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Oil Prices Slide as Investors Worry Energy Demand Is Slowing
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Price of Diesel, Which Powers the Economy, Is Still Climbing
Russia’s invasion of Ukraine is one reason that the fuel is scarce. Another is a series of yearslong, intertwined events that cover the globe.HOUSTON — Gasoline prices have dropped as much as a dollar a gallon since early summer, easing a financial strain on many people. But the price of diesel, the fuel that moves trucks, trains, barges, tractors and construction equipment, has remained stubbornly high, helping to prop up the prices of many goods and services.On Wednesday, a gallon of diesel fuel in the United States cost $5.357 on average, according to AAA. That was down from a record of $5.816 in June but well above the $3.642 it cost a year ago. (A gallon of regular gasoline now averages $3.805.)The surge in diesel costs has not garnered the attention from politicians and the public that the jump in gasoline prices did, because most of the cars in the United States run on gas. But diesel prices are a critical source of pain for the economy because they affect the cost of practically every product.“The economic impact is insidious because everything moves across the country powered by diesel,” said Tom Kloza, the global head of energy analysis at the Oil Price Information Service. “It’s an inflation accelerant, and the consumer ultimately has to pay for it.”Sherri Garner Brumbaugh, the president of Garner Trucking in Findlay, Ohio, said the weekly cost of fueling one of her heavy-duty trucks in September was $1,300, more than double the $600 she paid two years earlier. “A good portion gets passed onto my customers with a fuel surcharge,” she said.Both gasoline and diesel prices are tied to the price of oil, which is set on the global market. The price of each fuel immediately shot up after Russia invaded Ukraine in February. But their paths have diverged sharply. Over the last year, the cost of diesel has ballooned by over 40 percent, compared with 11 percent for gasoline.Diesel prices are high because the fuel is scarce worldwide, including in the United States, which in recent years became a net exporter of oil and petroleum products. Oil analysts said there were simply not enough refineries to meet the demand for diesel, especially after Russia’s energy exports fell when the United States, Britain and some other countries stopped buying them.Diesel inventories are always a bit low in the spring and fall, during agricultural planting and harvesting seasons, but this fall supplies are at their lowest level since 1982, when the government began reporting data on the fuel.The tightest market is in the Northeast, where oil refineries have closed in recent years and where the diesel crunch is complicated by winter demand for heating oil. The two fuels are virtually the same but are taxed differently. An especially cold winter could make the situation worse by increasing the demand for heating oil.In Massachusetts, for example, diesel is selling for more than $5.90 a gallon (about $2.33 more than it did a year earlier). In Texas, it costs $4.73 a gallon.Trucks, trains, barges, tractors and construction equipment all use diesel, and its price affects the cost of practically every product.Jim Watson/Agence France-Presse — Getty ImagesWhile Russia’s war in Ukraine sent diesel prices soaring, the current situation is partly the result of an interconnected, slow-building series of events that extends across the globe. Some analysts trace the roots of the U.S. diesel shortage to a fire at Philadelphia Energy Solutions in 2019, which forced the refinery to shut down, taking out one of the Northeast’s important diesel producers.But refineries have been closing elsewhere. Over the last several years, 5 percent of U.S. refinery capacity, and 6 percent of European refinery capacity, has been shut down. A few refineries closed or scaled back because of the collapse in energy demand in the early months of the coronavirus pandemic. Some older refineries were shut down because they were inefficient and their profits weren’t large enough for Wall Street investors. Other refineries were closed so that their owners could convert them to produce biofuels, which are made from plants, waste and other organic material.“Because we shut those refineries down, we don’t have enough capacity,” said Sarah Emerson, the president of ESAI Energy, a consulting firm.As much of the global economy recovered in 2021 and 2022, demand for diesel climbed quickly. But then, after Russia invaded Ukraine, the Biden administration banned Russian oil and petroleum imports, which amounted to 700,000 barrels of diesel and other fuels a day, much of it intended for the Northeast.Diesel prices have also soared so much higher than the cost of gasoline in part because of a decision by the International Maritime Organization several years ago to require most oceangoing ships to replace their high-sulfur bunker fuel with less polluting fuels starting in 2020. That has slowly increased demand for diesel over the last two years.“A substantial amount of diesel is needed in the new bunker blends, and that is a hidden demand for diesel molecules,” said Richard Joswick, the head of global oil analysis for S&P Global Platts. He estimated that the global shipping fleet was now consuming half a million barrels of diesel a day, or roughly 2 percent of the world’s supplies.At the same time, while American refiners are now making tidy profits, 30 percent of their production is being exported. Latin America has become a particularly profitable market, as American diesel replaces fuel from Venezuela, where the state-controlled oil sector has been hobbled by corruption, mismanagement and U.S. sanctions. Some American diesel also goes to Europe.The impact of exports on domestic prices has led some analysts to speculate that the Biden administration could eventually restrict exports to boost supplies at home. But energy experts said that might not have the desired effect because diesel had become a globally traded commodity. Denying Latin America fuel could also backfire because many countries in the region sell crude oil to the United States.