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Oil transport means and modes and the 2020-2021 crisis

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The current international shipping market can be described as ups and downs. Tariffs in this market have repeatedly reached new highs. The strong economic rebound in 2021 has become the driving force behind the cyclical increase in the market. After the frenzy in the first half of 2020, the international shipping tanker market has been affected by negative factors, including the general lack of demand for oil transport.

In the first half of 2021, international oil prices performed strongly and positively. Compared to the steady upward trend in crude oil prices, the international tanker market – after experiencing a setback in the second quarter of 2020 – was affected by a general lack of demand for oil transport; a delay in the dismantling of old ships; regular delivery of new ships and high demand for seaborne oil storage. Negative factors, such as the reduction of tankers in ports, continued to be bleak. Under the “new normalcy” of Covid-19, the first priority for shipowners has been to survive and the pace of rebalancing the supply/demand ratio of tanker transport has accelerated.

Global demand for oil has gradually recovered, but is still below its pre-Covid-19 level, leading to shortages in the international tanker market as a whole.

In its outlook for 2022 published on January 10, 2022, the International Energy Agency (IEA) stated that oil demand is forecast to increase by 900,000 barrels per day throughout 2022, and the Agency expects transport demand to recover strongly in the second half of this year.

The decommissioning of old international tankers has been delayed, while newbuildings have been delivered as usual, resulting in severe overcapacity. During the pandemic in the first half of 2020, the market for oil transport was on the high side and a large number of shipowners procrastinated plans to dismantle old tankers, many of which were used for “floating” storage. After the sharp decline in the tanker market, under US extreme pressure on Iran and Venezuela, many old tankers were moved to sensitive routes and the capacity of old tankers decreased very little. At the same time new tankers were delivered on time and this greatly increased the pressure and the IEA’s positive outlook. The overall capacity of tankers was increased.

At present, the international oil market is in the destocking phase, as the structure of the international oil price market is reversed – i.e. the oil storage market has declined and the demand for floating offshore tanks has been reduced significantly. The increase in oil prices is accompanied by the first change in the structure of price differentiation. Since May 2020, the market has been scarce. It has entered a destocking phase and there has been a fluctuation in the demand for reserves. The rental price has fallen again and the capacity to move offshore has been significantly reduced. Temporary offshore floating tanks are constantly being released during the destocking phase, which means that an increasing oil supply capacity is entering the market.

The blockades of the port and Suez Canal had little impact on supplies to the West. Since the outbreak of Covid-19, European and US ports have been affected, resulting in low operating rates, port congestion and severe tanker delays, which have continuously raised the international maritime transport market. Nevertheless, the quantity and value of refined petroleum products that previously passed through the Suez Canal were relatively large and the impact was also considerable. In recent years, however, numerous refineries have been built in the Near and Middle East, the Persian Gulf, the Red Sea, the West Indian coast, from which large quantities of refined oil (including aviation kerosene, diesel oil, etc.) have been exported to Europe. Those quantities were originally handled through the Suez Canal that, as seen above, was made less operational by the aforementioned crisis.

The current charter market is even bleaker: in the second quarter of 2021, the owners of supertankers, the so called very large crude carriers (VLCC), could only accept a return of around 2,000 US dollars per day on freight. The demand-side recovery of the international tanker market is limited and the contradiction of oversupply has become more acute. The international tanker market is in urgent need of rebalancing. In the second half of 2021, global oil demand continued to grow. This improved the international tanker market, but obviously a sharp recovery was not possible.

The current link between the international oil market and the tanker market is similar to the collapse of international oil prices after the financial turmoil of 2008. In March 2009, international oil prices bottomed out and started to rise, but with short spikes. The downturn in the international tanker market lasted until 2014.

Today, as demand recovers, the main variables for the second half of 2021 must be considered. After oil prices being negative, can OPEC+ (i.e. the merger of OPEC and ten other oil exporting countries such as Russia and Kazakhstan) become increasingly influential due to high oil prices? In response to the impact of Covid-19 on the global economy and oil demand, OPEC+ implemented historic production cuts as of May 1, 2020. The scale of production cuts was gradually reduced from 9.7 million barrels per day in May-June 2020 to 5.8 million barrels per day in 2021. At the regular monthly Ministerial Meeting of the major oil-producing countries in early July 2021, the UAE and Saudi Arabia jointly led the oil-producing countries to suspend their production agreement. While the two sides did not share a common view on whether the benchmark used to calculate the UAE’s production share should be adjusted if the production cut were extended from April 2022 to the end of the year.

