Daily on Energy: The shape of the energy battlefield

Russia is punishing Europe and won’t stop: Citing people familiar with the Kremlin’s thinking, Bloomberg reports that Russia is likely to keep supply at “minimal” levels as long as Europe sanctions Russia over Ukraine.

Despite Russian state-owned gas giant Gazprom’s repeated insistence that the shutdowns are due to technical issues, those familiar with leaders’ thinking say the Kremlin and, by extension, Gazprom hope to leverage its energy resources against Europe.

Gazprom has analyzed the possible impact of a cutoff “lasting into next year,” Bloomberg reports, and has mapped out a way to limit Russia’s financial damage thanks in large part to surging costs and revenue since the start of the war.

Europe is facing a cold and expensive winter: Even before the shutoff was announced, some EU countries were struggling to fill their storage tanks ahead of the winter season, threatening a very real possibility of rationing or shortages. EU storage levels are currently 66% full, with leaders in Brussels setting an 80% goal by November.

If Nord Stream 1 continues to supply gas at 20% capacity, the bloc will only be able to refill its tanks to 75-80% before winter, according to a Wood Mackenzie analysis.

Klaus Mueller, the head of Germany’s network regulator, pleaded with households and industry today to curb their gas use: “The crucial thing is to save gas,” Mueller told a local news outlet. “I would like to hear less complaints but reports [from industries are saying] we as a sector are contributing to this.”

How did this come to pass? Though few might have expected this exact scenario, leaders in Europe have long been warned Vladimir Putin could use Moscow’s energy resources as a cudgel.

Now, Germany is in desperation mode, attempting to extend the life of its three remaining nuclear power plants, a once-unthinkable step for the country, which uses nuclear for just 6% of its overall power mix, and planned to shut down the remaining plants by December.

Earlier this month, Berlin also passed emergency legislation to reopen its coal-fired power plants on a “short-term, transitional” basis—imperiling its plans to phase out coal completely by 2030.

Before resigning as Italy’s prime minister last week, Mario Draghi urged members of parliament to act more urgently to secure new energy supplies, describing Italy’s “unacceptable energy dependence” on Moscow as “the consequence of decades of shortsighted and dangerous choices.” Draghi said he hoped Italy would be in a position to cut Russian gas imports down to zero over the next 18 months.

The upshot is that prices are absolutely soaring: New fears of a Russian cutoff led gas prices to jump by 12%, up 30% since the beginning of the week.

European gas benchmark TTF spiked Wednesday to $222.06 per megawatt hour, the highest point since early March and equivalent to an oil price of $380 a barrel. “Prices are so high that we really don’t know how the economy or demand is going to respond — we’ve never had anything even remotely close to these price levels,” energy consultant Ira Joseph told the Financial Times.

In the U.S., gas futures surged by 65%, rising towards the highest-ever single-month gain.

Looking ahead: Analysts expect the global race for supplies to intensify ahead of the winter storage season.

Already, utilities in South Korea and Japan are accelerating their plans to purchase more LNG cargoes for winter, Bloomberg reports.

“It’s got all the makings for a crisis across the board,” Toby Copson, the global head of trading at Trident LNG, told the Financial Times of the situation unfolding in Europe.

The U.S. is trying to help: President Joe Biden announced in March a campaign to send Europe an additional 15 billion cubic meters of LNG this year to help offset anticipated losses from Russia. In the last six months, overall U.S. exports to continental Europe have increased by 12% compared to the previous six-month period.

During the first five months of this year, U.S. LNG exports to the EU and the U.K. accounted for some 71% of total U.S. exports, a larger share than traditionally sent.

Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writers Jeremy Beaman (@jeremywbeaman) and Breanne Deppisch (@breanne_dep). Email [email protected] or [email protected] for tips, suggestions, calendar items, and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn’t work, shoot us an email, and we’ll add you to our list.

THIRD SET OF HUMAN REMAINS FOUND IN LAKE MEAD: National Park Service rangers said they have recovered another set of human remains from Lake Mead this week—the third to be found in as many months—as historic drought conditions continue to push water levels at the Nevada reservoir to all-time lows.

Park rangers said they responded to a witness report at Lake Mead’s Swim Beach recreation area around 4:30 p.m. on Monday afternoon. They declined to release any details on the identity of the person or when they might have died, but said the Clark County medical examiner’s office has been contacted to determine the official cause of death.

It’s the third body officials have recovered from Lake Mead since May 1, and comes as water levels at the reservoir have receded to roughly 1,040 feet, just 27% of its total capacity.