“We have a symbiotic relationship with Latin America on diesel and crude,” said Ms. Emerson of ESAI Energy. “We can disrupt that, but it doesn’t immediately fix the problem.”The global diesel shortage was also exacerbated by labor strikes at French refineries this fall. And utilities in Europe have been stockpiling diesel in case they cannot find enough natural gas to fuel their power plants.Russian diesel has continued to flow to Europe since the war began, but stricter sanctions that the European Union plans to impose on Russia in February could potentially cause havoc to the diesel business of traders, banks, insurance companies and shippers.Still, some energy experts said prices could soon begin to ease.Help may be on the way from an unlikely source: China. In recent months, China has been loosening export controls on diesel. Its exports rose from 200,000 barrels a day in August to 430,000 barrels a day in September, and the country has the capacity to sell even more, according to estimates by ESAI Energy.Nearly a third of Chinese diesel exports went to the Netherlands in recent months, taking some pressure off the European market. And oil refineries being built in Kuwait and China could come online as early as next year, further increasing supply.Demand for diesel and its price could also fall if much of the world slides into a recession next year, as some economists and policymakers are expecting.“A deep recession would certainly cut into diesel demand,” said Mr. Joswick of S&P Global Platts. “We don’t forecast a recession, but that is certainly a possibility.” More
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Lessons From Liz Truss’s Handling of U.K. Inflation
The sharp policy U-turn by Liz Truss, Britain’s prime minister, reveals the perils of taking the wrong path in the fight against scalding inflation.Government leaders in the West are struggling with rising inflation, slowing growth, and anxious electorates worried about winter and high energy bills. But Liz Truss, Britain’s prime minister, is the only one who devised an economic plan that unnerved financial markets, drew the ire of global leaders and the public and undermined her political standing.On Friday, battered by savage criticism, she retreated. Ms. Truss fired her top finance official, Kwasi Kwarteng, for creating precisely the package of unfunded tax cuts, billion-dollar spending programs and deregulation that she had asked for.She reinstated a scheduled increase in corporate taxes to 25 percent from 19 percent, a rise she had previously opposed. That announcement came on top of backtracking last week on her proposal to eliminate the top 45 percent income tax on the highest earners. The prime minister, in office a little over five weeks, also promised that spending would grow less rapidly than proposed, although no specifics were offered.The drama is still playing out, and it’s unclear if the Truss government will survive.In the United States, President Biden, while waging his own political battles over gas prices and inflation, has not proposed anything like the kind of policies that Ms. Truss’s government attempted, nor have any other leaders in Europe.Still, for European governments whose economies are suffering greatly from shocks and energy price surges caused by Russia’s war in Ukraine, there are timely lessons from the debacle playing out in London.One of the strongest was delivered early on by the International Monetary Fund: Don’t undermine your own central bankers. The I.M.F., which usually reserves such scoldings for developing nations, on Thursday doubled down on its message. “Don’t prolong the pain,” Kristalina Georgieva, the managing director, admonished.How to blunt the impact of inflation on the most vulnerable without further stoking inflation is the dilemma that every government is confronting.The Bank of England in London has aggressively tried to slow the sharp rise in prices by slowing the British economy.Alberto Pezzali/Associated Press“That is the question of the hour,” said Eswar Prasad, an economist at Cornell University who was attending the annual meetings of the World Bank and I.M.F. in Washington this week.Tension between the fiscal spending policies proposed by a government and the monetary policies controlled by central banks is not unusual. At the moment, though, central bankers are engaged in delicate policy maneuvers in the fight against a level of inflation not seen in decades. With the rate in Britain nearing 10 percent, the Bank of England has moved aggressively to slow down climbing prices through a series of interest rate increases aimed at crimping consumer and business spending.Any expansion of government spending is going to interfere with that aim to some degree, but Ms. Truss’s plan was far too big and too ill defined, Mr. Prasad said.“Measures to help households hit hard by energy increases, by themselves, would not have created that much of a stir,” he said. Many other countries have proposed exactly that. And the European Union has proposed a windfall tax on energy profits to help finance those subsidies.Ms. Truss, instead of coming up with a way to pay for energy assistance, pushed to eliminate a corporate tax increase and cut income taxes for the wealthiest segment of the population. The result was a reduction in government revenue and a ballooning of Britain’s debt.“Overall, the package did not have much clarity in terms of how it would support the economy in the short run without raising inflation,” Mr. Prasad said.By contrast, Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, cited the way governments and central banks worked in tandem when the pandemic struck in 2020 to keep economies from collapsing, issuing vast amounts of public debt.“Central banks printed every single dollar, euro and pound that governments spent” to support households and businesses because of the Covid crisis, Mr. Vistesen said. But now the circumstances have changed, and inflation is setting economies aflame.The actions of the Federal Reserve in the United States illustrate the switch central banks have made: In the harrowing early weeks of the global outbreak of the coronavirus, the Fed embarked on an extraordinary program to stimulate the economy and stabilize markets. This year, the Fed has been swiftly raising interest rates in a bid to slow growth.Both the United States and eurozone countries have somewhat more wiggle room than Britain, because the dollar and the euro are much more widely used around the world as currencies held in reserve than the British pound.Kwasi Kwarteng, Britain’s former chancellor of the Exchequer, left 11 Downing Street after Ms. Truss fired him on Friday.Kirsty Wigglesworth/Associated PressEven so, European governments can help households and businesses get through an energy crisis, Mr. Vistesen said, but they can’t embark on an open-ended spending spree.They also need to take account of what is happening in other economies. The richest countries that make up the Group of 7 are essentially part of the same “monetary and fiscal convoy,” said Will Hutton, president of the Academy of Social Sciences. By championing a Thatcher-era blend of steep tax cuts and deregulation, he said, the Truss government strayed too far from the rest of the flotilla and the economic mainstream.The adherence to 1980s-era trickle-down verities also revealed the risks of sticking with outdated policies in the face of changing circumstances, said Diane Coyle, a public policy professor at the University of Cambridge.