Russo-Ukrainian War 2014-25

[mongers]

Good leadership from the IAEA chief Grossi on going to the nuclear plant this week and ensuring a reporting IIAEA permanent presence there.

[Sheilbh]

Is there some obvious measure the EU or national politicians could take to help energy intensive industries? 

I don't know - I'm not sure there is. Javier Blas posted about factories shutting down in Spain over this as well (so it's not just Germany etc) including a ferroaloys smelter, ceramic tile producer and a steel furnace.

There's an incredible stat that the cost of turning clay into a ceramic tile has increased by 1,074% in the last year (Spain's the fifth largest producer). It's not a core good (but if you're doing your bathroom or kitchen, I'd get it done quickly) or anything like that, but it's one of those increases in costs that just seems so large that it's really difficult to pass on in full.

I don't know if there's options but it feels like that's just not a sustainable/possible cost.

[Zanza]

That's just starting the current situation though. What is a possible solution?

Direct subsidies for the energy consumers does not seem to be the solution as it disincentivizes process innovation to safe on gas/electricity and would likely be a bureaucratic monster, open for fraud and corruption and way too slow.

I am also skeptical regarding a general price cap. Maybe for households regarding some base usage or so. But not for industrial customers.

A new pricing mechanism for gas/electricity is a better approach I think. We still need to have some kind of market mechanism and not just straight planned economy as we certainly do not have the right institutions for that. Rationing is also barely possible with the existing gas / electricity infrastructure. But in the end, if there just is not enough gas, market pricing will find the most efficient usage. Even if it is at extreme marginal price.

[Crazy_Ivan80]

dumping the emissions trading inside the EU might make things cheaper too for industry.

[Sheilbh]

That's just starting the current situation though. What is a possible solution?

Direct subsidies for the energy consumers does not seem to be the solution as it disincentivizes process innovation to safe on gas/electricity and would likely be a bureaucratic monster, open for fraud and corruption and way too slow.

I am also skeptical regarding a general price cap. Maybe for households regarding some base usage or so. But not for industrial customers.

A new pricing mechanism for gas/electricity is a better approach I think. We still need to have some kind of market mechanism and not just straight planned economy as we certainly do not have the right institutions for that. Rationing is also barely possible with the existing gas / electricity infrastructure. But in the end, if there just is not enough gas, market pricing will find the most efficient usage. Even if it is at extreme marginal price.
 

I've no idea - this is why I think it might require rationing and state allocation. I would say that Liz Truss has promised there will be no rationing and no blackouts this winter - both of which strike me as basically a coin toss at this point and from what I've read civil service contingency planning is all about rationing.

In terms of the general public I am slightly more pro-subsidising consumers rather than price caps.

But for business and commercial use I don't think subsidies or price caps are the right answer - but I'm also not convinced a market mechanism will work or is the right approach. We need to keep the public sector buildings like hospitals and schools powered and heated. Similarly I think there's an argument that some energy intensive industries that are key inputs in the wider economy and major employers matter more than hospitality (even if it's more immediately sympathetic). Those all may actually may be priced because they need more energy and I think it might require state allocation.

But I think there may be innovative approaches in various places - Romania has announced that for the next year there will be a 2% profit cap on profits for resident and non-resident electricity and gas traders and providers (the rest will be taxed). There's a price cap for SMEs, public insstitutions, individuals (who use less than 255 kWh monthly) and companies that use less than 50,000 MWh annually - which I think is priced slightly differently for each of those strands. Large companies that use more than that are exposed to the full market price. That combination of measures might be something worth looking at or maybe not - it might fail badly.

[Zanza]

The biggest German consumer of gas is BASF. Their big campus in Ludwigshafen needs 37 TWh of gas per year. Yes, that's a T. About as much as Switzerland. Now, BASF currently looks at making a profit of 6 to 7 billion Euro this year, despite 800 million extra costs for gas in the first half of the year. This does not seem to  be a company that should be somehow directly subsidized. 

But then BASF is one of the backbones of European industry and makes all kinds of resources that are needed as inputs for other industries. So their products have an impact on countless supply chains. 

[Crazy_Ivan80]

https://www.youtube.com/watch?v=ce5TR-qWCk4&ab_channel=Perun

new episode from Perun

[Sheilbh]

The biggest German consumer of gas is BASF. Their big campus in Ludwigshafen needs 37 TWh of gas per year. Yes, that's a T. About as much as Switzerland. Now, BASF currently looks at making a profit of 6 to 7 billion Euro this year, despite 800 million extra costs for gas in the first half of the year. This does not seem to  be a company that should be somehow directly subsidized.

