Ruination of Russian energy market in EU: will the Kremlin try to block wheat again ? If so it is a resource war: Kremlin threatens to starve world
The Russian food weapon of impounding Ukraine wheat is on again, after the EU demolished Russian gas leverage over most of Europe
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After President Vladimir Putin's "special military operation" in Ukraine began almost a year ago, a combination of Western sanctions and Russia's decision to cut supplies to Europe drastically reduced the country's energy exports.
The latest sanctions, including price caps, are likely to disrupt oil trade further but it is easier to find new markets for crude and refined products than for gas.
Russia's gas trade with Europe has been based on thousands of miles of pipes beginning in Siberia and stretching to Germany and beyond. Until last year, they locked Western buyers into a long-term supply relationship.
"Of course, the loss of the European market is a very serious test for Russia in the gas aspect," Yury Shafranik, Russian fuel and energy minister from 1993 to 1996, told Reuters.
A former senior manager at Gazprom was more direct.
"The work of hundreds of people, who for decades built the exporting system, now has been flushed down the toilet,"
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and here is the Kremlin pro quid
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The food shortages and high prices are causing intense pain across Africa, Asia and the Americas. U.S. officials are especially worried about Afghanistan and Yemen, which have been ravaged by war. Egypt, Lebanon and other big food-importing nations are finding it difficult to pay their debts and other expenses because costs have surged. Even in wealthy countries like the United States and Britain, soaring inflation driven in part by the war’s disruptions has left poorer people without enough to eat.
“By attacking Ukraine, the breadbasket of the world, Putin is attacking the world’s poor, spiking global hunger when people are already on the brink of famine,” said Samantha Power, the administrator of the United States Agency for International Development, or USAID.
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Here is what Putin is doing. Starve 70% of the human race if necessary , if he is no longer able to blackmail the EU through gas shipments
This is a thug mentality. And it will go on and on as long as Putin is in power
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Moscow's Decades-Old Gas Ties With Europe Lie in Ruins
By Reuters
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Feb. 14, 2023, at 12:03 a.m.
Moscow's Decades-Old Gas Ties With Europe Lie in Ruins
FILE PHOTO: A view shows the Orenburg gas processing plant of Gazprom in the Orenburg Region, Russia Septeember 6, 2022. REUTERS/Alexander Manzyuk/File PhotoREUTERS
By Vladimir Soldatkin
NOVY URENGOY, Russia (Reuters) - Meticulously crafted over decades as a major revenue stream for the Kremlin, Moscow's gas trade with Europe is unlikely to recover from the ravages of military conflict.
After President Vladimir Putin's "special military operation" in Ukraine began almost a year ago, a combination of Western sanctions and Russia's decision to cut supplies to Europe drastically reduced the country's energy exports.
The latest sanctions, including price caps, are likely to disrupt oil trade further but it is easier to find new markets for crude and refined products than for gas.
Russia's gas trade with Europe has been based on thousands of miles of pipes beginning in Siberia and stretching to Germany and beyond. Until last year, they locked Western buyers into a long-term supply relationship.
"Of course, the loss of the European market is a very serious test for Russia in the gas aspect," Yury Shafranik, Russian fuel and energy minister from 1993 to 1996, told Reuters.
A former senior manager at Gazprom was more direct.
"The work of hundreds of people, who for decades built the exporting system, now has been flushed down the toilet," the former manager told Reuters on condition of anonymity for fear of reprisals.
Current employees, however, say it is business as usual.
"Nothing has changed for us. We had a pay rise twice last year," a Gazprom's official, who is not authorised to speak to press, told Reuters in Novy Urengoy. The Arctic city is often referred to as Russia's "gas capital" because it was built to serve the biggest gas fields.
'STATE WITHIN A STATE'
The state gas export giant Gazprom, which has offices there, was formed in the dying days of the Soviet Union in 1989 under the Ministry of Gas Industry, headed by Viktor Chernomyrdin.
"Chernomyrdin never allowed anyone to put his nose into Gazprom. It was a state within a state, and remains so to an extent," Shafranik said.
Since the military operation began on Feb. 24 last year, less information has been available.
Like many Russian companies, Gazprom stopped disclosing details of its financial results.
According to Reuters' estimates, based on export fees and export volumes data, Gazprom's revenues from overseas sales were around $3.4 billion in January down from $6.3 billion in the same period last year.
The figures, combined with forecasts of exports and average gas prices, imply Gazprom's exporting revenues will almost halve this year, widening the $25 billion budget deficit Russia posted in January.
Already, the company's natural gas exports last year almost halved to reach a post-Soviet low and the downward trend has continued this year.
European Commission President Ursula von der Leyen estimated Russia cut 80% of gas supplies to the EU in the eight months after the conflict began in Ukraine.