After the first body was recovered, Las Vegas Police Lt. Ray Spencer predicted authorities would uncover more of the same: “There is a very good chance as the water level drops that we are going to find additional human remains,” he told a local CBS affiliate in May.

HEAT AND DROUGHT FORCE CATTLE SALES, THREATEN LONG-TERM SUPPLY: Record-high temperatures and historic drought are forcing ranchers in some states to sell off their cattle in huge quantities, to an extent that is raising fears about the long-term health of the industry.

The sell-off is playing out mostly in the South, where ranchers have been seen lining up at livestock auctions in droves. In North Texas, the number of would-be sellers have roughly “quadrupled,” Jack Robinson, an 83-year-old auctioneer, told Bloomberg. “I’ve been in the business 60 years, and I’ve never seen lines that long,” Robinson said, adding that ranchers are in “panic mode.”

According to the USDA, the vast majority of pasture and range land in Oklahoma and Texas is now considered to be in “poor” or “very poor” condition. Triple-digit temperatures and drought have also forced farmers in some states to make tough financial choices: whether to shell out for supplemental feed and fertilizer, the costs of which have soared in recent months, or to sell their inventory.

And though the cattle prices have increased since last year, up 15% compared to 2021, many farmers are still struggling to break even—which could be a problem going forward. “We have a huge amount of drought liquidation going on,” David Anderson, a livestock marketing specialist at Texas A&M University, told the Texas Farm Bureau Radio Network, adding that he expects a 4% decline in the nation’s cow herd next year.

BIDEN ADMINISTRATION CONNECTING SUBSIDIZED HOUSEHOLDS TO SOLAR: The White House announced actions this morning designed to help households subsidized by the Department of Housing and Urban Development and the federal Low Income Home Energy Assistance Program to access cheaper electricity by plugging into community solar projects.

The White House said HUD would release guidance to enable families in HUD-assisted rental housing to subscribe to community solar.

One senior administration official said subscribing to community solar would help insulate customers from high energy costs driven by volatile fossil fuel prices. “They plug into solar, they pull out of that volatile market,” the official said.

The White House also announced that Colorado, Illinois, New Jersey, New Mexico, New York, and Washington, D.C., will participate in a pilot of the federal Community Solar Subscription Platform, which will facilitate participation in community solar specifically for LIHEAP recipients.

Higher costs: The administration marketed the programs as enabling lower prices for ratepayers at a time of rising energy costs.

The Energy Information Administration released its latest monthly electricity data for May yesterday, finding that wholesale electricity prices set new 12-month highs in multiple regions, including the Midwest and Mid-Atlantic.

Average residential retail rates rose 7.4% year over year in May.

COMPANIES NOT TAKING MANCHIN’S MAYBE FOR AN ANSWER: Industry groups and clean energy companies are still lobbying for an energy tax package to be part of Democrats’ spending negotiations as Sen. Joe Manchin withholds his support.

More than 230 companies, including solar and hydrogen firms, and 50 stakeholder groups are pressing Leader Chuck Schumer and House Speaker Nancy Pelosi to consider delaying Congress’s August recess to keep at work on the package, arguing in a letter to both that the clean energy incentives under negotiation would create jobs and reduce inflation.

“This is just too important to miss this window. So much work has been done,” Lisa Jacobson, president of the signatory Business Council for Sustainable Energy, told Jeremy. “We need support to lower energy costs, and these kinds of measures will help.”

Fed rate hike incoming: Manchin’s lasting concern has been that a broad energy and tax package could make inflation worse. He suggested negotiators come back to the table in September, saying he wants to see July’s inflation numbers, as well as the Federal Reserve’s latest action on interest rates, before moving forward.

He’ll get some new information to that end this afternoon. The Federal Open Market Committee will announce whether it will raise interest rates again, with the expectation that it will move forward with a hike of at least three-fourths of a percentage point.

SENATE ENVIRONMENT ADVANCES TWO NRC NOMINEES: The Senate Environment and Public Works Committee voted unanimously to advance to the full chamber the nominations of Bradley Crowell and Annie Caputo to serve on the Nuclear Regulatory Commission.

Goffman delayed: The committee was also scheduled to take up the nomination of Joseph Goffman to be assistant administrator of the Office of Air and Radiation at EPA but the vote was delayed.

The Rundown

Financial Times The oil dealmaker: Total’s Patrick Pouyanné is not backing down

Reuters Glaciers vanishing at record rate in Alps following heatwaves

Bloomberg China going quiet on LNG hides risk that may upend global market

Calendar

THURSDAY | JULY 28

10:00 a.m. 1324 Longworth Members of the House Natural Resources committee will hold a hearing exploring ways to prevent large corporate polluters from securing contracts with the Bureau of Land Management.