RUSSIA ENERGY SANCTIONS

PLATTS -  07 Feb 2022 - US and EU leaders stepped up efforts Feb. 7 to deter a Russian invasion of Ukraine by demonstrating their close coordination on potential sanctions, including against the Nord Stream 2 gas pipeline, and on efforts to secure European energy supplies.

US President Joe Biden and German Chancellor Olaf Scholz presented a unified front during a joint White House press conference, saying they had agreed on specific sanctions to respond to a potential Russian attack on Ukraine.

Biden said the 55 Bcm/year pipeline Nord Stream 2 pipeline, which is built but has not been certified to start, "is just not going to happen" if Russia invades.

While Scholz did not mention Nord Stream 2 by name when discussing possible sanctions, he reiterated that the US and Germany were on the same page and had "intensively prepared everything to be ready" should the West need to trigger the penalties.

"We are acting together," Scholz said, switching to English to underline the point. "We are absolutely united. We will not be taking different steps. We will do the the same steps, and they will be very, very hard to Russia."

Surging energy prices

Earlier Feb. 7, US Secretary of State Antony Blinken opened the US-EU Energy Council Ministerial in Washington by saying the Biden administration would do "everything we can to help ease any disruptions to Europe's energy supply."

The Biden administration has been in talks with global gas producers and Asian consuming nations on efforts to divert LNG cargoes in the event Russian gas exports to Europe get disrupted by the Ukraine conflict or Western sanctions.

European Commission Vice President Josep Borrell said Russia was using Europe's reliance on its energy exports for "geopolitical gain in the middle of a surge of energy prices worldwide." He called on the Putin administration to return to the path of diplomacy.

"But at the same time, we have to be clear all together that any further aggression against Ukraine would have massive consequences and severe costs in response, and we know how deep we have been working on this response," Borrell said.

Geopolitics of clean energy

Officials from both sides of the Atlantic highlighted the energy transition away from fossil fuels as a solution to easing global conflicts like those on display in the Ukraine standoff.

"No country has been held hostage to access to the sun; no country has been hostage to the wind," US Energy Secretary Jennifer Granholm said. "This is not just an energy and climate issue – it also is potentially the greatest peace plan that ever existed to be able to build out energy independence from clean energy."

Borrell added that he feared that the immediate energy crisis risked "distracting us from the bigger picture, because reliable, affordable and secure energy can only come from a decarbonized energy based largely on renewables."

European Commissioner for Energy Kadri Simson said the current high price volatility showed "that the energy transition is not a linear process but a road with ups and downs." She said political leaders needed to preserve the public's trust and support for clean energy alternatives despite high prices.

Simson added that she hoped to "sustain strong US LNG exports to Europe in the coming months" to reduce dependency on a single supplier.

Sanctions scenarios

Biden has vowed to impose "swift and severe consequences" on Russia if it attacks Ukraine, including financial sanctions to restrict foreign capital and export controls to block US software and technologies. Other options include banning Russia from dollar trades and blocking access to the international financial messaging service SWIFT, both of which analysts see as less likely because they would have massive consequences for energy markets and the global economy.

US senators are negotiating their own sanctions bill, with some pushing for preemptive penalties to deter further military buildup.

Platts Analytics does not expect the US to impose secondary sanctions on Russian oil customers, given Europe's heavy dependence on the flows and oil prices already at $90/b.

"The West is unlikely to jeopardize such large volumes," Platts Analytics said.

Russia was the No. 3 oil supplier to the US in November after Canada and Mexico, US Energy Information Administration data showed Jan. 31, as the Ukraine crisis threatens to disrupt the flows.

Platts Analytics expects any disruption in the Russian crude to have minor impacts, as US refiners could backfill by easing exports of US Gulf Coast sour crudes such as Mars. Lower US imports of Russian oil feedstocks would have a bigger impact, but Gulf Coast refiners could run Canadian or Latin American heavy grades at a cost to margins.

Biden was asked Feb. 7 if he planned to sanction or block the Russian imports, but he did not answer the question. 

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