“The situation in 1979 was very different,” Ms. Coyle said. “There were sclerotic high taxes and an overregulated economy, but not anymore.” Today, taxes in Britain are lower, and the economy is less regulated than the average member of the Organization for Economic Cooperation and Development, a club of 38 major economies.“The character of the economy has changed,” she said. “Public investment in research and skills are more important.”In that sense, what was missing from Ms. Truss’s economic plan was as important as what was included. And what Britain is lacking, said Mariana Mazzucato, an economist at University College London, is a visionary public investment program like the trillion-dollar climate and digitalization plans adopted by the European Union or the climate and infrastructure program in the United States.A rate of Inflation nearing 10 percent in Britain has affected the price of groceries and how people spend their money.Alex Ingram for The New York Times“If you don’t have a growth plan, an industrial strategy innovation policy,” Ms. Mazzucato said, “then your economy won’t expand.”Both Ms. Mazzucato and Ms. Coyle emphasized that Britain had some specific economic handicaps that predated the Truss administration, including the 2016 vote to exit the European Union, a stubborn lack of productivity, anemic business investment, and lagging research and development.Still, Ms. Coyle offered some advice that referred pointedly to Ms. Truss. “I think the main lesson is: Don’t shoot yourself in the foot.” More
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How a Looming Oil Ban Could Devastate a Small Italian City
Like thousands of Sicilians who live near Priolo Gargallo, part of an industrial petrochemical hub on this island’s southeastern coast, Davide Mauro has tied his livelihood to the giant Russian-owned Lukoil refinery — a landscape of towering chimney stacks, steel cranes and flat-topped gas tanks that rise above the Ionian Sea’s brilliant turquoise waters.Ever since the European Union agreed to ban most imports of crude oil from Russia because of its invasion of Ukraine, the future of this refinery — the largest in Italy — has been thrown into doubt. The deadline for the embargo is less than three months away, but workers still have no idea whether they will have jobs once it goes into effect on Dec. 5.“The company never says anything official,” said Mr. Mauro, a shift operator who has worked for 20 years at a plant that supplies the oil refinery with power. There has been talk of the Italian government’s possibly nationalizing the facility or guaranteeing new lines of credit. Most recently, there has been talk of an interested American buyer. But Mr. Mauro said: “It’s all rumors. Nothing’s clear.”The uncertainty hanging over the Lukoil refinery is a potent example of how the hard-won unified opposition to Russia’s invasion of Ukraine is rippling, sometimes in unintended ways, through Europe, straining local economies and fanning political tensions.Davide Mauro, a shift worker at the ISAB Lukoil refinery, at his home in Siracusa. He fears losing his job after Europe’s embargo on Russian oil goes into effect.Gianni Cipriano for The New York TimesSoaring fuel and food prices have eroded living standards. European leaders have already warned that rationing, factory closures and blackouts may be coming this winter. But in places like the Siracusa province of Sicily, the economic sanctions against Russia — previously Europe’s largest supplier of energy — carry a particular sting.Areas bearing a disproportionate share of the economic burden can be found all over the continent: in Schwedt, Germany, where an oil refinery also depends on Russian crude; in Arques, France, where an energy-hungry glass factory can’t afford to keep the furnaces running; and in Tertre, Belgium, where high natural gas prices have compelled the fertilizer company Yara to shutter its operation.If the Lukoil site in Priolo closes, Mr. Mauro said, he will probably have to leave this place, where he was born. The unemployment rate in Sicily is nearly 19 percent — one of the highest in the European Union. Finding a well-paying job like the one Mr. Mauro has with Lukoil would be next to impossible.“It’s a nightmare,” he said. “My entire life is here.”Lukoil, the largest private corporation in Russia, was not singled out by sanctions by any country when the Ukraine war started in February. Still, many banks and other financial institutions decided to avoid doing business with Russian companies after the European Union imposed sanctions. And so Lukoil lost lines of credit, which it had used to finance purchases of crude from suppliers outside Russia.Before the war, the Priolo refinery, known as ISAB after its former owner, got roughly 40 to 50 percent of its oil from Russia. Now with those other sources off limits, its only alternative was to get all of its crude from Lukoil.Oil tankers at the ISAB Lukoil oil terminal. Before the war in Ukraine, the Priolo refinery got roughly 40 to 50 percent of its oil from Russia.Gianni Cipriano for The New York TimesA Lukoil gas station in Priolo. Although Lukoil is not under sanctions, lenders have stopped providing financing after the European Union imposed sanctions on Moscow for its invasion of Ukraine.Gianni Cipriano for The New York TimesBut when the European Union’s oil embargo kicks in, no Russian oil will be allowed in. Without a financial rescue plan that would allow it to buy non-Russian oil, the plant faces closure and job cuts.“The impact on the community will be devastating,” Giuseppe Gianni, the mayor of Priolo, said from his office, lighting a small cigar. Above his desk hung a gold crucifix and an enormous painting of a Madonna and Child under a fig tree. Outside the window is a small pastel-colored playground with a view of the refinery as a backdrop.Mr. Gianni acknowledged that the petrochemical complex had been linked to toxic air, water pollution and cancer, which he said needed to be resolved, but he maintained that closing the refinery would blight the area’s economy.The refinery, which processes more than a fifth of Italy’s crude oil in addition to exports to other countries, employs about 1,000 workers directly. Two thousand more are contractors working on maintenance and mechanical projects. Another 7,500 in the area — from truck drivers to seamen — would be affected by the widespread layoffs.Several other energy and petrochemical companies including Sasol, Sonatrach and Versalis are in the area, and representatives have said that because the plants produce and buy products from one another and share contractors and supply chains, their economic futures are linked.Giuseppe Gianni, the mayor of Priolo, said closing the Priolo refinery would blight the local economy.Gianni Cipriano for The New York TimesWorkers for ISAB taking a bus home after their shift in Priolo.Gianni Cipriano for The New York Times“The effect would be destabilizing for the whole industrial area,” said Carmelo Rapisarda, the head of the industrial sector of the C.G.I.L. trade union in Siracusa, adding that the 35-kilometer industrial hub accounts for half the province’s economy.The looming oil embargo has forced the region to suddenly confront a long-simmering crisis. The European Union’s decision to transition away from fossil fuels to renewable energy sources means that the life span of the ISAB refinery and two others on Sicily’s coast is limited.