Fearing Russian gas shut-off, France’s industry turns to oil

During the economics conference, French Finance Minister Bruno le Maire said it would be irresponsible not to prepare for shortages. (AFP)
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Updated 11 July 2022

Fearing Russian gas shut-off, France’s industry turns to oil

  • Top executives say they are preparing for possible blackouts

AIX-EN-PROVENCE, France: France’s energy-intensive companies are speeding up contingency plans and converting their gas boilers to run on oil as they seek to avoid disruption in the event any further reduction in Russian gas supplies leads to power outages.

Gathered over the weekend at a business and economics conference in southern France, several top executives said they were preparing for possible blackouts.

“What we’ve done is we’ve converted our boilers, so they’re capable of running on gas or oil, and we can even switch to coal if we need to,” said Florent Menegaux, the boss of Michelin, one of the world’s leading tiremakers.

“The aim is to avoid having to shut down a plant in case we face a shortage,” he added, saying that while a gas shortage in Europe was likely, oil would still be available as an alternative.

It takes days to start up tire production at a manufacturing plant, Menegaux said, making it essential to maintain a steady energy supply.

Russia in June reduced flows through the Nord Stream 1 pipeline, its main route for shipping gas into western Europe, to 40 percent of capacity. Politicians and industry are concerned there will be further supply constraints linked to Russia’s invasion of Ukraine, which Moscow describes as a “special military operation.”

Across Europe, industry has been resorting to more polluting fuel than gas as it gives precedence to tackling the cost to the economy of business disruption and surging energy prices, rather than longer-term targets to switch to zero carbon fuel.

French Finance Minister Bruno Le Maire told the top corporate executives attending the conference it would be irresponsible not to prepare for shortages.

“Let’s prepare for a cut-off of Russian gas,” he told them. “Today it’s the most likely scenario.”

France, relies on nuclear power for around 70 percent of its electricity, meaning it is far less directly dependendent on Russian gas than neighboring Germany.

However, the state-controlled electricity producer EDF is struggling to meet France’s needs because of outages at its aging power plants, increasing the strain on the rest of the energy sector.

Energy production at 29 of its 56 nuclear reactors has been halted by inspections and repairs.

The French government is checking company-by-company which ones depend on an uninterrupted energy supply.

It has also sought to reduce the impact of a surge in energy prices by capping retail gas and power prices until the end of the year, which has helped to keep French inflation among the lowest in Europe.

A chairman of another large industrial company, who asked not to be named, said on the sidelines of the conference he believed all big businesses were looking at a switch to oil.

Automaker Stellantis is weighing options to produce its own energy in case of an energy crunch, Chief Executive Carlos Tavares said at a French factory last month.

These include building its own energy plant or investing in an existing one to secure part of the production.

Poland’s former Energy Minister Michal Kurtyka, whose country relies on coal for 70 percent of its energy, told executives at the conference that Europe was headed for a “perfect storm” this winter.


Pakistan’s central bank chief announces early repayment of $1 billion bond

Updated 25 November 2022

Pakistan’s central bank chief announces early repayment of $1 billion bond

  • There has been growing uncertainty about the ability of Pakistan to meet external financing obligations
  • The bank chief says funding has been lined up from multilateral and bilateral sources amid depleting reserves

ISLAMABAD: Pakistan will repay a $1 billion international bond on Dec. 2, three days before its due date, the governor of Pakistan’s central bank told a briefing on Friday.
There has been growing uncertainty about the ability of Pakistan to meet external financing obligations with the country in the midst of an economic crisis and recovering from devastating floods that killed over 1,700 people.
The bond repayment, which matures on Dec. 5, totals $1.08 billion, Jameel Ahmad, Governor State Bank of Pakistan, told a briefing, according to two analysts who were present.
Ahmad added that funding has been lined up from multilateral and bilateral sources to ensure the repayment would not affect foreign exchange reserves. An immediate inflow of $500 million was expected next week on Tuesday from the Asian Infrastructure Investment Bank, he said.
Pakistan’s reserves with the central bank stood at $7.8 billion as of Nov. 18, barely enough to cover a month’s imports.
Ahmad said reserve levels will depend on the continued realization of expected inflows and rollover of loans from friendly countries, but added he was confident the reserve figure will be “much higher” by the end of the financial year in June 2023.
He told the briefing he expects external financing requirements would be met on time because of inflows from international lenders. He pointed out that, despite payments of $1.8 billion in November, reserves remained stable.
The International Monetary Fund (IMF) said earlier this week that Pakistan’s timely finalization of a recovery plan from devastating floods is essential to support discussions and continued financial support from multilateral and bilateral partners.
Pakistan is currently in an IMF bailout program, which it entered in 2019, but a firm date for the ninth review to release much-needed funds is pending even as it battles a full-blown economic crisis, with decades-high inflation and low reserves.
The central bank raised its key policy rate by 100 basis points to 16% on Friday in an unexpected move to ensure high inflation does not get entrenched.