As a result, Russia supplied only around 7.5% of western Europe's gas needs by the end of last year, compared with around 40% in 2021.
Before the conflict, Russia had been confident of selling more to Europe, not less.
Elena Burmistrova, the head of Gazprom's exporting unit, told an industry event in Vienna in 2019 the company's record-high exports outside Soviet Union of more than 200 billion cubic metres (bcm) achieved in 2018 were the "new reality".
Last year, the total was just above 100 bcm.
Russia's transporting capacities were undermined last year after mysterious blasts in the Baltic Sea at the Nord Stream pipelines from Russia to Germany. Russia and the West blamed each other for the blasts.
Pulitzer Prize-winning U.S. reporter Seymour Hersh in a blog said the United States was responsible, which the United States said was 'utterly false'.
Washington has long criticised Germany's policy of reliance on Russian energy, which until last year, Berlin had said was a means to improve relations.
THE DEAL OF THE 20TH-CENTURY
For his part, Putin had been seeking to diversify Russia's gas markets long before last year, but the policy has gathered momentum.
In October, he mooted an idea of a gas hub in Turkey to divert the Russian gas flows from the Baltic Sea and North-West Europe.
Russia is also seeking to boost its pipeline gas sales to China, the world's largest energy consumer and top buyer of crude oil, liquefied natural gas (LNG) and coal.
Supplies began via the Power of Siberia Pipeline in late 2019 and Russia aims to raise the annual exports to around 38 bcm from 2025.
Moscow also has an agreement with Beijing for another 10 bcm per year from a yet-to-be built pipeline from the Pacific island of Sakhalin, while Russia is also developing plans for Power of Siberia 2 from Western Siberia, which in theory could supply an additional 50 bcm per year to China.
Whether that relationship can be as lucrative as the decades of supplying gas to Europe remains to be seen.
Gazprom's most important assets are located in West Siberia and in the wider Arctic Yamal region, where the 100,000-strong city of Novy Urengoy, which celebrates its 50th-anniversary in 2025, houses seasonal workers in utilitarian, high-rise blocks.
One of the fields in the tundra area, around 3,500 kilometres (2,175 miles) northeast of Moscow, where they work is Urengoy.
Following the discovery of the field, which is among the world's largest in 1966, the Soviet Politburo began talks with Western Germany on exchanging gas for pipes, as Russia then lacked production technology.
The resulting agreement, dubbed the "contract of the century" was finalised in 1970 after the then Soviet Foreign Minister Andrei Gromyko, nicknamed "Mr Nyet" in the West for his uncompromising approach, said "da" to the gas-for-pipes deal, which involved supplies of heavy equipment for Moscow as well as gas for Europe.
The 20-year supply deal is worth about $30 billion in current gas prices.
It meant that for decades, Europe and, especially Germany, benefited from relatively cheap, long-term contracts, and relied on Russian natural gas, or methane, for heating households and as a feedstock for the petrochemical industry.
COMPLEX NEGOTIATIONS AHEAD
The negotiations with China on new gas sales are expected to be complex, not least because China is not expected to need additional gas until after 2030, industry analysts said.
Russia also faces far more competition than in the past from renewable energy as the world seeks to limit the impact of climate change, as well as rival pipeline gas supplies to China, including from Turkmenistan.
LNG, which can be shipped anywhere in the world, has further reduced the need for pipeline gas.
Gazprom and China have kept their agreed gas price a secret. Ron Smith, analyst at Moscow-based BCS brokerage, expected the price for 2022 to average $270 per 1,000 cubic metres, much lower than prices in Europe.
It is also below Gazprom's export price of $700 per 1,000 cubic metres, expected by Russian Economy Ministry this year.
Last year, Russia's energy finances, which are not broken down publicly into oil and gas, were supported by the market impact of fears of shortage.
In Europe, gas prices hit record levels and international oil prices shortly after the special military operation began spiked close to their all-time high.
Since then, prices for gas and oil have eased and Western price caps introduced in December and early this year are designed to erode Russia's revenues further.
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The Kremlin meanwhile has set Gazprom the mammoth task of building 24,000 kilometres of new pipelines to provide gas for 538,000 households and apartments in Russia from 2021 to 2025.
Domestic gas prices are regulated by the government and there have been discussions about liberalising the gas market, a sensitive issue for Russian households.
Back in Novy Urengoy, where temperatures fall to as low as almost minus 50 Celsius (minus 58 Fahrenheit), Achimgaz, a joint venture between Gazprom and Germany's Wintershall Dea, also has offices and the flag of Austrian energy company OMV flaps outside an administrative building.
Asked about its presence there, an OMV spokesperson said only the building housed offices of the operator of the Yuzhno-Russkoye field, where the company has a stake.
