FRACK 5: Strategic Provocation of LNG Spot Price via War in Ukraine
How Frack Gas Caused The War in Ukraine, cont
This continues and overlaps the existing Frack 3 post.
“A surplus must be dissipated through deficit operations: the final dissipation cannot fail to carry out the movement that animates terrestrial energy.” — Georges Bataille, The Accursed Share
It is difficult to ignore the fact that the tensions that led to the Special Military Operation in Ukraine kicked off on the eve of Nord Stream 2 coming online.
The opposition to Nord Stream 2 was framed in American media as a problem of Russian Influence, that just as they had manipulated the 2016 election to their own ends, that if allowed to build the pipeline, “Putin” would use his control of Europe’s energy supply as leverage over the continent—to what end, remained unspecified.
The Trump days came and went in a blur of Russophobia, and Biden was back in office. Energy prices settled into what seemed like a permanent trough. Sabine Pass continued its scheduled shipments to Japan and China, but it looked doubtful that the LNG market will grow much beyond that. The natural gas sector started aggressively marketing its stocks to retail investors, as their institutional backers lost faith in the ever-receding price spikes. Trump signed new sanctions against Russia that temporarily stopped construction of the Nord Stream 2. The Russians had to buy their own boats, and continued laying the pipeline, finishing in September 2021.
The Amercians’ theory as articulated at home, in the midst of Russiagate media coverage, was that absent an addition of capacity to the existing Nord Stream, Ukraine had a check on Russia’s influence over Europe. They could threaten to shut off the pipelines that ran through its territory. No matter that this had never happened before. Just as the Russian invasion of Europe in the Cold War was nothing but a the fantasy of a bloated CIA, again today what pernicious influence Russia seeks to gain over Europe is always only vaguely articulated.
This was subtly different from the story they needed their Ukrainian partners working to turn Zelensky to hear: that Nord Stream 2 violated Ukrainian national interest, not because Russian gas would out-compete Ukrainian gas, because Ukrainian gas didn’t exist. Burisma was more of a paper entity than a material one, and Ukraine’s gas and oil deposits are still underdeveloped. However, it did used to collect rent from the Russian pipelines that ran overland through its territory. Nord Stream 2 would not diminish these rents, it would simply ship additional gas to Europe under the sea. Nonetheless, a cheaply supplied European market would decrease said rents, paid on net profit and not on units transported, collected by the Ukrainian government on pipelines. How significant that decrease could be was difficult to forecast. Time to go to war.1
Thus was the newly receptive Zelensky was told that the Nord Stream 2 constituted a threat to Ukraine’s national interest. This occasioned a formal request for NATO membership, thereby crossing the only real red line Russia held. To be clear, the peaceful completion of Nord Stream 2 would not have greatly affected the Ukrainian economy one way or another.
In September 2021, the Nord Stream 2 was complete and ready to be put into operation. American pressure stalled final German certification and the pipelines remained still.
During a joint news conference on February 7 with the new German chancellor Scholz, Joe Biden promised to blow up the Nord Stream 2 pipeline: “I promise you, we’ll be able to do it.” Scholz seemed bullied.
Like the U.S., Russia is run by people who remember the Cold War. From the Russian perspective, the Cold War was a series of unprovoked hostilities, a relentless barrage of strategic provocation. They were the somewhat befuddled objects of a massive clandestine effort that spanned the globe and killed millions of people. They had adopted official policy of Communism in One Country early in their history, and had no designs on fostering a proletarian revolution in Europe, or anywhere else. And yet the Americans insisted to the world that they planned on invading Europe. They saw the Americans mobilize a massive infrastructure of psychological and actual warfare aimed specifically at them, and had to formulate a response to it.
Russians remember that Gorbachev had tried to earn his country freedom from this constant active American animosity at the price of the Soviet Union itself, opening the vast country to rampaging criminal capital accumulation by Americans. Then, when he suggested that therefore Russia should join NATO, he was rebuffed. He then managed to get the Americans to promise that NATO in turn would not seek to expand into the Russian sphere of influence. He did not consult the indigenous people of North America on the worth of a promise from the American government.
Ukraine was a heart of Russian and Slavic culture, since many Russians lived there, and here was the Western Beast prepared to fully claim Kyiv as its own. Intolerable to the Russian national imagination. This was an impossible demand and a targeted provocation. It was obvious to all who had told Zelensky to seek NATO membership.
A few weeks later, Russia officially recognized the Donetsk and Luhansk People’s Republics. In an act that we are supposed to understand as retaliation for that political recognition, Biden finally forced German chancellor Scholtz to suspend certification of the Nord Stream 2, preventing it from coming online.
Finally, on February 24, 2022, Russia took the bait and started their “Special Military Operation.” From the moment Zelensky asked to join NATO, Putin had no choice: he would have to invade. Once this choice was made for him, Putin had no reason to minimize or diplomatize his efforts. The Americans had overdetermined Operation Z for him. Contrary to the image of Putin in American state propaganda, Vlad Putin acted rationally, showing restraint right up until the moment when restraint was no longer tactically advantageous—a signature of his leadership style.
The next day, Feb 25th, Venture Global announced Final Investment Decision to fund the the largest LNG export plant yet proposed, called Plaquemines. The FID of $13.2 billion was announced along with a purchasing agreement from Shell to buy, on behalf of the UK, 2.72 BCM a year for a term of 20 years, from that plant after it comes online in 2026. The future may be misty and full of uncertainty, but Shell has guaranteed that it will need at least 2.72 billion cubic meters of LNG from Plaquemines every year from 2026 until 2046. (On top of what it will be buying from everywhere else.) This was the first of many such FIDs2.