At the Ministerial Meeting of July 18, 2021, the major oil-producing countries finally agreed on a plan to increase production and endeavour to end production cuts completely by September 2022. International oil prices fell after the decision was taken, reflecting market concern that conflicts within OPEC+ could be amplified due to competition for market share at high oil prices. Although the market has increased since then, OPEC+ has always struggled as it is very difficult to find understandings, not to mention that Iran is waiting for an opportunity to return to the market to compete on price.

Since the Biden Administration took office, Iran’s re-entry into the international oil market has become the biggest supply-side variable. As early as Trump’s Administration, the United States has put extreme pressure on Iran, but the impact of the epidemic in 2020 – combined with the Saudi price war – has driven up oil prices. National shale oil and gas companies in the United States have been severely damaged and it has been difficult to curb the rise in oil prices on the supply side. Since 2021 international oil prices have continued to rise and the price of gasoline in the United States has soared. On the US West Coast, where the price of refined oil products is the highest in the country, the price of gasoline on June 28, 2021 was 3.811 dollar per gallon (or 1.006 dollar per litre), with a 1.057 dollar increase per gallon (it was 0.728 dollar per litre in June 2020).

The US Consumer Price Index (CPI) for all urban consumers increased by 5% from May 2020 to May 2021. Food prices increased by 2.2% and energy prices by 28.5%. Prices of all other commodities and goods increased by 3.8% for the year ending in May 2021: this has been the largest twelve-month increase in the year since June 1992.

With a view to ensuring stable economic growth and curbing inflation, the Biden Administration needs Iranian crude oil. The same holds true for diplomatic and strategic considerations.

In the Iranian elections of June 18, 2021, Sayyid Ebrahim Raisol-Sadati – known as Ebrahim Raisi – was elected eighth President of the country with 72.35% of the vote. Iran’s return to the nuclear deal is expected to become a trump card for President Raisi, although Iran has demanded credible guarantees that a future US President would no longer unilaterally withdraw from the agreement as Donald Trump did on May 8, 2018. Once the hoped-for agreement on the Iranian nuclear deal is reached, the sanctions imposed by the United States on Iranian oil and shipping companies are expected to be lifted simultaneously. The units of the Iranian National Tanker Company (Shirkat-e Mili-ye Nuftekâshi-ye Iran), which disappeared from the market due to sanctions, will return to the international transport market, and the general situation of overcapacity should accelerate the dismantling of older tankers.

Since 2021 China’s adjustment of its oil import and export policy has shown that – based on the peaking and carbon neutrality requirement – the intensity of oil demand cannot be sustained. This means that – as China is the world’s largest importer of crude oil – it will adapt to the guidelines set by the Chinese government. China’s great long-term demand for crude oil needs to be revised.

With regard to international tanker construction, as steel prices continue to rise, the market for tanker scraps is booming and cash earnings from dismantling old ships continue to increase. The International Maritime Organisation (IMO) has continuously improved ship technical specifications and this has favoured the reduction of old transport capacity in the maritime sector. Furthermore, the International Convention for the Control and Management of Ships’ Ballast Water and Sediments (the so-called Ballast Water Management Convention of February 13, 2004) stipulates that all ships must install a ballast water management system by September 8, 2024 or use the ballast water carried by the ships, treated by means of a specific management system. At the moment, the deadline is still almost 40 months away, and an industry survey agency has found that there are still around 35,000 ships worldwide that need to be repaired with the installation of such systems.

Meanwhile, on June 17, 2021, the 76th meeting of the Marine Environment Protection Committee adopted a resolution on reducing ships’ carbon emissions and set a 2% reduction in carbon intensity each year from 2023 to 2026. The vast majority of the world’s ships must meet this target: according to this requirement, if the oldest ships are not adapted to these parameters, they will not be able to operate legally.

Based on the continued expectations of the international tanker market, the shipowners’ motivation to dismantle ships has increased, rather than spending money to refit old ones. Deliveries of newly built tankers are expected to decrease as from 2023. The task of satisfying the supply side of the international tanker market could bear fruit as early as this year.

In the first half of 2021, the international maritime tanker market was struggling with sluggish oil prices and shipowners were suffering. In the second half of the year, global oil demand recovered, although there was residual hope for shipowners to raise freight rates. If the various crises recorded over the past two years show visible signs of ending, trends will certainly improve.