“The situation was already critical regardless of the war,” Mr. Rapisarda said.Last year, Confindustria Siracusa, the area’s industrial association, proposed a $3 billion conversion plan to develop new clean facilities that could reduce carbon emissions and produce hydrogen. But both the Italian government and the European Union have been reluctant to spend money to help the oil industry transition.Aside from the economic fallout on the region, the refinery is important to Italy’s energy security, said Simone Tagliapietra, a senior fellow at Bruegel, a research group in Brussels. “They cannot let the refinery close down” right away, he said. It is needed “to ensure the provision of oil products, mainly to southern Italy” during the transition.The political situation is complicating the search for a quick solution. Mario Draghi’s national unity government fell in July, and he is in a caretaker role until elections on Sunday. Giorgia Meloni, the hard-right leader of Brothers of Italy, is leading in the polls.Once a vocal admirer of President Vladimir V. Putin of Russia, Ms. Meloni has recently said she supports following the European Union sanctions and sending weapons to Ukraine.Whoever wins the election will inherit the fallout from the oil embargo. But in the meantime, the situation is becoming urgent. To meet the Dec. 5 deadline of ending seaborne imports, the plant would have to start preparing for a shutdown in November and halt deliveries. Various figures, including the outgoing ecological minister, have mentioned the possibility of nationalizing the refinery. In Germany, the government last week took control of three refineries owned by the Russian oil company Rosneft.But Claudio Geraci, vice president of Confindustria Siracusa, dismissed the idea of nationalization as absurd. Mr. Geraci, who is deputy general manager for human resources and external relations at ISAB in Sicily, emphasized that he was speaking solely in his capacity as vice president of the industrial association. “As ISAB’s manager, there is no comment,” he said. In response to queries, press representatives at Lukoil’s headquarters in Moscow declined to comment.Carmelo Rapisarda, a C.G.I.L. union representative, said closing the refinery “would be destabilizing for the whole industrial area.”Gianni Cipriano for The New York TimesA Lukoil gas station near the ISAB Lukoil refinery in Priolo.Gianni Cipriano for The New York TimesMr. Geraci said “the only possibility” was for the government to guarantee a line of credit so that the company could buy crude from non-Russian sources. But he added that “from Confindustria’s point of view, the situation is difficult,” because the Italian government does not want to be seen as helping a Russian company.Local political leaders said there had been interest from potential outside investors. According to union officials, representatives from Crossbridge Energy Partners, a New York-based company that converts traditional energy infrastructure, had recently visited the plant. Crossbridge said it had no comment.Any meaningful and sustainable conversion plan would need significant public investment, said Lucrezia Reichlin, the founder and president of the Ortygia Foundation, a nonprofit devoted to promoting development in southern Italy and located about five miles south of Priolo.Given the region’s important industrial tradition, such an approach makes sense, Ms. Reichlin said. But with the political uncertainty, she added, “I doubt that we’ll have a government that is ambitious enough to look at this situation with a long-term view toward the energy transition.”Ms. Reichlin, who is also an economics professor at the London Business School, said the Italian government was likely to fall back on a familiar and expensive stopgap measure: public assistance for employees who lose their jobs.For now, it seems that workers like Mr. Mauro, politicians like Mayor Gianni and industrial leaders like Mr. Geraci are operating on a wing and a prayer, inveighing against the inaction, while hoping for a last-minute miracle.“It’s like the bank that is too big to fail,” Mr. Mauro said of the refinery and his hope for a bailout. But the precise solution is still murky. “It’s a typical Italian situation,” he added. “I’m sure we will know what happens only at the last moment.”The Bar La Conchiglia, a cafe frequented by refinery workers in Priolo.Gianni Cipriano for The New York Times More
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Climate Change Could Worsen Supply Chain Turmoil
A drought that has crippled economic activity in southwestern China hints at the kind of disruption that climate change could wreak on global supply chains.Chinese factories were shuttered again in late August, a frequent occurrence in a country that has imposed intermittent lockdowns to fight the coronavirus. But this time, the culprit was not the pandemic. Instead, a record-setting drought crippled economic activity across southwestern China, freezing international supply chains for automobiles, electronics and other goods that have been routinely disrupted over the past three years.Such interruptions could soon become more frequent for companies that source parts and products from around the world as climate change, and the extreme weather events that accompany it, continue to disrupt the global delivery system for goods in highly unpredictable ways, economists and trade experts warn.Much remains unknown about how the world’s rapid warming will affect agriculture, economic activity and trade in the coming decades. But one clear trend is that natural disasters like droughts, hurricanes and wildfires are becoming more frequent and unfolding in more locations. In addition to the toll of human injury and death, these disasters are likely to wreak sporadic havoc on global supply chains, exacerbating the shortages, delayed deliveries and higher prices that have frustrated businesses and consumers.