But then BASF is one of the backbones of European industry and makes all kinds of resources that are needed as inputs for other industries. So their products have an impact on countless supply chains. 

I think that's why I think rationing may end up being part of it. If there is scarcity, which there might be this winter, then you need allocation that is fair and that takes account of competing interests - those are not things that market solutions can do I don't think.

In the UK when we've had rationing it's been less about scarcity itself and more about the importance of a perception that distribution is fair. I think there's a strong case that BASF might need lots of gas and lots of help - I think the trade off for that may be that the state guarantees and allocates gas to ensure that other companies, public sector bodies and individuals get their "fair" share too.

[Valmy]

https://www.youtube.com/watch?v=ce5TR-qWCk4&ab_channel=Perun

new episode from Perun

Great episode.

Seems to suggest the mandarins in the EU are in fact scrambling and innovating under pressure.

[OttoVonBismarck]

The biggest German consumer of gas is BASF. Their big campus in Ludwigshafen needs 37 TWh of gas per year. Yes, that's a T. About as much as Switzerland. Now, BASF currently looks at making a profit of 6 to 7 billion Euro this year, despite 800 million extra costs for gas in the first half of the year. This does not seem to  be a company that should be somehow directly subsidized.

But then BASF is one of the backbones of European industry and makes all kinds of resources that are needed as inputs for other industries. So their products have an impact on countless supply chains. 

The chemical industry in general is incredibly methane intensive. Industry in general, not just chemicals is very reliant on natural gas. In the United States, industrial gas use is larger than for power generation, and it is larger than the combined usage for all residences and commercial buildings for heating.

The chemicals industry I think is upwards of 40% of all U.S. industrial gas consumption, and while most of that is for on-site electricity generation and power usage, about 25% of chemical use of natural gas, they actually need the cracked methane (usually ethane cracked methane) for the actual chemical processes they use to make important agricultural and industrial chemicals. For that use there is no real "replacement", the power generation there are obviously alternatives, but the chemical process feedstocks...they need those base chemicals and there is not an obvious direct substitute. There are some chemical processes to extract it from other sources (like coal), but it is incredibly inefficient by comparison.

[Sheilbh]

Yeah and it's how the EU tends to evolve. It makes leaps forward through crises - I think this will be another example of that in multiple ways.

[OttoVonBismarck]

From Bloomberg:

Russia Privately Warns of Deep and Prolonged Economic Damage
Confidential document contrasts with upbeat public statements
Report says key sectors face sharp drop in output, brain drain

Bloomberg News
September 5, 2022 at 9:56 AM EDT Updated onSeptember 5, 2022 at 10:22 AM EDT

Russia may face a longer and deeper recession as the impact of US and European sanctions spreads, handicapping sectors that the country has relied on for years to power its economy, according to an internal report prepared for the government.

The document, the result of months of work by officials and experts trying to assess the true impact of Russia's economic isolation due to President Vladimir Putin's invasion of Ukraine, paints a far more dire picture than officials usually do in their upbeat public pronouncements. Bloomberg viewed a copy of the report, drafted for a closed-door meeting of top officials on Aug. 30. People familiar with the deliberations confirmed its authenticity.

Two of the three scenarios in the report show the contraction accelerating next year, with the economy returning to the prewar level only at the end of the decade or later. The "inertial" one sees the economy bottoming out next year 8.3% below the 2021 level, while the "stress" scenario puts the low in 2024 at 11.9% under last year's level.

All the scenarios see the pressure of sanctions intensifying, with more countries likely to join them. Europe's sharp turn away from Russian oil and gas may also hit the Kremlin's ability to supply its own market, the report said.

Beyond the restrictions themselves, which cover about a quarter of imports and exports, the report details how Russia now faces a "blockade" that "has affected practically all forms of transport," further cutting off the country's economy. Technological and financial curbs add to the pressure. The report estimates as many as 200,000 IT specialists may leave the country by 2025, the first official forecast of the widening brain drain.

Publicly, officials say the hit from sanctions has been less than feared, with the contraction possibly less than 3% this year and even less in 2023. Outside economists have also adjusted the outlooks for this year, backing off initial forecasts of a deep recession as the economy has held up better than expected.

Export Drop
The document calls for a raft of measures to support the economy and further ease the impact of the restrictions in order to get the economy recovering to pre-war levels in 2024 and growing steadily after that. But the steps include many of the same measures to stimulate investment that the government has touted over the last decade, when growth largely stagnated even without sanctions.

The government press service referred a query about the report to the Economy Ministry, which didn't immediately respond to a request for comment.