Advisory Board Co-chair Honoris Causa Professor Giancarlo Elia Valori is an eminent Italian economist and businessman. He holds prestigious academic distinctions and national orders. Mr. Valori has lectured on international affairs and economics at the world’s leading universities such as Peking University, the Hebrew University of Jerusalem and the Yeshiva University in New York. He currently chairs “International World Group”, he is also the honorary president of Huawei Italy, economic adviser to the Chinese giant HNA Group. In 1992 he was appointed Officier de la Légion d’Honneur de la République Francaise, with this motivation: “A man who can see across borders to understand the world” and in 2002 he received the title “Honorable” of the Académie des Sciences de l’Institut de France. “

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Seeing Japan – Indonesia Collaboration in Energy Transition Cooperation

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Holding the G7 presidency, Japan is increasingly active in establishing relations with several countries. One of them is Indonesia. The relations that have existed so far between Indonesia and Japan are widely visible on the surface. One of them is in the energy transition sector. Indonesia is in need of a large investment to achieve net zero emissions in 2060. An investment of more than 500 million US dollars is needed to make this happen. This is indicated by the great effort to reduce energy that uses fossil fuels (coal, oil and gas) in people’s lives. Including efforts from Japan to cooperate with Indonesia or vice versa in achieving net zero emissions.

Abundant Natural Resources: A Privilege for Indonesia

The abundance of natural resources owned by Indonesia is an important point for the continuation of cooperation between Japan and Indonesia. Natural resources such as hydrogen, geothermal are important values ​​to be further developed into renewable energy. This is a breath of fresh air for Indonesia, which is trying to achieve net zero emissions by 2060.

 Replacing fossil fuels such as coal, oil and gas to renewable energy requires extra effort, Indonesia which is rich in energy resources requires a lot of money in terms of exploration of natural resources. renewable energy resources, such as hydrogen, geothermal. renewable in Indonesia. One of them is through a funding scheme through the Asian Zero Emission Community (AZEC). Through this funding, Japan, which is known to be very generous in helping developing countries in terms of energy, is expected to be able to bring change to the renewable energy transition in a country rich in energy resources, Indonesia. This transition certainly requires a short and gradual process.

State Electricity Company of Indonesia abbreviated as PLN, states that dependence on new coal will decrease in 2030. This is due to the presence of power plants from renewable energies such as geothermal, solar, hydrogen and nuclear and wind (Kompas, 2023).

Japan’s Investment to Indonesia

 Indonesia, with all its abundance of energy resources, is considered capable of developing an energy transition. The development of electricity from geothermal, water and biomass are the main sector. This was conveyed by the Government of Japan through Deputy for International Affairs, Ministry of Economy and Industrial Development of Japan Izuru Kobayashi. He stated that his party was ready to assist Indonesia in achieving net zero emissions in 2060 with an environmentally friendly funding and technology assistance scheme.

The above was also supported by another Japanese party, namely from Sumitomo Mitsui Banking Corporation (SMBC). Quoting from IJ Global, SMBC has financial assistance to Asia Pacific countries for clean energy projects through Mitsubishi UFJ Financial Group of US$1.5 billion, Sumitomo Mitsui Financial Group of US$1.2 billion, and Mizuho Financial Group of US$1.2 billion. 1 billion US dollars. In Indonesia alone, as of September 2022, SMBC had invested US$221 million.

Various forms of support by Japan as donors and companions for Indonesia to develop renewable energy should be appreciated. According to the author opinion, this is a challenge for the Government of Indonesia and all of stakeholders inside, to create an investment environment that is safe, good and useful for Indonesia’s future. The use of fossil fuels such as coal for power generation needs to be slowly substituted using renewable energy. The Jokowi administration’s policy of subsidizing electric vehicles for the public can be an entry point for the continuation of Indonesia-Japan collaboration in realizing the energy transition.

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The Maneuvering Of Gas Commodities As Securitization Of Russia’s Geopolitical Position

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Authors: Luky Yusgiantoro and Tri Bagus Prabowo

In 2012, the Yakutia-Khabarovsk-Vladivostok gas pipeline project was redeveloped under The Power of Siberia (News Ykt, 2012). Putin legalized Gazprom (contractors: Gazprom Transgaz Tomsk). The idea named “Power of Siberia” represents the power of gas pipelines to shape and influence Russia’s geopolitical and geoeconomic situation. A new identity will be launched, conveying the Yakutia-Khabarovsk-Vladivostok gas pipeline and gaining international prominence. The Power of Siberia project is an integrated form of GTS (Gas Transmission System) that will bring the Irkutsk gas region in the fertile eastern part of Russia to the Far East and China. The pipeline location is located in the “Far East,” incredibly close to the border with China, and generally in the Asia-Pacific region. Initially, this gas pipeline was built to facilitate gas trade with China and reduce China’s dependence on coal (Pipeline Journal, 2022). What is the value of this project for both countries to become global concerns?