“What we just went through with Covid is a window to what climate could do,” said Kyle Meng, an associate professor at the Bren School of Environmental Science and Management and the department of economics at the University of California, Santa Barbara.The supply chains that have stretched around the world in recent decades are studies in modern efficiency, whizzing products like electronics, chemicals, couches and food across continents and oceans at ever-cheaper costs.But those networks proved fragile, first during the pandemic and then as a result of Russia’s invasion of Ukraine, with companies struggling to source their goods amid factory and port shutdowns. With products in short supply, prices have spiked, fueling rapid inflation worldwide.The drought in southwestern China has also had ripple effects for global businesses. It drastically reduced hydropower production in the region, requiring power cuts to factories and scrambling supply chains for electronics, car parts and other goods. Volkswagen and Toyota curtailed production at nearby factories, as did Foxconn, which produces electronics, and CATL, a manufacturer of batteries for electric cars.The Yangtze River, which bisects China, dipped so low that the oceangoing vessels that typically traverse its upper reaches from the rainy summer into early winter could no longer run.Companies had to scramble to secure trucks to move their goods to Chinese ports, while China’s food importers hunted for more trucks and trains to carry their cargo into the country’s interior. The heat and drought have wilted many of the vegetables in southwestern China, causing prices to nearly double, and have made it hard for the surviving pigs and poultry to put on weight, driving up meat prices. Recent rainfall allowed power to be temporarily restored to houses and businesses in western China. But drought persists across much of central and western China, and reservoirs remain at a third of their usual level.Read More About Extreme WeatherHeat and Destruction: A heat dome over California sent temperatures to all-time highs, making it harder to fight the wildfires burning in various parts of the state.Big Hail: Hailstones of record size are falling left and right, and hailstorm damage is growing. But there is surprisingly little research to explain why.Water Crisis: Aging infrastructure and underinvestment have left many U.S. cities’ water systems in tatters. Now flooding and climate shocks are pushing them to failure.Flooding in South Asia: Amid a relentless monsoon season, deadly floods have devastated Pakistan and inundated Bengaluru, India’s Silicon Valley.That means less water not only for hydropower but also for the region’s chemical factories and coal-fired power plants, which need huge quantities of water for cooling.China even resorted to using drones to seed clouds with silver iodide in an attempt to trigger more rain, said Zhao Zhiqiang, the deputy director of the Weather Modification Center of the China Meteorological Administration, at a news conference on Tuesday.At the same time, the coronavirus, and China’s insistence on a zero-Covid policy, continue to pose supply chain risks by restricting movement in significant portions of the country. Last Thursday, Chinese authorities locked down Chengdu, a city of more than 21 million in southwestern China, to clamp down on coronavirus outbreaks.These frequent disruptions in Chinese manufacturing and logistics have added to concerns among global executives and policymakers that many of the world’s factories are far too geographically concentrated, which leaves them vulnerable to pandemics and natural disasters.The Biden administration, in a plan released Tuesday outlining how the United States intends to bolster its semiconductor industry, said the current concentration of chip-makers in Southeast Asia had left the industry vulnerable to disruptions from climate change, as well as pandemics and war.But setting up factories in other parts of the world to offset those risks could be costly, for both businesses and the consumers whom companies will pass their costs on to in the form of higher prices. Just as the pandemic has resulted in higher prices for consumers, Mr. Meng said, so could climate change, particularly if extreme weather affects large areas of the world at the same time.Companies could also face new costs from carbon taxes when shipping goods across borders, as well as higher transport costs for moving products by sea or air, experts say. Both ocean and airfreight are major producers of the gases contributing to climate change, accounting for about 5 percent of global carbon emissions. Companies in both sectors are quickly trying to find cleaner sources of fuel, but that transition is likely to require big investments that could drive up prices for their customers.Natural disasters and coronavirus lockdowns in China have been particularly painful, given that the country is home to much of the world’s manufacturing. But the United States has also felt the rising impacts from extreme weather.A multiyear drought in much of the Western United States has weighed on American agricultural exports. West Coast wildfires have jumbled logistics for companies like Amazon. Winter storms and power outages shut down semiconductor plants in Texas last year, adding to global chip shortages.A wildfire burned through farmland near Mulino, Ore.Kristina Barker for The New York TimesWhite House economists warned in a report this year that climate change would make future disruptions of the global supply chains more common, citing research showing that the global frequency of natural disasters had increased almost threefold in recent decades.“As networks become more connected, and climate change worsens, the frequency and size of supply-chain-related disasters rises,” the report said.The National Centers for Environmental Information, a federal agency, estimates that the number of billion-dollar disasters taking place in the United States each year has skyrocketed to an average of 20 in the last two years, including severe storms, cyclones and floods. In the 1980s, there were only about three per year.Academics say the effect of these disasters, and of higher temperatures in general, will be particularly obvious when it comes to food trade. Some parts of the world, like Russia, Scandinavia and Canada, could produce more grains and other food crops to feed countries as global temperatures rise.But those centers of production would be farther from hotter and more densely populated areas closer to the Equator. Some of those regions may struggle even more than they do now with poverty and food insecurity.One danger is that increasing competition for food could encourage countries to introduce protectionist policies that restrict or stop the export of food, as some have done in response to the pandemic and Russia’s invasion of Ukraine. These export restrictions allow a country to