The Global Energy Order Is Unravelling Fast: Welcome to World War E

Hello and welcome to today’s Elements, our energy and commodities newsletter. Bloomberg Opinion’s Liam Denning writes about the multiplying conflicts tearing at the fabric of the global energy order. And if you haven’t read our US oil reporter Kevin Crowley’s investigation into Exxon Mobil’s worker brain drain, it’s worth a few minutes of your Friday. Finally, if you’re reading this on the web and want it delivered straight to your inbox, click here.

Today’s Setting: World War E

It’s October and we’ve avoided sliding into a third world war for almost eight months, so we’ve got this to ourselves. But things are also escalating on the energy front, not only between Russia and the West.

Russian President Vladimir Putin has denied involvement in the Nord Stream gas pipeline explosion. Still, he claims the “precedent” means that “any critically important item of transportation, energy, or utility infrastructure” is now fair game. He is already demonstrating this in Ukraine, although Putin has made it clear that nowhere should be safe. Even if the military war is not global, the energy front might be. Anyone who can remember back to the Colonial Pipeline hack in May 2021 knows that there are many opportunities to escalate and miscalculate in this vital sector.

Things also escalated when OPEC+ announced a production cut of 2 million barrels a day. One can argue about the justifications; the rift that opened between Riyadh and Washington — or perhaps more accurately, showcased — cannot. Russia’s role as Saudi Arabia’s co-lead in OPEC+ has added a powerful and destabilizing element to an already strained relationship.

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The US itself is no stranger to the use of energy weapons, albeit usually in terms of sanctioning the production and distribution of others. Indeed, one way to look at the recent escalation, which goes beyond Ukraine itself, is the effort by Russia and Saudi Arabia to reassert their global energy supremacy.

Like the manipulation of gas flows to Europe, Putin’s razor-thin infrastructure threat can be read as a reminder to the West that, for all its talk of decoupling and decarbonization, it relies on the delicate fossil-fuel supply system, of which Russia is a key component.

While the G-7’s proposed price cap targets Russian oil, Saudi Arabia may wish to forestall such an oil buyers’ club, especially when so many members also have net-zero targets. On that front, it’s worth noting that the Biden administration’s National Security Strategy, released this week, specifically uses the US steel and aluminum deal with the European Union as a template for using “economic power to promote decarbonization” elsewhere quoted. The Ukraine crisis is part of a broader disengagement, in which the mutual need that binds energy producers and consumers together gives way to coarser competitions over who needs whom.

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— Liam Denning, Bloomberg statement

The diesel market on both sides of the Atlantic is under pressure as stretched refining capacity, winter demand and the shift from gas to oil put pressure on supplies in Europe. In the important port market of New York, spot prices are rising fast towards the records set earlier in the year. That will be a concern for the Biden administration as New Englanders fill up their heating oil tanks for the cold months ahead.

Germany met a crucial natural gas storage target more than two weeks ahead of schedule, but regulators warned that this would not be enough to ensure supplies during the coldest months. European natural gas prices headed for a weekly loss. Scientists at the Copernicus Climate Change Service, which updated its seasonal outlook on Thursday, said temperatures in Europe are likely to be well above normal during the main heating season between December and February. China’s appetite for foreign oil has yet to recover significantly as virus lockdown fears dampen travel and overshadow an increase in fuel export quotas to support economic growth. Oil headed for weekly losses. President Joe Biden once again criticized high US gasoline prices and said he would announce new measures next week to tackle what he described as the main driver of inflation. Exxon Mobil is making record profits, but the oil giant has seen its highest turnover since its merger with Mobil in 1999. An investigation that includes interviews with more than 40 current and former employees and a review of dozens of internal documents reveals a key reason for the emigration of talent: a culture that is increasingly out of step with the world around it.

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• Mohammed Alyahya, a Saudi commentator close to the royal palace, says in an op-ed for The Wall Street Journal that Joe Biden is using Riyadh as a scapegoat to distract from his own failed energy policies

• Bloomberg’s own Will Kennedy has just returned for another episode on the Energy Transition Show podcast. A year after he first came out to talk about what was then the “global energy crunch,” it’s only gotten crunchier. “We appear to be facing another extraordinary economic, social and political crisis.”

• New transmission lines could make Texas power greener and cheaper. So why aren’t more of these built, asks Chris Tomlinson in a column for the Houston Chronicle.

This column does not necessarily represent the opinion of the editors or of Bloomberg LP and its owners.

Liam Denning is a Bloomberg Opinion columnist covering energy and commodities. A former investment banker, he was editor of the Wall Street Journal’s Heard on the Street column and a reporter for the Financial Times’ Lex column.

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