Furthermore, they have the ability or range to carry gas communications for approximately 4000 km. Due to its geographical proximity and shared economic interests, China is Russia’s most progressive partner in terms of a multifaceted regional and international strategy. Russia and China are known as close partners. The aftermath of Russia’s political alliance was to regain global power, status, and influence lost after the collapse of the Union of Soviet Socialist Republics in 1991, which was the driving force behind the end of the Cold War (Oualaalou, 2021 ). Russia has articulated a vision of rebuilding its global reputation using energy, military might, intelligence, and diplomacy. Russia wants to play a crucial role in the global multipolar system because the West rejects Russia’s vision for a new geopolitical order. They saw many important events related to Russia’s moves in the international order, including its response to the actions of the North Atlantic Treaty Organization (NATO) to try to dominate the nations of the world. The former Soviet Union (East), the failures in the Middle East, the annexation of Crimea, and one of Moscow’s recent invasions of Ukraine mark the military as a turning point in Russian geopolitical politics, especially during the Putin era. Russia has three strategic initiative points, including the ability to deploy and interconnect the means (intelligence, diplomacy, military, cyber, and energy) to gain influence and extend Russia’s global footprint. There is.

Moreover, the Fallacies and Western Ties strategy contradicts America First foreign policy tenets (unipolar) and impulsive decisions as a security threat. Russia wants to maintain its lack of regional interests in certain Baltic states (those still under Russian control) and the Balkans (Cooley, 2017). The Balkans (Albania, Bulgaria, Bosnia and Herzegovina, Croatia, Kosovo, Montenegro, North Macedonia, Romania, Slovenia, and Serbia) have been the cornerstones of great power rivalry for centuries. NATO (North Atlantic Treaty Organization) and the EU (European Union) used the momentum of Yugoslavia’s dissolution in the 1990s to integrate the Balkans as geopolitical hotspots on the Western Front (European Policy). War analysts say the ongoing Ukraine conflict is a way for Russia to raise its stakes in the Balkans and reassert its regional influence (McBride, 2022). 

In 2020, natural gas will still be the world’s third-largest primary energy requirement for the global community. Even though the COVID-19 pandemic began in 2019, demand for natural gas increased by 5.3% to 4 trillion cubic meters (TCM) in 2021 (BP, 2022). In 2021, Russia’s total natural gas production will be 701.7 billion cubic meters, the second largest globally, contributing to the strong demand in the global energy market. Russia is essential in the natural gas market (Sonnichsen, 2022). The climate crisis is the most obvious obstacle in the global gas market model. It originates from burning carbon with materials derived from fossil fuels such as oil, natural gas, and coal. However, natural gas is acceptable during the energy transition as it burns the least carbon dioxide (CO2) and pollutants of these three substances (EIA, 2022). It is easier than supplying a gas infrastructure that does not provide infrastructure. Operationally, it is optimal. Talks about climate protection, the climate crisis, and the energy transition are being shaped by Western countries as a way of highlighting Europe’s dependence on gas from Russia, which is geographically accessible and still has gas in other gas reserves. The decision to stop sourcing natural gas from Russia continues to cause European controversy. The pipeline network actively built between Russia and Europe is an essential aspect of why this relationship is used as a tool for Russia to apply pressure—on territorial Europe. Europe uses a climate scenario, and Russia uses a gas-dependent scenario. Efficiency and effectiveness will not be achieved if Europe suddenly has to look for other reserves or switch entirely to this energy mix. Then, with Russia’s eloquence in exploiting the situation and the status quo, natural gas pipelines were used as a form of Russian energy diplomacy to dominate its (European) neighbors. Recognizing that the Western natural gas market is no longer preconditioned, moving target consumers to the Asia-Pacific region is one of the most effective energy plans for Russia’s fossil fuel expansion.

