Why Europe can’t quit Russian energy

This is an audio transcript of the FT News Briefing podcast episode: ‘Why Europe can’t quit Russian energy’

Marc Filippino
Good morning from the Financial Times. Today is Wednesday, August 30th. This is your FT News Briefing.

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The EU is having a hard time quitting Russian fuel. And a US federal court handed down a big win for a crypto giant. Plus, the Financial Times found that a Goldman Sachs fund used Chinese state money to invest in US and UK companies.

Kaye Wiggins
Regulators are just starting to bring in new rules and new regulations. So is this something we should be taking a closer look at?

Marc Filippino
I’m Marc Filippino, and here’s the news you need to start your day.

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The European Union is on track to import a record amount of liquefied natural gas from Russia this year. That’s according to data analysed by an NGO called Global Witness. Now this comes as a bit of a shock because the EU is trying to transition away from Russian fossil fuels. They want to be completely weaned off of them by 2027. Here to talk about this is the FT’s Alice Hancock. She covers energy and climate policy in Brussels. Hi, Alice.

Alice Hancock
Hey, Marc.

Marc Filippino
Get me up to speed about what’s going on with the EU’s energy supply. Why the jump in imports?

Alice Hancock
So the jump in imports has come as the EU has struggled to move away from Russian piped gas, which was cut at various stages last year as a result of Moscow’s invasion of Ukraine. You know, the EU has gone abroad and gone, “Oh my god, we need to go and find lots of this shipped liquefied natural gas”. It just so happens obviously Russia is a big exporter of this stuff and the EU needs it. And you know, when supplies are tight in the world, then you have to take all the inputs you can get. But I have to admit that this is obviously much, much lower than what the bloc was getting through the pipelines.

Marc Filippino
OK, so it sounds like that overall it’s less Russian gas, but more of this liquid stuff coming over in boats rather than pipes. So, Alice, who are the biggest importers of Russian liquefied natural gas (LNG) at the moment?

Alice Hancock
The biggest importers at the moment are, actually it’s China. And then that’s closely followed by Belgium and Spain. And the reason that Belgium and Spain are the biggest importers is because they are big port hubs. So take the Belgian port of Zeebrugge, for example. It’s a place where you would get tankers of LNG and they would go from the ice-breaking tankers that come from Russia and they would be transferred into normal tankers that would then go elsewhere in the world that is then piped into the bloc and on to other European countries.

Marc Filippino
I see. So Belgium may be importing the most, but it’s redistributing it. So to what extent is this record amount of LNG imports supporting Russia’s economy and, you know, by association, its war effort in Ukraine?

Alice Hancock
Yeah, it’s a good question. I mean, we have to look at this in relative terms. The actual amount of money going to Russia compared to when the EU was piping in all this gas from Russia is much smaller. But I mean, quite apart from the optics being pretty bad that the EU is sending money to Moscow, it also means that the EU is still exposed to the potential that Putin could turn around and say we need to cut those supplies. If Europe loses that supply line, that could also have a fairly significant impact on its energy supplies come winter.

Marc Filippino
Right. And that’s what happened last year — Russia cut off its piped gas. Now, we should mention the EU does have a plan for weaning itself off Russian energy. It’s called REPowerEU. It was announced last May. How far along is the EU in reaching their goal?

Alice Hancock
So that plan was announced, as you said, in May last year, and actually in the years since then, it’s been pretty remarkable what the EU has managed to do in terms of reducing its dependency. If you think that Russian gas used to be about two-fifths of the bloc’s gas supply, that has dropped to well below 10 per cent in terms of piped gas. So actually, you know, there is a lot to be applauded. The data showing this increase in LNG imports is just a bit of a warning sign that, you know, there is still this dependency on Russia and that makes the EU vulnerable in that case.

Marc Filippino
Alice Hancock covers energy and climate policy for the FT in Brussels. Thanks, Alice.

Alice Hancock
Thanks so much, Marc.

