Gabriel Collins, J.D., Center for Energy Studies LNG Roundtable Remarks, 29 September 2022. Thank you to my colleague Steven Miles for hosting a superb event and inviting me to be a panelist!
Good, bad, and interesting things tend to come in groups of 3
Theme #1: Russia’s partial gas blockade of Europe reminds us that with all due apologies to the tech sector, molecules are still the foundational king of human economic and social activity.
Physical commodities are to the economy what a concrete slab foundation is to a house: only 1-3% of the cost but jeopardizes the entire structure if compromised. Similarly, unfolding events in Europe demonstrate that $250 billion per year worth of gas can imperil a $20 trillion continental economy. Markets adjust over time but absent dramatic geoeconomic intervention, may not do so quickly enough to prevent “General Gas” and “General Time” from splitting the current anti-Russian coalition. Russia is now doubling down on its bet.
Theme #2: Russia has “burned its gas boats on the Baltic beach”—and it is years away from having a gas ship capable of sailing to Asia at similar scale.
Imagine if Saudi Arabia reduced its oil exports to prime customers by 3 million bpd over a 12-month span, launched a bloody and unprovoked invasion of Qatar, reduced oil exports further, announced it would export 5 million fewer bpd over the next 3 years, and then to accentuate the point, blew up two of its oil pipelines feeding the Ras al-Tanura export facility. Sounds crazy, right? It is…but this is essentially exactly what Russia has done thus far with natural gas exports and its war on Ukraine.
Destroying 40-year-old customer relationships and consummating the act by sabotaging physical infrastructure is unprecedented in the global energy markets. Exporters have embargoed customers (OPEC in 1973) and countries have tried to destroy others’ export capacity (Iran/Iraq and Iraq vs Kuwait in 1991) but to my knowledge, no country has inflicted both wounds upon itself. More Russian gas coercion awaits—watch the supply corridor through Ukraine in coming days and weeks.
Theme #3: We’re in for a Long War.
Brace for at least two winters of energy tension, if not outright crisis. Stress could endure much longer if policymakers fail to realize that the words they put on paper and in speeches will influence markets’ ability to supply the molecules needed not just in Europe but Asia too. The world has now entered a new phase of “Blood, Iron, and Silicon” competition—and energy underpins all those national power dimensions. We’re in uncharted waters.
Related Publication: Miles, Steven R., Gabriel Collins, and Anna Mikulska. 2022. US Needs LNG to Fight a Two-Front Gas War. Policy report no. 08.18.22. Rice University’s Baker Institute for Public Policy, Houston, Texas.
Leave a Reply