Wednesday, November 30

The contours of Russia’s energy exports are defensible | View


OPEC and Russia held the line last week against the Biden Administration’s efforts to fight rising oil production from the world’s largest producers, in the face of rising world energy prices.

Russian hawks screamed badly, drawing parallels with Russia’s gas exports, where it is argued that the Kremlin is withholding supply to the European market as a lever for approval of its massive new gas pipeline, Nord Stream 2.

In both cases, the hawks are wrong and the facts say otherwise.

Price increases should have been expected

First, structural challenges in the energy market, not in Russia or OPEC, have led to price spikes since last summer as economies rebound from the pandemic.

Chief among these challenges is the growing number of sovereign consumers eschewing long-term stable energy contracts in favor of real-time pricing.

This is a strategy that works well when prices are low, as they have been, but can be disastrous as prices rise.

In fact, smart money is rarely found in long-term spot markets, especially in commodities, and especially when production levers are driven by indecisive consortia or producers, such as energy.

In fact, Russia is the largest alternative supplier to the European energy market. In that capacity, he has been a rational and balanced market maker throughout the pandemic.

For example, when COVID-19 first took hold, Russia carried out methodical supply cuts that allowed more rapidly deteriorating Asian energy producers a market in which they could sell their excess supply, thereby providing some stability. in the industry in general.

It is also almost certain that Russia could have taken advantage of those chaotic early days of COVID when demand was crumbling to execute market growth plans through price war strategies and the like; options that he clearly did not follow.

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Power maneuvers are totally reasonable

Furthermore, and ultimately most importantly, Russia’s energy maneuvers are in line with international trade standards.

Specifically, Gazprom, the state giant responsible for Russia’s pipeline gas exports, has fulfilled and continues to fulfill its contractual obligations to Western European countries and, in fact, has increased its net exports by almost 20% year-on-year.

This is no small feat in the context of last year’s collapse in demand brought on by the pandemic, which was compounded by an unusually warm winter. That forced Gazprom into negative margin positions and led to a reduction in production of almost 10 percent during the year.

As Russia enters what appears to be a much darker winter than before, with broad inflationary pressures leading to rapid rise in interest rates and the pandemic hitting Russian urban and industrial centers, it seems simplistic, if not totally false, frame the actions of the Russian energy sector. , a fundamental contributor to its GDP, like any other than a reasonable actor operating in a dynamic and challenging environment.

Tom Robertson is the CEO of Continental Currency Exchange, Canada’s largest foreign exchange retailer, and a partner at IDF, a strategic risk consultancy.


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