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Marc Filippino
The asset management firm Grayscale won a major cryptocurrency victory yesterday. A US federal court ruled that regulators were wrong to reject Grayscale’s application for an exchange traded fund. The ETF would track the price of bitcoin, but it’s unclear if the Securities and Exchange Commission will appeal the ruling. What is clear is that the decision puts a ton of pressure on SEC chair Gary Gensler. He’s been on a bit of an enforcement blitz against crypto this year and he’s got several other cases still pending. The price of bitcoin shot up nearly 7 per cent yesterday after the ruling, and it’s now up more than 60 per cent this year.

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The FT has discovered that China has been investing in a series of UK and US companies by way of a Goldman Sachs private equity fund. It’s a big deal because the west has been cracking down on Chinese investment. But this Goldman Sachs fund seems to be a way for the Chinese state to fly under the radar. Kaye Wiggins is the FT’s Asia financial correspondent and she’s been looking into these investments. Hi, Kaye.

Kaye Wiggins
Hi, Marc.

Marc Filippino
OK. So this so-called partnership fund was set up in 2017 when then US president Donald Trump visited China with the former chief executive of Goldman Sachs. How exactly did the fund get started?

Kaye Wiggins
The whole idea was that the CIC, the Chinese sovereign wealth fund, would invest in this fund and then this fund would use this Chinese state money to buy American companies. The CIC would also have a second level of involvement with the fund in there. As well as being an investor, it would also help the companies to expand their operations in China using the kind of connections and knowledge of the CIC, which is effectively a Chinese state investor. And so the whole point here was that you’re gonna create jobs for American workers, which was obviously a big priority at the time for Donald Trump, because these American companies will be exporting more goods and services to China.

Marc Filippino
So, Kaye, we should say that the CIC or the China’s sovereign wealth fund doesn’t own any of the companies in the fund. They’re just investing in these companies. So why did you start looking into this whole thing?

Kaye Wiggins
I mean, the context here is that, you know, everyone has known for a long time of this fund’s existence, but no one seems to know what it had actually done. The premise of this fund seems so out of sync with the political situation today that it’s hard to imagine what it possibly could have invested in. What we actually found out was that it’s actually been investing in quietly in a whole load of US and UK companies.

Marc Filippino
So are any rules actually being broken here?

Kaye Wiggins
No one is suggesting that the fund wasn’t allowed to buy these companies or anything to that effect. But what’s interesting here is that this is, like, an area that regulators are just starting to get more alive to and to get more interesting, as in the idea that an investor from a country like China — which the UK and the US are starting to become more concerned about — that they’re investing not directly, but through these funds. And that’s just starting to bring in new rules and new regulations to say, “Is this something we should be taking a closer look at?”

Marc Filippino
Now, Kaye, I guess you’ll be looking out for other similar kinds of funds that are doing the same thing? 

Kaye Wiggins
Yeah, well, what’s interesting is that CIC has actually done similar partnership funds with lots of other countries, not just the US. It’s done one in the UK, it’s done some in Europe, it’s done some other ones in Asia. So this is certainly one part of a big story of how this Chinese sovereign wealth fund has sought to gain much more economic exposure to western companies at a time when it’s become harder and harder for them to be a direct shareholder in these companies or in companies like them.

Marc Filippino
Kaye Wiggins is the FT’s Asia financial correspondent. Thanks so much, Kaye.

Kaye Wiggins
Thanks, Marc.

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Marc Filippino
Before we go, US job openings dropped to the lowest level in more than two years last month. On top of that, the number of people who quit their jobs is also going down. That’s according to new government data that came out yesterday. All of this points to a cooling labour market, and that’s making analysts think the Federal Reserve is even more likely to stop raising interest rates for the rest of the year. Markets liked all this. The S&P 500 ended the day up 1.5 per cent. And there is more jobs data on the way. Employment figures for July come out on Friday.

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You could read more on all of these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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