OMV in March scrapped plans to take a stake in a Gazprom gas field project, while Wintershall Dea, in which BASF holds just under 73% percent, said last month it was pulling outof Russia.
The Gazprom official who spoke on condition of anonymity said the company will regret that.
"We will just have to use more gas for our domestic households instead of exporting it to Europe. China also needs gas," the official said.
(Reporting by Vladimir Soldatkin; additional reporting by Alexandra Schwarz-Goerlich in Vienna; editing by Barbara Lewis)
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also
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How Russia’s War on Ukraine Is Worsening Global Starvation
Moscow blocks most shipments from Ukraine, one of the world’s largest wheat producers, and its attacks on the country’s energy grid also disrupt the flow of food.
By Edward Wong and Ana Swanson
Published Jan. 2, 2023
Updated Jan. 5, 2023
ISTANBUL — Hulking ships carrying Ukrainian wheat and other grains are backed up along the Bosporus here in Istanbul as they await inspections before moving on to ports around the world.
The number of ships sailing through this narrow strait, which connects Black Sea ports to wider waters, plummeted when Russia invaded Ukraine 10 months ago and imposed a naval blockade. Under diplomatic pressure, Moscow has begun allowing some vessels to pass, but it continues to restrict most shipments from Ukraine, which together with Russia once exported a quarter of the world’s wheat.
And at the few Ukrainian ports that are operational, Russia’s missile and drone attacks on Ukraine’s energy grid periodically cripple the grain terminals where wheat and corn are loaded onto ships.
An enduring global food crisis has become one of the farthest-reaching consequences of Russia’s war, contributing to widespread starvation, poverty and premature deaths.
The United States and allies are struggling to reduce the damage. American officials are organizing efforts to help Ukrainian farmers get food out of their country through rail and road networks that connect to Eastern Europe and on barges traveling up the Danube River.
But as deep winter sets in and Russia presses assaults on Ukraine’s infrastructure, the crisis is worsening. Food shortages are already being exacerbated by a drought in the Horn of Africa and unusually harsh weather in other parts of the world.
The United Nations World Food Program estimates that more than 345 million people are suffering from or at risk of acute food insecurity, more than double the number from 2019.
“We’re dealing now with a massive food insecurity crisis,” Antony J. Blinken, the U.S. secretary of state, said last month at a summit with African leaders in Washington. “It’s the product of a lot of things, as we all know,” he said, “including Russia’s aggression against Ukraine.”
The food shortages and high prices are causing intense pain across Africa, Asia and the Americas. U.S. officials are especially worried about Afghanistan and Yemen, which have been ravaged by war. Egypt, Lebanon and other big food-importing nations are finding it difficult to pay their debts and other expenses because costs have surged. Even in wealthy countries like the United States and Britain, soaring inflation driven in part by the war’s disruptions has left poorer people without enough to eat.
“By attacking Ukraine, the breadbasket of the world, Putin is attacking the world’s poor, spiking global hunger when people are already on the brink of famine,” said Samantha Power, the administrator of the United States Agency for International Development, or USAID.
The State of the War
Ukrainians are likening the events to the Holodomor, when Joseph Stalin engineered a famine in Soviet-ruled Ukraine 90 years ago that killed millions.
Mr. Blinken announced on Dec. 20 that the U.S. government would begin granting blanket exceptions to its economic sanctions programs worldwide to ensure that food aid and other assistance kept flowing. The action is intended to ensure that companies and organizations do not withhold assistance for fear of running afoul of U.S. sanctions.
State Department officials said it was the most significant change to U.S. sanctions policy in years. The United Nations Security Council adopted a similar resolution on sanctions last month.
But Russia’s intentional disruption of global food supplies poses an entirely different problem.
Moscow has restricted its own exports, increasing costs elsewhere. Most important, it has stopped sales of fertilizer, needed by the world’s farmers. Before the war, Russia was the biggest exporter of fertilizer.
Its hostilities in Ukraine have also had a major impact. From March to November, Ukraine exported an average of 3.5 million metric tons of grains and oilseeds per month, a steep drop from the five million to seven million metric tons per month it exported before the war began in February, according to data from the country’s Ministry of Agrarian Policy and Food.
That number would be even lower if not for an agreement forged in July by the United Nations, Turkey, Russia and Ukraine, called the Black Sea Grain Initiative, in which Russia agreed to allow exports from three Ukrainian seaports.
Russia continues to block seven of the 13 ports used by Ukraine. (Ukraine has 18 ports, but five are in Crimea, which Russia seized in 2014.) Besides the three on the Black Sea, three on the Danube are operational.
The initial deal was only for four months but was extended in November for another four months. When Russia threatened to leave it in October, global food prices surged five to six percent, said Isobel Coleman, a deputy administrator at USAID.
“The effects of this war are hugely, hugely disruptive,” she said. “Putin is pushing millions of people into poverty.”
