URSABLOG: A Colder World

I am writing this sitting in my cold flat in Athens waiting for the snow, forecast for this afternoon, to arrive. I went out on to the balcony earlier and swiftly abandoned any idea of going out today. After checking my fridge and cupboards for supplies, I decided it was better to spend the day at home in the company of my neglected cat, who incidentally has reacted to my welcome if abnormal presence by promptly falling to sleep in a tight ball and ignoring me. Why is it cold? Well the weather is one thing, but also living in a flat designed to be cool for most of the year lacking any central heating is another. I am trying to get things warm, and the air conditioners are busy pumping out warm air, but there is still a distinct chill around.?

It doesn’t help that both my upstairs and downstairs neighbours are away at the moment; I am heating their flats as well. And, in common with many people here who live in apartment blocks here, the central (and uncontrolled) oil-fired heating system has not been switched on since I moved in almost two years ago, and probably hasn’t been fired up for over ten years, since the national debt crisis in Greece which meant many individual flat occupiers could not afford their share of the heating bills. I could have – like many other buildings in the street – installed an individual natural gas-fired boiler to heat my flat directly. I can see the unsightly pipes disfigure the hallways of other buildings as I walk past them down my street, and wonder if I could reconcile myself to them by thinking of them as the stripped bare post-industrial interior-design beloved of many new bars in my part of the city, but ?I have decided no, it’s too much hassle, and by the way have you seen the price of gas these days?

In fact, have you seen the price of any kind of energy these days? I drive a Vespa around Athens, and the price to fill up a tank has gone from 11 euros to over 13. Hardly enough to break the bank I know, but I can imagine the money I would have to pay if I had to drive to and from work every day in a proper car, and take children to school and other places, and perhaps go and visit family and friends in other parts of Greece. With petrol well over 2 euros per litre at the pumps at the moment, and no end of a price reduction in sight, it seems that we are entering a new phase of personal as well as macroeconomic, price inflation. And, as always, these price rises are most keenly felt by those who have the least disposable income to accommodate them.

But as a distinct chill descends on the world following the invasion of Ukraine by Russia, I suppose I am not alone. And indeed as governments sort out their responses to this crisis, the price of energy, in particular the hydrocarbon based versions, does not seem destined to fall any time soon. The US and the UK have announced bans on Russian oil, largely symbolic in the case of the US – a bit like Spain banning imports of Italian olive oil – and whilst Germany has halted the approval of the Nordstream 2 LNG pipeline, they are still buying gas and oil from Russian via existing pipelines, and ships of course.

The numbers speak for themselves. In 2021, Russia exported 8.2 mill tonnes of crude oil to the US, which represented 3.9% of Russia’s seaborne crude exports, and less than 3% of Russia’s total crude exports including pipelines. The US also took 4.3 mill tonnes of clean oil products, 6% of total seaborne CPP exports. The EU on the other hand took 114.2 mill tonnes of crude oil to the European Union - accounting for 53.9% of Russia’s seaborne crude exports – plus an additional 40 mill tonnes by pipeline. An even greater proportion of Russia’s seaborne CPP products - 41.9 mill tonnes, 57.9% - went to the EU too. The US had no need for Russian LNG, but the EU did, 12.1 mill tonnes of it, not including three times as much by pipeline. Nevertheless the EU is not sitting on its hands: the European Commission has announced plans to reduce the EU’s dependency on Russian LNG by the end of the year. How this will be done remains to be seen.

The strategy appears to involve cutting Russian LNG imports by 100 bill cbm, which will mean relying heavily on other exporters, including the US, African and Middle Eastern countries, in fierce competition with other buyers in Japan and China, where many importers have existing long term supply contracts. Even if the EU is successful in this there will still be a supply/demand gap of 20-40 bill cbm, according to the latest estimate from the Bruegel think-tank. This gap will have to be filled with coal. And this will require unprecedented co-ordination between governments, otherwise member countries could end up bidding against each other for LNG.

Already there have been overtures by the west to unlock supplies. Venezuela and Iran have been approached to see if something can be done, as previously untouchable states prove more attractive alternatives to Russia. Pressure is being put on Saudi Arabia to do more. Diplomacy always involves subjective compromises in the face of new challenges and facts, and, in any case as Shakespeare pointed out, misery acquaints a man with strange bedfellows. The invasion of Ukraine has caused many countries to reassess their place in the world.

Over in Houston they had many problems to chew over. The annual CERAWeek conference for the US oil and gas industry, with 6,000 delegates attending, met in person for the first time since 2019. After feeling that they had been ignored and overlooked by climate change concerns, many industry executives felt that they were again at the centre of epochal events. According to the Financial Times, in public speakers deplored Moscow’s invasion. However:

In private, some talked of the opportunities created by the US’s newly imposed ban on Russian oil and the EU’s decision to slash Russian gas imports, which they believed had restored fossil fuels to the heart of debates about energy security.

They were rewarded by Jennifer Granholm, US secretary of energy. “We are on a war footing — an emergency,” she told a packed chamber. “That means you producing more right now, where and if you can.” In global terms, the pressure for countries to secure energy supplies, any energy supplies, is on.

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For all those in shipping who had viewed with scepticism the push for greener fuels, all this feels a bit like schadenfreude. In a rush to brand shipping as a dirty polluter at odds with the world, the world has been suddenly and forcefully reminded that just as there is as yet no ready alternative for a world driven mostly by hydrocarbon energy – the alternative being blackouts, even more unpopular than high energy costs – there is as yet no ready alternative to ships being powered by hydrocarbon fuels. The fact that these ships will be needed even more than ever to transport oil and gas over distances not covered by pipelines, or to carry the coal to make up the LNG shortfall, and everything else from wheat to laptops, can be viewed with some irony.

In a world that is rapidly changing on a daily basis – where real immediate dangers are more apparent to us than either the longer term environmental ones, still no less real, or perhaps the more imagined angst we felt after living in peace, security and prosperity for so long – in the words of my American nephew, shit just got real. And as I wait for the snow to finally fall on Athens, I worry about the electricity bill after giving my flat the hairdryer treatment, and worry about the way the world is heading in these dangerous days. I am sure I am not alone, not in Athens, not in Europe, not in the world, but at least I have an improved shipping market to look forward to. And my worries are nothing compared to those going through the nightmare further enfolding only two countries away in Ukraine.

The map of the world is changing fast, and all the things we thought were unthinkable, or set in stone, are suddenly thinkable, or were written in the sand just waiting for the next tide of history to flood in. In our world my worries, when taken collectively and amplified over many different countries, are as significant factors in how this war will end, and will affect the consequences – intended or otherwise – once it is over as the opinions and decisions of a small group of people in the Kremlin or elsewhere. ?The lights will have to stay on, the mobile phones charged up, the cars (and Vespas) on the road, and supermarkets full. To imagine otherwise is to imagine something much worse than all that we have lived through in the last couple of years. In very basic terms, outside the field of direct conflict, this means a reallocation of resources, or a substitute for them, being sourced and transported to the places that need them. It will also probably mean a swifter change to other technologies, sustainable or otherwise. All this will come at a cost and someone will have to pay. It’s probably time we realised that it’s going to be us. As the Spanish proverb says: “God says: Take what you like. And pay for it.”

Simon Ward

www.ursashipbrokers.gr