feed its own population, but tend to exacerbate international shortages and push up food prices, further aggravating the problem.The World Trade Organization, citing the damage that protectionist policies could pose, has urged countries to keep trade open to combat the negative effects of climate change.In a 2018 report, the W.T.O. pointed out that the global food trade was particularly vulnerable to disruptions in transportation that might occur as a result of climate change, like rising sea levels threatening ports or extreme weather degrading roads and bridges. More than half of globally traded grains pass through at least one of 14 global “choke points,” including the Panama Canal, the Strait of Malacca or the Black Sea rail network, the report said.Ngozi Okonjo-Iweala, the W.T.O.’s director general, has described trade as “a mechanism for adaptation and resilience” that can help countries deal with crop failure and natural disasters. In a speech in January, she cited economic models estimating that climate change was on track to contribute to severe malnutrition, with as many as 55 million people at risk by 2050 because of local effects on food production. But greater trade could cut that number by 35 million people, she said.“Trade is part of the solution to the challenges we face, far more than it is part of the problem,” Ms. Okonjo-Iweala said.Solomon Hsiang, the Chancellor’s Professor of Public Policy at the University of California, Berkeley, and a co-director of the Climate Impact Lab, agreed that trade might simultaneously make the world more resilient to these disasters and more vulnerable.In some situations, trade can help soften the effects of climate change — for example, allowing communities to import food when local crops fail because of a drought, he said.“That’s on the good side of the ledger,” Mr. Hsiang said. “But the bad side is, as everyone really acutely understands, we are so interconnected from our supply chains that events on one side of the world can dramatically impact people’s well-being elsewhere.” More
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EU Leaders Say Putin’s Gas Power Is Weakening
In Germany and elsewhere, leaders are growing more confident that months of work to stockpile and line up alternate energy sources may help them blunt Russia’s weaponization of exports.BERLIN — Not long after Russian forces invaded Ukraine, another mobilization began. European energy ministers and diplomats started jetting across the world and inking energy deals — racing to prepare for a rough winter should Russia choose to cut off its cheap gas in retaliation for Western sanctions.Since then, President Vladimir V. Putin of Russia has fiddled with the gas tap to Europe repeatedly. Through Gazprom, the Kremlin-controlled gas monopoly, Russia has vastly reduced supplies or suspended them for days at a time — until last week, when it announced that it would indefinitely halt flows through the Nord Stream 1 pipeline that supplies Germany, and through it, much of Europe.Yet when the blow finally came, it provoked more ridicule than outrage among European leaders, who say that by now they would expect nothing less from Mr. Putin and that they have accepted that the era of cheap Russian gas is over, unimaginable as that might have seemed just months ago.In some corners, even as Europe’s leaders scramble to blunt the blow from lower gas supplies and higher prices, there is a growing sense that perhaps Russia’s weaponizing of gas exports is a strategy of diminishing returns — and that Mr. Putin may have overplayed his hand.“It would have been surprising the other way around,” Robert Habeck, Germany’s economy minister, said this week of Russia’s announcement that Nord Stream 1 would remain shut. “The only thing from Russia that is reliable is the lies.”Even the markets seemed to take the latest disruption in stride. After rising 5 percent on the heels of Gazprom’s announcement, prices are now lower than they were at the start of last week.That does not mean that European nations are not feeling the pain, or have skirted the risk that the energy crunch could sow social unrest, fracturing their unity against the Kremlin this winter. But a lot of the damage has already been done, with gas prices several times above anything that would be considered normal and pressure mounting on consumers and businesses.The question remains, then, of just how successful the hard pivot from Russian energy actually is — whether Europe has lined up enough new sources, whether its stockpiles can get it through the winter, whether conservation efforts can make a difference and whether governments can help shield consumers from rising prices.“The only thing from Russia that is reliable is the lies,” said Robert Habeck, right, Germany’s economy minister, with Chancellor Olaf Schulz, center, and Christian Lindner, the finance minister.Tobias Schwarz/Agence France-Presse — Getty ImagesRussian officials are watching and waiting for what they believe is the inevitable collapse of European resolve as the economic pain bites.“I think that the coming winter will show how real their belief is in the possibility of refusing Russian gas,” the Russian energy minister, Nikolai Shulginov, said in an interview with the Russian state-run news agency Tass. “This will be a completely new life for the Europeans. I think that, most likely, they will not be able to refuse.”Russian state news outlets are full of reports of protests in Europe. Italians, Russian state media reported, are being told to boil their pasta for just two minutes before turning off the heat, while Germans are forgoing showers.The message: Sooner or later, the Europeans’ unity against Russia will crumble under the weight of high gas prices, while Russia’s standing has been elevated.“We have not lost anything and will not lose anything,” Mr. Putin said on Wednesday.But increasingly, Europe’s leaders are signaling that, having spent months preparing for this moment, they are ready for the showdown.“Now our work is paying off!” the European Commission president, Ursula von der Leyen, said on Wednesday in Brussels. “At the beginning of the war, Russia’s pipeline gas was 40 percent of all imported gas. Today it is now down to only 9 percent of our gas imports.”That is because European leaders — especially those from Italy and Germany, which rely most on Russian energy — have crisscrossed the globe. From Algeria to Qatar, Senegal, Congo and Canada, they have been negotiating deals to replace Russian supplies.Gazprom’s Orenburg gas processing plant in Russia. Steep energy prices netted the company $41.75 billion profit in the first half of the year — $10 billion of which went to the Kremlin.Alexander Manzyuk/ReutersGermany has also leaned heavily on Norway and the Netherlands, which agreed to extend the life of its biggest gas field to combat the energy crisis.As a result, Germany’s dependency on cheap Russian gas — once more than half its overall gas imports — decreased to less than 10 percent in August.In Italy, consumption from Moscow has dropped to 23 percent from 40 percent.Chancellor Olaf Scholz of Germany and other European leaders are defiantly claiming the end of an era.For decades, dating to the days of the Soviet Union, Moscow had insisted to Germany and others that it was a reliable energy partner, no matter the political context. But now, European leaders say, Mr. Putin has shattered that understanding.