Pierre Andurand on What Europe Needs to Do This Winter

Tracy Alloway (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:15)

And I'm Joe Weisenthal.

Tracy Alloway (0:16)

So Joe, I feel like we need to do an episode on European energy once a month now.

Joe Weisenthal (0:21)

There are so many developments happening so fast. German electricity prices, price caps in the UK, the French nuclear industry, and it all relates to geopolitics and inflation, how it fits with the ECB and everything. There really is, it's really like a nonstop story that we have to be covering more or less all the time.

Tracy Alloway (0:42)

Yeah, and I feel like we had some interesting conversations on this topic earlier in the year, definitely throughout the summer and even way back into the spring. And the difference now is that we really are starting to see governments take some steps to try to limit the impact of the energy crisis.

Joe Weisenthal (1:02)

Right, but here's the thing that I don't really get. Like, sure, the government can cap prices theoretically, or they could provide subsidies to homeowners theoretically, et cetera, but nothing actually provides more molecules. Like none of, there's nothing that's on the government's balance sheet that it could be done to like actually, in my mind, get at the core issue, which is a shortage of natural gas molecules or oil, et cetera. And so the question of like how Europe gets through the winter, how much of a recession will be, how it's going to ration energy, et cetera, is still to my mind like a huge question mark. And I think a lot might even depend on the weather.

Tracy Alloway (1:41)

Yep, that's exactly right. And there is so much to discuss on this topic, but I am happy to say that we really do have the perfect guest for today. We are going to be speaking with the commodities trader Pierre Andurand about this topic. We spoke to him, I think it was back in March or April of this year when a lot of these energy concerns were just kicking off.

And we are going to catch up with him and see what he is thinking about the market now.

Joe Weisenthal (2:05)

Can't wait.

Tracy Alloway (2:06)

Pierre, thank you so much for coming back on Odd Lots.

Pierre Andurand (2:09)

My pleasure. Hi Tracy.

Good to speak with you again.

Tracy Alloway (2:11)

Pierre, maybe just to begin with, we have spoken to some of our colleagues, some people in the energy market recently, back in August, just about how dire the situation in Europe could get this winter.

At least one of them was pretty pessimistic about the outlook. But you had a Twitter thread recently where you were suggesting that maybe things aren't that bad. Maybe there are steps that society as a whole could be taking to try to offset some of these commodities pressures. What do you think Europe can do here?

Pierre Andurand (2:46)

Yes, I think, you know, then we think we have, you know, we've been used to living in a very abundant world. And now we have to switch into a war paradigm. And once we understand that, I don't think the steps we have to make are too difficult. But first, plan, number one, for no Russian gas, you know, pretty much ever, at least for the foreseeable future. Once politicians understand that we have to plan for no Russian gas, then it is much easier than, you know, assuming that it will come and then it doesn't come. So far, there have been a lot of steps have been taken. So first, you know, at the moment, Russian gas exports to Europe have gone down by 75%. And I think they will go down. I mean, for me, I think we have to assume that we will not get from now and pretty much from next week onward and think about how we can live without Russian gas altogether. So the good news is that Europe has been able to import a lot more LNG, so liquid natural gas, than expected this year.

Pretty much almost doubled the imports of LNG and that increase in LNG supply corresponds to about two thirds of the Russian losses so far.

So that's the good news. We managed to import a lot more LNG and there's more import capacity that's being built and that will come online over the next few months. So it looks like LNG import capacity will not be an issue for Europe. The problem is how much LNG can Europe really manage to attract because the rest of the world is competing for that supply and some other countries have long-term contracts. But I would assume that Europe being one of the wealthiest continent that they'll be able to most of the competitors for LNG.