cannot launch any new offensives which. This, in turn, suggests that Ukraine will be relatively defenceless against the much-anticipated Russian offensive. The western response, as I suggested yesterday, will likely take the rform of a US-led feet-on-the-ground NATO intervention whose likely purpose will be to secure western Ukraine and leave the rest of the country, to the fate of negotiation, a negotiation which, if it is to take root at all, will need to be balanced in Russia’s favor in terms of territory in eastern Ukraine, neutralization, and denazification, and other measures that address the security concerns (especially with respect to the positioning of western nuclear “defenses” anywhere along Russia’s border) that Russia has been pleading with the west to take seriously for the past two decades.

See Brian Berletic on Ukrainian nazis at New Atlas here: Western Media Whitewashing