Strong inflationary pressure pushes Pakistan to raise key interest rate to 16 percent

Updated 25 November 2022

Strong inflationary pressure pushes Pakistan to raise key interest rate to 16 percent

  • The central bank raised the policy rate by 100 basis points while blaming inflation on global and local supply shocks
  • The bank projected the average inflation during the current fiscal year to remain over 21 percent due to food prices

KARACHI: Pakistan’s central bank decided to jack up key policy rate by 100 basis points to 16 percent on Friday, citing inflationary pressure in the economy which, it said, had not toned down yet.
The State Bank of Pakistan (SBP) previously increased the interest rate by 1.25 percent to 15 percent in July this year. So far, it has raised the key rate by 625 basis points, including the latest increase, since the outset of the year.
“At today’s meeting, the Monetary Policy Committee (MPC) decided to raise the policy rate by 100 basis points to 16 percent,” said a statement released by the central bank. “The decision reflects the MPC’s view that inflationary pressures have proven to be stronger and more persistent than expected.”
The SBP said it had taken the decision to ensure that elevated inflation should not get entrenched and begin to risk financial stability, adding that it wanted to pave the way for higher growth on a more sustainable basis.
The bank said inflation was increasingly driven by persistent global and domestic supply shocks that were also raising costs amid the ongoing economic slowdown.
“In turn, these shocks are spilling over into broader prices and wages, which could de-anchor inflation expectations and undermine medium-term growth,” it added.
The bank continued the rise in cost-push inflation could not be overlooked and necessitated a monetary policy response.
The MPC noted the short-term costs of bringing inflation down were lower than the long-term costs of allowing it to fester.
It also called for curbing food inflation through administrative measures to resolve any supply-chain bottlenecks.
The country’s inflation rate has hovered around historically high levels in Pakistan in recent months and was recorded at 26.6 percent in October. The central bank now expects the average inflation to go up to 21-23 percent during the current fiscal year (FY23) due to higher food prices and core inflation.
Pakistan has also witnessed an economic slowdown in the wake of the recent floods that have damaged huge infrastructure and agriculture output.
“After incorporating Post-Disaster Needs Assessment of the floods and latest developments, the FY23 projections for growth of around 2 percent and a current account deficit of around 3 percent of GDP shared in the last monetary policy statement are re-affirmed,” the SBP added.
It maintained that higher imports of cotton and lower exports of rice and textiles in the aftermath of the floods should be broadly offset by a continued moderation in the overall imports due to the economic slowdown and softer global commodity prices.
The central bank acknowledged that the recent climate catastrophe could make it challenging to achieve the aggressive fiscal consolidation budgeted for the year, though it noted that it was important to minimize slippages by meeting additional spending needs through expenditure reallocation and foreign grants.
The bank also emphasized the need to maintain fiscal discipline to complement monetary tightening, saying the two things could help prevent an entrenchment of inflation and lower external vulnerabilities.

Saudi, Iraqi energy ministers stress need to work within OPEC+ framework — statement

Updated 25 November 2022

Saudi, Iraqi energy ministers stress need to work within OPEC+ framework — statement

  • The minister arrived in the Saudi capital Riyadh earlier on Thursday

The energy ministers of Saudi Arabia and Iraq stressed the importance of working within the OPEC+ framework and said they will take further measures to ensure the stability of oil market if necessary, according to a joint statement released by the Saudi Energy ministry on Thursday.
The Saudi Energy minister, Prince Abdulaziz bin Salman, and his Iraqi counterpart, Hayan Abdel-Ghani, met to ensure their commitment to the OPEC+ decision, the statement said.
The Iraqi minister had arrived in the Saudi capital Riyadh earlier on Thursday following an invitation from Saudi Arabia, the Iraqi oil ministry said.

EU split on Russian oil price cap level, talks to resume Thursday

Updated 24 November 2022

EU split on Russian oil price cap level, talks to resume Thursday

  • The G7, including the United States, as well as the whole of the European Union and Australia, are slated to implement the price cap on sea-borne exports of Russian oil on Dec. 5

BRUSSELS: EU governments failed to reach a deal on Wednesday at what level to cap prices for Russian sea-borne oil under the Group of Seven nations scheme and will resume talks on Thursday evening or on Friday, EU diplomats said.

Earlier on Thursday representatives of the EU’s 27 governments met in Brussels to discuss a G7 proposal to set the price cap in the range of $65-$70 per barrel, but the level proved too low for some and too high for others.

