Top energy trader Pierre Andurand has closed out all his positions in the natural gas market because last year’s high prices probably won’t be repeated, with Russia losing the gas war as Europe seems to have moved past the worst of the power crisis.
According to Andurand, Russian President Vladimir Putin failed to achieve his objectives—Europe has indeed found alternate natural gas supplies, with European benchmark natural gas prices now high, but well below the 300 euro per MW hour price that it achieved in August.
“I think Putin lost the energy war,” Andurand told the Financial Times, adding that there was “no more fear of an energy crisis.”
“Now that Europe is getting used to living without Russian gas, why would they ever go back?” he said, before going on to explain how Putin had made a costly mistake in cutting gas exports to Europe, forcing the latter to find alternative suppliers.
According to FT, Andurand Capital’s Commodities Discretionary Enhanced fund gained 650% from the start of 2020 to the end of 2022. For 2023, it is down 3% so far, with Andruand calling the end to the power crisis.
Now, Andurand sees the possibility for big moves in crude oil. The prices for crude oil, Andurand explains, have fallen too far in recent months, and could rally when China’s economy rebounds as it backs away from its zero-covid policies. Crude prices could even hit $140 per barrel later this year, Andurand said.
“The reopening of China is going to lead to a lot more oil demand growth than expected,” Andurand said, adding that it could take a couple of months for the market “to recognize the scale of the demand increase we’re seeing.”
By By Julianne Geiger for Oilprice.com
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1- Despite the harshest and unprecedented Western sanctions, bans and price caps of oil and petroleum products, the Russian economy is in far better shape than the United States and the EU economies.
2- Thanks to Putin’s energy weapon, Russia recorded in 2022 a current account surplus of $228 bn and a trade balance surplus of $290 bn according to official data from Russia’s Central Bank.
3- Russia exported on average 7.8 million barrels a day (mbd) of crude oil and petroleum products in 2022 or 98% of pre-Ukraine level of exports.
4- The Western prices cap is an admission of the irreplaceability of Russian crude oil and gas exports. The cap failed miserably while Russia is still exporting its crude to the world at preferential prices for its loyal customers but no exports to countries implementing the cap.
5- Russia has managed to replace the EU market for oil and gas with China, the world’s largest energy market. In 2022 China bought $100 bn worth of Russian oil, gas, LNG and coal compared with $108 of Russian gas and oil bought by the EU in 2021.
6- While the EU has been scouring the world for a replacement of Russian gas and in so doing managed to fill its gas storage in 2022 but what about 2023 and 2024? Meanwhile it has been paying exorbitant prices for US LNG supplies. Europe’s economies were built on cheap Russian piped gas. If the EU wants to repair its damaged economy, it will have no alternative to Russian gas.
7- The global energy crisis is projected to be with us for many years to come if not permanently because of global underinvestment in oil and gas production capacities. As a result, energy prices could remain elevated permanently. For Russia which is the world’s superpower of energy, this means more cash and the prevailing of its energy weapon.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert
Will not be surprised if Russia tests its nukes again to keep them in serviceable condition. If that happens new nuke powers will emerge and G7 will permanently lose. Do not mistake on that.
Let Ukraine remain neutral like Switzerland. This what India/ China saying very indirectly and discreetly.
The first one is that the fall in gas exports is due entirely to Russian supply cut offs. This isn't so. Poland obstructed Yamal-Europe pipeline already in 2021. Germany and USA stalled NordStream II in 2020-2021 and later somebody blew it up for good to make sure Germany can't resume imports of large and discounted quantities from Russia for its industries. Moreover, Berlin decided to sanction and confiscate some of Gazprom's assets in Germany. The conclusion is obvious: the West was trying to obstruct current and future gas projects with Russia in 2019-2021 already, prior to the war. What was Moscow supposed to do - force Germany and EU to take its gas? Continue supplying gas in return for questionable euros that stayed in Western banks and could be seized?
The second assumption is about Putin's aims. They are often imputed, depicted, spun by a myriad of shoot-from-the-hip commentators. Let's consider instead that prior to the war Moscow has made a conscious decision in its long-term strategy to reorient its energy exports to the South and East. In 2021 Putin addressed Turkey's potential as an energy hub. In 2019-2021 Gazprom touted Asian markets in word and in deed. Today Exports to China are growing every year and several large projects are in the works. LNG shipments to East Asia and India have increased over the past 3-4 years. Turkey is becoming an energy hub for Russian gas exports thanks to the Blue Stream pipeline and the two Turkish Stream pipelines as of now. What we are witnessing is a conscious rerouting of Russian energy flows - gas, oil, and coal - to the growing markets outside of the EU.
If we look at some preliminary results from 2021-2022 we'd see that:
In 2021 Gazprom earned record profits as EU gas prices skyrocketed. This paid for Russia's share of Nord Stream II and for fines from various EU rulings. In the 1st half of 2022 its profits were higher than for the entire 2021.
However, in 2022 EU and UK paid a giant, record energy bill and saw high inflation that is slated to stay well above normal for 2023. To fight this the EU, UK, and USA (where Biden blamed Putin's energy policy), raised their interest rates and have either entered economic stagnation or partial recession. Germany, the heart of EU, has lost its Russian source of massive discounted gas supplies and now it and the rest of EU see a price of over $600/1000 m3 as some sort of relief from the energy crisis! Yet this would be a record price in any other year. Certainly Moscow also suffered losses. This is an economic and energy war. Yet Moscow got the EU buyers, and friendly Turkey, to pay for gas deliveries in rubles via Gazprombank. Now growing amounts of Russian oil, gas, and coal are being transacted bypassing the dollar. Russian coordination with key OPEC members Saudi Arabia, UAE, and Iran has held in spite of Biden's efforts to split them up.
Now the growing economies of China, India, and Turkey are receiving discounted Russian energy while the West is seeing record energy bills, including in the fertilizer and metals industries as well as in the transport sectors and generally for households.
Certainly the G7 in all its economic and financial might would make things difficult for Russia, but so far it has not seemed that they could do more than that. How well they dealt with the immediate backlash of rising energy costs and inflation, and with the long-term reorientation of Russian energy away from the dollar-euro and towards the rising East remains to be seen. It is too early to make any categorical conclusions of the sort made by the writer.