While increases in the price of food this past year have been particularly sharp in the Middle East, North Africa and South America, no region has been immune.
“You’re looking at price increases of everything from 60 percent in the U.S. to 1900 percent in Sudan,” said Sara Menker, the chief executive of Gro Intelligence, a platform for climate and agriculture data that tracks food prices.
Before the war, food prices had already climbed to their highest levels in over a decade because of pandemic disruptions in the supply chain and pervasive drought.
The United States, Brazil and Argentina, key grain producers for the world, have experienced three consecutive years of drought. The level of the Mississippi River fell so much that the barges that carry American grain to ports were temporarily grounded.
The weakening of many foreign currencies against the U.S. dollar has also forced some countries to buy less food on the international market than in years past.
“There were a lot of structural issues, and then the war just made it that much worse,” Ms. Menker said.
U.S. officials say the Russian military has deliberately targeted grain storage facilities in Ukraine, a potential war crime, and has destroyed wheat processing plants.
Many farmers in Ukraine have gone to war or fled their land, and the infrastructure that processed and carried wheat and sunflower oil to foreign markets has broken down.
At a farm 190 miles south of Kyiv, 40 of the 350 employees have enlisted in the army. And the farm is struggling with other shortages. Kees Huizinga, the Dutch co-owner, said Russia’s attacks on the energy grid have led to the shutdown of a plant that provides his farm and others with nitrogen fertilizer.
Other fertilizer plants in Europe were forced to shut down or slow production last year as natural gas prices soared, a result of the war. Natural gas is critical for fertilizer production.
“So this year’s harvest has already been reduced,” Mr. Huizinga said in November. “And if Russians continue like this, next year’s harvest might even be worse.”
He added that transportation costs have risen sharply for farmers in Ukraine.
Before the war, farmers shipped out 95 percent of the country’s wheat and grain exports through the Black Sea. Mr. Huizinga’s farm paid $23 to $24 per ton to transport its products to ports and onto ships. Now, the cost has more than doubled, he said. And an alternative route — by truck to Romania — costs $85 per ton.
Mr. Huizinga said Russia’s compromise on Black Sea shipments has helped, but he suspects Moscow is hobbling operations by slowing inspections.
Under the arrangement, each vessel leaving one of three Ukrainian ports on the Black Sea has to be inspected by joint teams of Ukrainian, Russian, Turkish and United Nations employees once the ship reaches Istanbul.
The teams look for any unauthorized cargo or crew members, and vessels heading to Ukraine need to be empty of cargo, said Ismini Palla, a spokeswoman for the U.N. office overseeing the program.
U.N. data shows that the rate of inspections has dropped in recent weeks. The parties agreed to deploy three teams each day, Ms. Palla said, adding that the United Nations has requested more.
“We hope that this will change soon, so that the Ukrainian ports can operate again at higher capacity,” she said. “Ukrainian exports remain a vital element in combating global food insecurity.”
Ms. Palla said the parties’ decision in November to extend the agreement contributed to a 2.8 percent drop in global wheat prices.
Over the last six months, food prices have retreated from highs reached this spring, according to an index compiled by the United Nations. But they remain much higher than in previous years.
An uncertainty for farmers this winter is the soaring price of fertilizer, one of their biggest costs.
Farmers have passed on the higher cost by increasing the price of food products. And many farmers are using less fertilizer in their fields. That will result in lower crop yields in the coming seasons, pushing food prices higher.
Subsistence farms, which produce nearly a third of the world’s food, are being hit even harder, Ms. Coleman said.
In a communiqué issued at the close of their meeting in Bali, Indonesia, in November, leaders of the Group of 20 nations said they were deeply concerned by the challenges to global food security and pledged to support the international efforts to keep food supply chains functioning.
“We need to strengthen trade cooperation, not weaken it,” Ngozi Okonjo-Iweala, the director general of the World Trade Organization, said at the summit.
The U.S. government spends about $2 billion per year on global food security, and it started a program called Feed the Future after the last big food crisis, in 2010, that now encompasses 20 countries.
Since the start of the Ukraine war, the United States has provided more than $11 billion to address the food crisis. That includes a $100 million program called AGRI-Ukraine, which has helped about 13,000 farmers in Ukraine — 27 percent of the total — gain access to financing, technology, transportation, seeds, fertilizer, bags and mobile storage units, Ms. Coleman said.
The efforts could help rebuild the country while alleviating the global food crisis — one-fifth of Ukraine’s economy is in the agriculture sector, and a fifth of the country’s labor force is connected to it.
“It’s hugely important for Ukraine’s economy,” she said, “and for Ukraine’s economic survival.”
Edward Wong reported from Istanbul and Washington, and Ana Swanson from Washington.
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Andrew Beckwith, PhD