Beware of hybrid warfare

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Hello Power Up readers,

Tensions between Russia and the West went up another notch over the weekend when the Kremlin said it was deeply concerned about the possibility of the U.S. supplying Tomahawk missiles to Ukraine, warning that the war had reached a dramatic moment with escalation on all sides. And as with many aspects of the war in Ukraine, energy is central. The Financial Times reported that the U.S. has been helping Ukraine mount long-range strikes on Russian energy facilities for months that have led to domestic fuel shortages and a drop in exports, depriving Moscow of vital revenue. 

And as the war enters its fourth winter, a different, covert war is also gaining momentum in Europe, threatening its vital energy infrastructure. More on this further below.

Meanwhile, in corporate news, an arbitration court on Thursdaqy ruled in favour of BP in a case against Venture Global over the U.S. supplier's failure to deliver liquefied natural gas under a long-term contract that was due to start in late 2022. 

The court found that Venture Global breached its obligations to declare commercial operations had begun at the Calcasieu Pass plant in a timely manner, allowing it to sell hundreds of LNG cargoes for over three years before starting to deliver them to BP, Shell and other buyers who had signed long-term supply deals with them. BP is seeking damages of more than $1 billion plus interest, costs and attorneys' fees. 

The case is a black eye for the wider U.S. LNG industry, whose breakneck growth looks set to contribute to a global supply glut and far more headaches for investors. 

In other corporate news, this week the Energy Intelligence Forum is being held in London, where CEOs of Exxon Mobil, TotalEnergies, ConocoPhillips and other executives will speak. I will provide the highlights in our Thursday newsletter.

Finally, I recommend checking out ROI Asia Commodities Columnist Clyde Russell's latest piece, which asks an interesting question: is China's stockpiling of crude oil bearish or bullish for prices?

I love to get your thoughts and comments, so don't hesitate to contact me at ron.bousso@thomsonreuters.com or follow me on LinkedIn.

The recent surge in suspected Russian "hybrid warfare" incidents across Europe has put governments on high alert, raising questions about the vulnerability of the region's energy infrastructure as the continent enters the critical winter heating season.

Preventing sabotage of a massive energy network poses security and logistical challenges. But Europe's leaders may need to start planning.

With temperatures set to start dropping, the region is seeing an uptick in so-called hybrid warfare, which Russia is widely believed to be behind. These aggressive actions, such as airspace violations, threaten the continent but have avoided triggering a military response from NATO as Moscow denies involvement.

European governments have blamed Russia for a wave of drone incursions in recent weeks, including some that led to severe disruptions at airports in Denmark and Norway. Drones were also spotted over Danish North Sea oilfields in September, Poland shot down suspected drones that entered its airspace on September 10, and 10 days later, Russian military jets violated Estonian airspace.

Since the first incursions of 20 Russian drones into Poland on September 9, northern European NATO member states have registered at least another 38 incidents spanning Scandinavia, Belgium, and the Baltic states, according to the Washington-based Center for European Policy Analysis.

Beyond drone flights, recent incidents have also included suspected ship navigation system jamming, cyberattacks, and sabotage on infrastructure across Europe.

Moscow has repeatedly denied responsibility for these hybrid attacks. But reports suggest some of the aircraft were launched from Russian tankers off Europe's coastline.

Energy vulnerability

The latest wave of hybrid attacks has not directly involved Europe's energy infrastructure, which includes thousands of kilometres of underwater and overground gas pipelines and power cables, LNG processing terminals, electricity pylons and substations, offshore oil and gas fields, and solar and wind farms.

However, the rise in hybrid incursions comes as Russia and Ukraine are ratcheting up direct strikes on each other's energy facilities. Ukrainian drone attacks on Russian refineries led to fuel shortages and a drop in exports, while Russia has launched massive strikes on Ukraine's gas production facilities in recent days.

Given this backdrop, energy infrastructure would appear to be a natural target for further hybrid attacks. Supply and demand in Europe's energy markets are currently in a delicate balance entering winter, meaning the continent is vulnerable to disruptions that could lead to price spikes and higher heating bills.

This raises the question of whether Europe is sufficiently prepared for future hybrid attacks on its energy systems. The answer is almost certainly "no."

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