“Something that held true throughout the Cold War no longer applies,” Mr. Scholz said last weekend. “Russia is no longer a reliable energy supplier. That is part of the new reality.”That new reality, perhaps, should not have come as such a shock. Mr. Putin’s gas brinkmanship dates to 2004, when Gazprom cut deliveries to Belarus, in a battle for control of a transit pipeline into Western Europe.In 2009, as Ukraine sought NATO membership under a pro-Western president, Mr. Putin ordered a sharp reduction in gas flows through the country; after Ukraine elected a pro-Russian president a year later, the Kremlin rewarded him with a 30 percent cut in natural gas prices.And even before Russia invaded Ukraine, it reduced exports in the summer of 2021, and did not refill Gazprom-owned storage sites in Europe.A compressor station near the German-Polish border for Russian gas through the Yamal-Europe pipeline.Filip Singer/EPA, via ShutterstockSergey Vakulenko, an analyst in Bonn, Germany, who worked for years in Russia’s energy industry, said that over the last two decades Russian officials had seen the geopolitical power that the United States derived from its influence over the global financial system, and sought to harness Russia’s status as a major energy exporter in a similar way.“There was a great desire, as a superpower, to have something similar,” he said. “There was the feeling that oil and gas was the answer.”Yet Russia’s cuts in gas exports to Europe since its invasion of Ukraine are of a different order of magnitude. “This is now just blackmail,” said Mikhail Krutikhin, a Russian energy analyst. “We haven’t seen it on this scale before.”In going so far, Mr. Putin has also invited greater risks. An internal Russian government economic forecast described this week by Bloomberg News estimated that a full cutoff of gas to Europe would cost as much as $6.6 billion in lost tax revenues.But with Gazprom netting a record profit of $41.75 billion in the first half of the year — $10 billion of which it passed on to the Kremlin — that is a cost Mr. Putin has calculated to be acceptable.For Russia, oil is the biggest revenue source, and Mr. Putin may be keen to use gas as a political weapon while he can, said Thomas O’Donnell, an energy expert at the Hertie School, a public policy school in Berlin.“This is where he’s got his biggest leverage to cause the most trouble in the European Union,” Mr. O’Donnell said. He added, “It’s a lever that he knows he’s going to lose in a year — or even maybe after this winter.”And a lot may depend on the severity of the winter. Even if liquid natural gas imports to Europe from other sources continue at their record high rate, a study released this week by the research institute Bruegel estimated that a complete stop to Russian supplies would require all of Europe to cut its consumption by 15 percent.European nations that used to rely on Russian gas imports for big chunks of their domestic energy production have been racing to fill gas storage facilities. Germany’s are now at 86 percent capacity, Italy’s at almost 84 percent.In Germany, large industry players have so far managed to drop their consumption by around 20 percent. A similar amount would have to be shaved off household usage, according to German energy and economy ministry models, should Russian gas remain shut off. If households don’t cut back, Germany’s gas regulator has repeatedly warned, the option could be rationing.Lights switched off in apartments in Frankfurt. German energy officials have repeatedly warned that households must conserve energy or face rationing.Michael Probst/Associated PressEurope is aiming to have enough liquid natural gas solutions in place by next year. Germany recently signed a deal for a fifth floating L.N.G. terminal, while terminals in Belgium, France and the Netherlands are fully booked.The key to surviving this winter in the face of a Nord Stream shutdown will be how well European states work together.So far, only Hungary has signed a deal for additional supplies with Gazprom.France and Germany, in contrast, agreed this week that Paris would send any excess gas to Germany, where it is badly needed, and in return Berlin promised to send its extra electricity.The tricky issue will be what happens should more critical German industry have to cut back, and voters begin to insist supplies not be diverted to neighbors — like the Czech Republic, where 70,000 people already came out in protest of soaring prices. It is a challenge many European leaders may face this winter, warned Annalena Baerbock, Germany’s foreign minister.“That will be the central question that will really put us to the test in the coming months,” Ms. Baerbock said, at a meeting of German ambassadors in Berlin this week. “Will we be able to secure our energy supply for all people in Europe together in solidarity, or not?”Gaia Pianigiani More
- in Economy
Price Cap on Russian Oil Wins Backing of G7 Ministers
The proposal aims to stabilize unsettled energy markets in the wake of Russia’s invasion of Ukraine. But it faces considerable obstacles.WASHINGTON — Top officials from the world’s leading advanced economies agreed on Friday to move ahead with a plan to cap the price of Russian oil, accelerating an ambitious effort to limit how much money Russia can earn from each barrel of crude it sells on the global market.Finance ministers from the Group of 7 nations said they were firming up details of a price cap, with the aim of both depressing the price of global oil and reducing critical revenue that President Vladimir V. Putin is relying on to finance Russia’s war effort in Ukraine. The untested plan has been pushed by the Biden administration as way of keeping sanctions pressure on Russia while minimizing the impact on a global economy that has been saddled with soaring energy and food prices this year.Hours after the G7 ministers announced their plan on Friday, Gazprom, the Russian-owned energy giant, said it would postpone restarting the flow of natural gas through a closely watched pipeline that connects Russia to Germany, known as Nord Stream 1. The unexpected delay was attributed to mechanical problems with the pipeline, but it raised concerns that it was