Unity, solidarity, and lots of wind and solar

Another exciting week is drawing to a close, allowing us all a chance to digest the most important events of the last five days, among them an amazing report from the IEA, more gas price cap discussions from the EU, an oil embargo, and two more price caps. Oh, and the funniest joke of the week: the Bosphorus tanker jam.

The oil embargo on Russian crude that went into effect in the EU on Monday was actually non-news because we all knew about it and traders knew about it so it didn’t really have any effect on prices.

The price cap, however, did. It pushed them lower because everyone realised seemingly at the same time that the cap won’t immediately lead to Russia cutting shipments abroad. And then Turkey decided to have some fun.

Media rushed to report that more than 20 tankers, all but one full of Kazakh oil, were stuck in Turkish waters in the Bosphorus because the Turkish authorities had decided to demand an additional document: a letter from the cargo’s insurer stating that the vessel carrying it does indeed have insurance coverage for spills and other nasty things.

Insurers refused to provide such documents and continue to refuse as I write this. At first, I was confused. After all, what is the problem of confirming you have indeed provided insurance coverage to this or that cargo of Kazakh, sanction-free, oil? The FT answered my question.

“The International Group of P&I Clubs, which provides prevention and indemnity insurance to 90 per cent of the industry, has said it cannot comply. Turkey’s request would require P&I Clubs to guarantee cover, even if it transpired that a vessel had violated sanctions, it says,” the FT reported yesterday.

In other words, insurers are too worried they might get implicated in sanction breaches they have no control over that they wouldn’t give Turkey those confirmation letters. Sounds like the beginning of a beautiful friendship between insurers and insured, and sanction enforcers.

While Turkey entertains itself by keeping about 20 million barrels of oil off the market, the IEA has once again done its best to entertain us all with its Renewables 2022 report, which says that in a few short years — five, to be exact — renewables, meaning wind and solar, will replace coal to become the world’s source of electricity.

In light of the world’s increased use of coal in the past couple of years despite record-breaking wind and solar capacity additions one might find such a prediction not a little confusing. That’s because the prediction has only a passing touch with reality and the touch point is energy policies that support such a vision of the future.

Unfortunately, as Europe had the unique chance to discover this year, when policies, energy or otherwise, are put to the test, imperfections, so to speak, make an appearance. In the case of the IEA’s prediction of a wind-and-solar-possibly-some nuclear future the problem is what all that capacity will be made from.

I had an idea of dissecting the whole report, by the way, prediction by prediction, but thought better of it. There is no point in doing that and I do hate repeating myself even if I not infrequently do it here.

With Renewables 2022 the IEA has told us nothing fundamentally new. What it has done is try to assure us, once again, that the future belongs to wind and solar, and not oil, coal, and gas, even though all available evidence points to the contrary. And it appears to be still under the illusion that just because it says this will be the future, the future will oblige and be the way the IEA envisions it.

Meanwhile, the European Union keeps demonstrating its notorious unity and solidarity as it discussed the gas price cap. Remember, the one that the Commission proposed and a lot of people called a joke because it was too high and was also combined with a condition of elevated LNG prices on the spot market to make it more impossible to implement.

Obviously, the 15 countries that wanted a cap in the first place are unhappy and pushing for a lower cap. Another six, meanwhile, are pushing against them. Those, you’d hardly be surprised to learn, include Germany, which was against a cap from the start, the Netherlands, which was against a cap from the start, and Denmark, which is a rich country that makes its electricity from garbage and wind, so it’s above all these petty kerfuffles but it has probably taken a principal position because the Danes are a principal people.

As a result of all this pushing, it’s beginning to look like instead of nearing an agreement, which needs to be struck by December 13 or the EU carriage will turn into a pumpkin or a gas pipeline, perhaps, the bloc is about to sink further into arguments. Come to think of it, that could be exactly what opponents are aiming for, or maybe they would be they had the cunning of Baldrick, which, alas, I don’t believe they do.

The ECB, since it didn’t have anything better to do this week, poured some oil on the fire of arguments saying that the gas price cap could backfire by jeopardising the financial stability of the EU.

"The mechanism's current design may increase volatility and related margin calls, challenge central counterparties' ability to manage financial risks, and may also incentivise migration from trading venues to the non-centrally cleared over-the-counter market," the ECB stated authoritatively.

For those with a longer memory, this was exactly what traders said immediately after the Commission announced its cap proposal, only they didn’t try to sugarcoat it with modal verbs.

The ECB also said something that made me cry with laughter for a couple of seconds. Per Reuters, “The ECB also asked the European Commission to curb its role in the process of activating and ending the price mechanism as the current proposal may encroach on its independence.”

How cruel to clip the wings of the Commission’s ambition to become a central government ruling over a whole continent with the power to tell hundreds of millions what to think, what to eat and what to do and not to do when they’re not eating.

While the EU circus continues to entertain us, the Australians have gone and imposed a price cap on gas, just like that. That’s what happens when you have one single country and not a ragtag band of nations with a long history of hating each other.

Of course, there have been warnings that the price cap will not exactly stimulate gas companies to invest in more future production but I personally think that’s an overreaction — the cap will only be in place for a year.

I mean, that’s what the Australian PM is saying and he’s never lied before, I’m sure, because politicians don’t as a rule lie and price caps can hardly be seen as some dangerous precedent of government intervention into supposedly free markets that could compromise their freedom and eventually do away with them altogether if the government thinks that best.

All in all, it has been another highly interesting week, during which the head of the German energy regulator also added his name to the list of newsmakers by calling on Germans to start turning their thermostats down, not that there’s anything to be concerned about but just in case.

Oh, and a British charity has warned that as temperatures drop below zero, millions of Britons are facing dreadful consequences. I’m sure they’re just being overdramatic.