The weaponisation of oil in numbers

Today's Take: The Energy War
Russia's invasion of Ukraine is a multidimensional war. There's the hideous and bloody military conflict. And there's the grueling and costly economic battle — fought above all in the energy market. Gas molecules and oil barrels are weapons just as tanks and drones are.

We now have a year's worth of data to quantify the energy weapons deployed, and the tally is stark: In 2022, barrels from the West outgunned Russia by almost 3-to-1.

First, the Russian data: The country's total oil production — including crude, condensates and natural gas liquids — sank by about 122 million barrels from last year's peak in February, just before the invasion.

Most of that decline took place over two months — April and May accounted for 56 million barrels of the drop. But much of the slump was subsequently clawed back, with December's output just 6 million barrels below February's, or 200,000 barrels a day.

Moscow didn't reduce its production voluntarily — although it did enjoy the price upside that followed. Traditional buyers of Russian crude fled the market in droves, months before most sanctions actually kicked in.

The international response to the decline in supply was overwhelming. The US and its allies, under the umbrella of the International Energy Agency, released about 314 million barrels from strategic petroleum reserves. Put simply, for each Russian barrel lost from the market in 2022, key IEA members added almost 2.6 barrels from emergency stockpiles. The bulk came from America — roughly 222 million barrels over the year. The rest, in two tranches, flowed from Germany, Japan, France, Spain, the UK and a few others.

The near 3-to-1 ratio shows that the US and its allies used their strategic reserves far beyond what was needed to replace the physical shortage created by Russia. They tapped extra barrels to push prices down. They were not just fighting Russia, but the OPEC+ cartel, too. All's fair in war.

--Javier Blas, Bloomberg Opinion

Chart of the Day
Black Gold
While oil and gas prices have fallen sharply from their 2022 highs, Asia's top-quality coal remains close to last year's record

Source: IMF and Bloomberg

High-quality coal in Australia — a benchmark for Asia — remains above $400 a metric ton, close to the all-time high set in 2022. That bucks a trend among other fossil fuels, which have seen steep price declines since midyear. Expensive coal poses a problem for major Asian importers, including Japan and South Korea, as they look to burn more of the dirtiest fuel to curb consumption of natural gas.

Today's Top Stories
Russia will monitor international prices of its crude and use those observations to limit any possible discounts that are emerging, the energy ministry said. Regulations are set to be published soon, aimed at counteracting a price cap imposed by the Group of Seven.

Meanwhile, China is importing a wider variety of Russian crudes, including the lesser-known Arco grade, just as the nation doubles down on purchases. Beijing's warm relations with Moscow have seen it boost imports of Russian oil since the outbreak of the war, replacing European and US buyers.

Frontline Plc, the shipping giant controlled by billionaire John Fredriksen, is giving up its plan to create the world's largest publicly listed oil-tanker firm after opposition from one of Belgium's oldest shipping families. Frontline now won't make an offer for all outstanding shares of Euronav NV, it said.

A decade ago, China used low prices to dominate global solar manufacturing. Now the US and Europe are determined not to let the same thing happen with hydrogen. Policymakers are racing to counteract early Chinese dominance of electrolyzers, a key piece in the next generation of clean energy.

Olam Group, one of Asia's biggest agricultural commodity traders, will pursue a primary listing for its agribusiness unit in Singapore and a potential concurrent listing in Saudi Arabia as early as the first half of 2023.

Best of the Rest

• Green and blue hydrogen receive a lot of attention, but little is said about the potential of biohydrogen — produced from organic matter such as agricultural waste. A report from the Center on Global Energy Policy at Columbia University explores the current state of play, with Bio-H2 presenting opportunities in both energy production and decarbonization.
• German economist Marcel Fratzscher looks at the potential for de-industrialization in his home country in this Handelsblatt op-ed. If the economy continues to "sleep through the ecological transformation and digitization," the risk could materialize in 10 to 15 years, but not in the next two or three, he says.
• This paper from the Oxford Institute for Energy Studies examines the role of nuclear power in China, where construction of new reactors continues apace and installed capacity could exceed 300 gigawatts by 2050.

Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. A former reporter for Bloomberg News and commodities editor at the Financial Times, he is coauthor of "The World for Sale: Money, Power and the Traders Who Barter the Earth's Resources." 

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.