in retaliation for the price cap, an idea that Moscow has condemned.Eric Mamer, a spokesman for the European Commission, said that the “fallacious pretenses” for the latest delay were “proof of Russia’s cynicism.”The price cap still has many hurdles to clear before it can take effect, but its goal is to keep Russian oil flowing to global markets that depend on those supplies, while substantially reducing the profit Moscow reaps from its sales. Europe still consumes nearly two million barrels of Russian oil a day, though its imports have fallen since the war began, and the European Union is preparing to wean itself off those supplies by the end of the year.Officials are racing to put the price-cap plan in place by early December to try to limit the economic fallout from the new E.U. sanctions. They would ban nearly all Russian oil imports to the European Union and block the insurance and financing of Russian oil shipments.The Biden administration has become concerned that those moves could send energy prices skyrocketing and potentially tip the global economy into a recession if millions of barrels of Russian oil were suddenly yanked off the global market, drastically reducing the world’s supply of crude. U.S. administration officials have estimated that oil could soar to $200 a barrel or higher unless efforts to impose the price cap are successful.The initiative is a novel attempt to blunt the global economic impact of the invasion. Oil prices rose as fears of confrontation grew a year ago, and spiked when Russian troops entered Ukraine in February. They have receded in recent months, in part because much of Europe has tipped into recession, reducing global oil demand.Whether the price cap can work will hinge on a variety of factors, including securing agreement by all 27 E.U. member states and determining how the actual price would be set. Maritime insurers, which are critical to making the plan work, would also have to figure out how to comply in a way that allows them to continue insuring Russian oil cargo without running afoul of sanctions.The industry, which would be responsible for making sure that oil buyers and sellers were honoring the price cap, has warned that insurers lack the capacity to police the transactions. Financial services in Europe undergird international energy shipments around the world, and fully blocking their ability to deal with Russian oil could disrupt exports globally, even to countries that have not adopted Russian oil embargoes.The G7 finance ministers said in their statement that they intended to use a “record-keeping and attestation model” to track of whether oil transactions were below the price ceiling, and that they would try to minimize the administrative burden on insurers.A tanker at a crude oil terminal near Nakhodka. Maritime insurers would have to figure out how to comply with a cap in a way that allows them to continue covering Russian oil cargo.Tatiana Meel/ReutersRachel Ziemba, an adjunct senior fellow at the Center for a New American Security, said the agreement unveiled on Friday raised more questions than answers and suggested a challenging path ahead.“This sounds like something that is very technical and technocratic that is going to be hard to monitor and fully enforce,” Ms. Ziemba said.Understand the Decline in U.S. Gas PricesCard 1 of 5Understand the Decline in U.S. Gas PricesGas prices are falling. More
- in Economy
Portugal Could Hold an Answer for a Europe Captive to Russian Gas
Portugal has no coal mines, oil wells or gas fields. Its impressive hydropower production has been crippled this year by drought. And its long-running disconnect from the rest of Europe’s energy network has earned the country its status as an “energy island.”Yet with Russia withholding natural gas from countries opposed to its invasion of Ukraine, the tiny coastal nation of Portugal is suddenly poised to play a critical role in managing Europe’s looming energy crisis.For years, the Iberian Peninsula was cut off from the web of pipelines and huge supply of cheap Russian gas that power much of Europe. And so Portugal and Spain were compelled to invest heavily in renewable sources of energy like wind, solar and hydropower, and to establish an elaborate system for importing gas from North and West Africa, the United States, and elsewhere.Now, access to these alternate energy sources has taken on new significance. The changed circumstances are shifting the power balances among the 27 members of the European Union, creating opportunities as well as political tensions as the bloc seeks to counter Russia’s energy blackmail, manage the transition to renewables and determine infrastructure investments.The Alto Tamega dam, part of a hydropower facility in northern Portugal that will be operational in 2024.Matilde Viegas for The New York TimesThe urgency of Europe’s task is on display this week. On Wednesday, Russia’s energy monopoly, Gazprom, again suspended already reduced gas deliveries to Germany through its Nord Stream 1 pipeline. With natural gas costing about 10 times what it did a year ago, the European Union has called for an emergency meeting of its energy ministers next week.As Brussels tries to figure out how to manage the crisis, the possibility of funneling more gas to Europe through Portugal and Spain is gaining attention.Portugal and Spain were among the first European nations to build the kind of processing terminals needed to accept boatloads of natural gas in liquefied form and to convert it back into the vapor that could be piped into homes and businesses.This imported liquefied natural gas, or L.N.G., was more expensive than the type much of Europe piped in from Russia. But now that Germany, Italy, Finland and other European nations are frantically seeking to replace Russian gas with substitutes shipped by sea from the United States, North Africa and the Middle East, this disadvantage is an advantage.Solar panels in Sintra. Connecting such panels to Europe’s electricity grid could help ease energy shortages on the continent.Matilde Viegas for The New York TimesTogether, Spain and Portugal account for one-third of Europe’s capacity to process L.N.G. Spain has the most terminals and the biggest, though Portugal has the most strategically located.Its terminal in Sines is the closest of any in Europe to the United States and the Panama Canal; it was the first port in Europe to receive L.N.G. from the United States, in 2016. Even before the war in Ukraine, Washington identified it as a strategically important gateway for energy imports to the rest of Europe.Spain also has an extensive network of pipelines that carry natural gas from Algeria and Nigeria, as well as large storage facilities.Understand the Decline in U.S. Gas PricesCard 1 of 5Understand the Decline in U.S. Gas PricesGas prices are falling. More