“There are still differences on the price cap level. We need to proceed bilaterally,” one EU diplomat said. “The next meeting of ambassadors of EU countries will be either tomorrow evening or on Friday,” the diplomat said.

The G7, including the US, as well as the whole of the EU and Australia, are slated to implement the price cap on sea-borne exports of Russian oil on Dec. 5.

The move is part of sanctions intended to slash Moscow’s revenue from its oil exports so it has less money to finance its invasion of Ukraine.

But the level of the price cap level is a contentious issue — Poland, Lithuania and Estonia believe the $65-$70 per barrel would leave Russia with too high a profit, since production costs are around $20 per barrel.

Cyprus, Greece and Malta — countries with big shipping industries that stand to lose the most if Russian oil cargos are obstructed — think the cap is too low and demand compensation for the loss of business or more time to adjust.

“Poland say they can’t go above $30 per barrel. Cyprus wants compensation. Greece wants more time. It is not going to happen tonight,” a second diplomat said.

Some 70 percent to 85 percent of Russia’s crude exports are carried by tankers rather than pipelines.

The idea of the price cap is to prohibit shipping, insurance and re-insurance companies from handling cargos of Russian crude around the globe, unless it is sold for no more than the price set by the G7 and its allies.

Because the world’s key shipping and insurance firms are based in G7 countries, the price cap would make it very difficult for Moscow to sell its oil — its biggest export item accounting for some 10 percent of world supply — for a higher price.

At the same time, because production costs are estimated at around $20 per barrel, the cap would still make it profitable for Russia to sell its oil and in this way prevent a supply shortage on the global market.

Russian Urals crude oil already trades within the discussed range at around $68 per barrel.

EU diplomats said most EU countries, with G7 members France and Germany taking the lead, were supportive of the price cap, worried only about the ability to enforce it.


Countries adopt COP27 deal with ‘loss and damage’ fund

Updated 20 November 2022

Countries adopt COP27 deal with ‘loss and damage’ fund

  • Calls by developing countries for such a fund have dominated the two-week summit
  • Summit has been seen as a test of global resolve to fight climate change

SHARM EL-SHEIKH, Egypt: Countries adopted a hard-fought final agreement at the COP27 climate summit early on Sunday that sets up a fund to help poor countries being battered by climate disasters — but does not boost efforts to tackle the emissions causing them.

After tense negotiations that ran through the night, the Egyptian COP27 presidency released the final text for a deal and simultaneously called a plenary session to quickly gavel it through.

The session first swiftly approved the text’s provision to set up a “loss and damage” fund to help developing countries bear the immediate costs of climate-fueled events such as storms and floods.

But it kicked many of the most controversial decisions on the fund into next year, when a “transitional committee” would make recommendations for countries to then adopt at the COP28 climate summit in November 2023.

Those recommendations would cover “identifying and expanding sources of funding” — referring to the vexed question of which countries should pay into the new fund.

Calls by developing countries for such a fund have dominated the two-week summit, pushing the talks past their scheduled Friday finish.

And after a pause requested by Switzerland to review the final text, negotiators gave no objections as COP27 President Sameh Shoukry rattled through the final agenda items.

By the time dawn broke over the summit venue in the Egyptian resort of Sharm el-Sheikh, the deal was done.

The two-week summit has been seen as a test of global resolve to fight climate change — even as a war in Europe, energy market turmoil and rampant consumer inflation distract international attention.

Billed as the “African COP,” the summit in Egypt had promised to highlight the plight of poor countries facing the most severe consequences from global warming caused mainly by wealthy, industrialized nations.

Negotiators from the European Union and other countries had said earlier that they were worried about efforts to block measures to strengthen last year’s Glasgow Climate Pact.

“While progress on loss and damage was encouraging, it is disappointing that the decision mostly copy and pasted language from Glasgow about curbing emissions, rather than taking any significant new steps,” said Ani Desgupta, president of the non-profit World Resources Institute.

In line with earlier iterations, the approved deal did not contain a reference requested by India and some other delegations to phasing down use of “all fossil fuels.”

It instead called on countries to take steps toward “the phasedown of unabated coal power and phase-out of inefficient fossil fuel subsidies,” as agreed at the COP26 Glasgow summit.

The draft also includes a reference to “low-emissions energy,” raising concern among some that it opened the door to the growing use of natural gas — a fossil fuel that leads to both carbon dioxide and methane emissions.

Norway’s Climate Minister Espen Barth Eide told reporters his team had hoped for a stronger agreement. “It does not break with Glasgow completely, but it doesn’t raise ambition at all,” he said.

“I think they had another focus. They were very focused on the fund,” he said. For daily comprehensive coverage on COP27 in your inbox, sign up for the Reuters Sustainable Switch newsletter here.