What Bloomberg Economics Says...

"With diminished access to Western technologies, a wave of foreign corporate divestment and demographic headwinds ahead, the country's potential growth is set to shrink to 0.5%-1.0% in the next decade. Thereafter, it will shrink further still, down to just above zero by 2050. Russia will also be increasingly vulnerable to a decline in global commodity prices, as international reserves no longer provide a buffer." -Alexander Isakov, Russia economist

Over the next year or two, the report warns of "reduced production volumes in a range of export-oriented sectors," from oil and gas to metals, chemicals and wood products. While some rebound is possible later, "these sectors will cease to be the drivers of the economy."

A full cutoff of gas to Europe, Russia's main export market, could cost as much as 400 billion rubles ($6.6 billion) a year in lost tax revenues, according to the report. It won't be possible to fully compensate the lost sales with new export markets even in the medium term.

Oil Sector Hit
As a result, output will have to be reduced, threatening Kremlin goals for expanding domestic gas supplies, the report said. The lack of technology needed for liquefied natural gas plants is "critical" and may hamper efforts to build new ones.

Europe's plans to stop importing Russian oil products -- about 55% of exports went there last year -- could trigger sharp cuts in production leaving the domestic market short of fuel, as well.

Metals producers are losing $5.7 billion a year from the restrictions, the report said.

If the world economy slips into recession, the report warns, Russia could see exports cut further as it becomes the "swing supplier" on global markets, with demand for its products disappearing first. That could trigger a plunge in the ruble and a spike in inflation.

On the import side, "the main short-term risk is the suspension of production due to lack of imported raw materials and components." Over the longer term, the inability to repair imported equipment could permanently limit growth, the report said.

'Critical Imports'
"There are simply no alternative suppliers for some critical imports," it said.

Even in the farm sector, where the Kremlin has touted its efforts at replacing foreign supplies, dependence on key inputs could force Russians to reduce their food consumption as supplies dwindle, according to the report.

Restrictions on access to western technology may push Russia a generation or two behind current standards as it's forced to rely on less advanced alternatives from China and Southeast Asia.

The report warns that sanctions will also force the government to revise a range of the development targets that Putin had set before the war, including those for boosting population growth and life expectancy.

On a sectoral basis, the report details the breadth of the hit from sanctions:

Agriculture: Fully 99% of poultry production and 30% of Holstein dairy cattle output depends on imports. Seeds for staples like sugar beets and potatoes are also mostly brought in from outside the country, as are fish feeds and aminoacids.
Aviation: 95% of passenger volume is carried on foreign-made planes and the lack of access to imported spare parts could lead the fleet to shrink as they go out of service
Machine-building: only 30% of machine tools are Russian-made and local industry doesn't have the capacity to cover rising demand
Pharmaceuticals: About 80% of domestic production relies on imported raw materials
Transport: EU restrictions have tripled costs for road shipments
Communications and IT: Restrictions on SIM cards could leave Russia short of them by 2025, while its telecommunications sector may fall five years behind world leaders in 2022.
— With assistance by Benjamin Harvey

[Legbiter]

Ukrainians seem to be really fucking up the Russians in the south for the last few days.

[Tamas]

IAEA: 'Urgent need' for action to prevent accident at Zaporizhzhia nuclear plant
The International Atomic Energy Agency has published its report about the nuclear safety and security situation at the Russian-occupied Zaporizhzhia nuclear power plant in south-east Ukraine.

The UN nuclear watchdog warns that there is "urgent need for interim measures to prevent a nuclear accident" at the nuclear plant, adding that it was "gravely concerned" concerned about the situation at the facility.

The situation in Ukraine is "unprecedented", the report writes.

It is the first time a military conflict has occurred amid the facilities of a large, established nuclear power programme. A nuclear accident can have serious impacts within the country and beyond its borders.

The IAEA added:

Pending the end of the conflict and re-establishment of stable conditions there is an urgent need for interim measures to prevent a nuclear accident arising from physical damage caused by military means.

This can be achieved by the immediate establishment of a nuclear safety and security protection zone.

Although if there's any country able to do this it would be Russia, I still don't think they can get their own people to regularly shell their own positions in and around the nuclear plant. Ukrainian (perhaps rogue) attempt to escalate internationally seems like the most plausible explanation.

[Threviel]

So... It seem like the Ukrainians have started an offensive near Kharkiv, smashing through militia and seeing great progress. It seems like they are threatening to surround Izyum.

https://twitter.com/RALee85/status/1567459059527290882

Let's hope they don't stick their necks out too long.