A month later, Joe Biden went to Brussels and sold the EU 15 billion cubic meters of LNG to be immediately redirected from shipments bound elsewhere. He also announced that his goal was to scale up American LNG supply to deliver the EU 50 billion cubic meters annually by 2030.
In the short term, Russian exports to the EU dropped by 56% and American LNG imports to the EU jumped from 2,585 million cubic meters per month to 4,562. All out of existing LNG infrastructure: Sabine Pass in Louisiana to export, Dunkirk to import. Even during that time (Spring 2022), these facilities were being utilized at a maximum of ~80% of capacity, a peak which went down quickly.
The announcement of the expansion of LNG capacity in the midst of record-high spot prices set off a feeding frenzy in the industry. It is moments like this in which careers and fortunes are made amongst the gamblers of Wall Street. Charif Souki mostly missed out, jealously watching from the sidelines as spot prices rise to $84 per million British thermal units (MMBtu), the equivalent of $500/barrel oil (at the time of this writing, LNG spot price hovers around $10.50 MMBtu). He had been pushed out of Cheneire by Carl Ichan in 2014, while all of these things were still in motion. But the gas traders of the global Wall Street, a twitchy bunch used to extreme volatility in prices, were able to recoup their losses from a decade of low energy prices and leverage up to hyper-real gains in every way they could, including selling future construction projects that will objectify LNG as an economic reality for decades.
These moments of panic pricing don’t last long, and so what you do at those times is to sell hard. Short term high spot rates became justification for sales pitches for new LNG plants that wouldn’t ship their first cargoes for years. So you sell everything you can get your hands on, not stopping at the gas you have to sell; you sell the promise of gas you’ll be able to deliver in the future with added infrastructures. Final Investment Decisions for LNG plants came down like rain, with over twenty new projects under way when the dust cleared, intended to deliver a combined annual capacity of 227 billion cubic meters, all expected to come online at some point before 2030.
In 2021, the EU imported a total of 157 bcm of gas from all sources, so this new capacity for LNG will equal about twice the existing demand. Dumping an excess seventy billion cubic meters of gas on the market in 2030 could crash the price of gas again. European utilities will be contractually obligated to guy LNG in these quantities for the next 15-20 years after deliveries begin after 2027, so these contracts demand we imagine the natural gas market in Europe into the 2040s. We are being buried alive in frozen methane.
If all those contracts were enforced, by classical supply and demand, energy would be almost free; well below cost of production, especially given the high cost of LNG freezing and transportation. But that was seen as a problem for tomorrow, and therefore not a problem at all. The important task at hand was opening the European market for American Frack Gas.
Souki, by the way, having missed out on the 2022 feeding frenzy of high prices, decided that his new company, Tellurian, would build a huge LNG export facility that sold entirely on spot pricing, with no long-term contracts. This would have allowed him and his investors to properly cash out on a panic market, but more realistically it would have allowed him to hemmorage money. There were to be no more moments like the invasion of Ukraine to spike prices. His new LNG facility will never get built, and he ended up owing investors $100 million, forcing him to sell his $30 million Aspen ranch. I’m sure he’ll land on his feet.
It remains unclear what will happen when Russia finally is able to resolve this Ukraine situation to its satisfaction. It is hard to see how the next president can keep Russian gas off the Western markets.
Meanwhile, Russia has increased its LNG supply as well, and its primary buyers are Belgium and Spain. Russian pipeline gas was not sanctioned, since Germany couldn’t make up the difference in supply, and Russia’s Gas Transit Deal with Ukraine remains in force through the end of 2024, earning Zelensky’s government $4 billion annually.
Later on, as the war got long in tooth and claw, the Biden administration suspended applications for some of the yet-to-be started new LNG freeze-and-export facilities. Bill McKibben counts this as a big win. However, given that there are two huge LNG facilities fully permitted and built—Plaquemines and Calcasieu Pass— but not in operation right now, there is still incredible capacity for LNG to expand without another permit being granted. We are still left with massive underutilized capacity in vast industrial instillations that destroyed further the once-beautiful Gulf Coast. Massive monuments to the dream of freezing methane gas; concrete vistas that can easily be seen from space, that someday may be excavated and they will wonder at the religion of capitalism these extinct mammals practiced with such fervor that they burned themselves alive.
Note that you can email me at thespouter@substack.com. It forwards to my personal email. If you’re a paid subscriber and send me a question along with your mailing address, I’ll send you a typewritten response by actual mail. (This is a new promise I’m lowkey dropping in at the end of this post. If it becomes too much a demand on my time, that will be a good thing and I will have to reconsider.)
A few days before this post,
published the definitive noided account of Oct 7th, in which he cited a 2016 article by JD Maddox, who not The Admiral’s ship in the Gulf of Tonkin, but rather former CIA branch chief & US Army psychological operations team leader, “How to Start a War: Eight Cases of Strategic Provocation,” published in Narrative and Conflict: Explorations in Theory and Practice. Maddox’s text nauseatingly breaks down the ten steps in Strategic Provocation:Popular narrative development (lead-up to attack)
Impossible demands (lead-up to attack)
Military/political "noise" (lead-up to attack)
Narrative escalation (lead-up to attack)
Intentional personnel sacrifice (during attack)
Cross-border lures (during/just before attack)
Atrocity allegation (during/immediately after attack)
Rapid condemnation (immediately after attack)
Pre-positioned response force (during/immediately after attack)
Rapid post-condemnation violence (immediately after attack)
The Ukranian request to join NATO puts us on step 2, Impossible demands, but of course #1-4 are ongoing at this time. I will let you match up the rest with what you know about the ongoing war in Ukraine.
See Greenpeace’s 2023 report, Who Profits From War.