Siberia’s first electricity will cost 770 billion rubles, and the investment in gas production will cost 430 billion rubles. The 1,400 mm natural gas pipeline capacity will increase to 61 billion cubic meters (2.2 trillion cubic feet) of natural gas annually. The pipeline lets the world see natural gas as one of the fossil fuels and does not pollute the air with the carbon and other substances of the climate crisis. , through the capital Beijing and down to Shanghai. According to state media, the intermediate phase will go online in December 2020, with the final southern section expected to start delivering gas in 2025 (Cheng, 2022). Through this agreement, Russia aims to extend its power beyond Mongolia into Siberia 2 in 2030 (IEA, 2022). Conditions for Europe to get 40% of natural gas from Russian pipelines. Germany, in particular, sources about half of its natural gas from Russia (Baldwin, 2022).  Despite international media reports of embargoes and sanctions, the crisis has hit Europe hard. Europe must adapt its economic policies to politically justified policies and coordinate them with each other. However, this is a geopolitical struggle, and we must ensure that the country retains its absolute superiority. Russia chooses to invest in and plan for natural gas markets in regions that require or depend on natural gas in the energy sector, i.e., Asia-Pacific via China. China, influencing the Belt and Road Initiative (BRI) plan, is reshaping the geoeconomic position of Russia’s Siberia 1 and Siberia 2 power markets (Lukin, 2021). “Geopolitics is all about leverage” is one of Thomas Friedman’s influential geopolitical maxims. If a country cannot expand its influence, it remains a loser. Nevertheless, Russia is far from this analogy, as mentioned earlier. Russia continues to secure its geopolitical position. It is the embodiment of growing confidence in the reliability of natural gas. Russia still wants to become a major player in natural gas.

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Remapping the EU’s Energy Partners to Ensure Energy Security and Diversification

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Energy security has been a buzz word in Brussels for a few decades but since Russia’s invasion of Ukraine, followed by sanctions, Russian gas cut-off and physical destruction of North Stream pipelines, forecasts on strained EU energy production due to drought, the stakes have gotten much higher. This was confirmed on March 10th by a joint statement by the US President Joe Biden and European Commission President Ursula von der Leyen, reiterating both parties’ determination to “build clean energy economies and industrial bases”, including clean hydrogen and continue to work together “to advance energy security and sustainability in Europe by diversifying sources, lowering energy consumption, and reducing Europe’s dependence on fossil fuels”.

Last week, the EU energy chief Kadri Simson encouraged all Member States and all companies to “stop buying Russian LNG, and not to sign any new gas contracts with Russia. The EU has pledged to quit Russian fossil fuels by 2027 and replaced around two-thirds of Russian gas last year.

In this context, the Southern Gas Corridor (SGC), delivering Azerbaijani gas through (Trans-Anatolian Pipeline) TANAP and Trans-Adriatic Pipeline (TAP) to the EU, plays a key role in current diversification efforts. The EU increased gas imports via pipelines from Azerbaijan from 8.1 bcm to 11.4 bcm last year. Only two years after its completion, the expansion of the Corridor seems to be likely as the EU and Azerbaijan stroke a deal in July 2021 to double the volume of gas delivery to 20 bcm by 2027 in addition to plans to tap into Azerbaijan’s renewables potential, such as offshore wind and green hydrogen. While encouraging Azerbaijan’s accession to the Global Methane Pledge, the deal aims at collecting natural gas that would otherwise be vented, flared, or released into the atmosphere.

With the opening of the interconnector Greece-Bulgaria (IGB), at least 11.6 bcm of gas is expected to be delivered from Azerbaijan to the EU this year. The IGB has been dubbed as a game-changer for the EU’s energy security, especially as it enabled supplies to Bulgaria and Romania. A Memorandum of Understanding on gas supplies between Azerbaijan and Hungary was also signed this year, which shows that more interconnectors will be needed in the EU if TANAP would be expanded from 16 to 32 bcm and TAP from 10 to 20 bcm.

Moreover, investments will be needed to increase gas production in existing and new gas fields (Shah Deniz, Azeri Chiraq Guneshli, Absheron, Shafaq-Asiman, Umid-Babek, etc.), especially considering growing energy demand in Azerbaijan and its neighbours. Since the Russia-Ukraine war, 10 European countries turned to Azerbaijan to increase existing supplies or to secure new supplies. To meet such growing demands, Azerbaijan is poised to increase cooperation with neighbouring states, such as Turkmenistan, which is home to 50 trillion cubic metres of gas reserves – the world’s 4th largest reserves.

Following the Azerbaijani-Turkmen decision to jointly develop the formerly disputed Dostluq gas field, a trilateral swap deal between Iran, Azerbaijan, and Turkmenistan, and the 2018 Convention on the status of the Caspian Sea by all the littoral states; Azerbaijan, Turkmenistan, and Turkey stated that they were looking “to form a coordinated and multi-option system for delivering energy resources to global markets” on December 14th last year.

These developments could be harbingers of a new Trans-Caspian Gas Pipeline (TCGP), a 180-mile under-sea pipeline that could be integrated into the SGC. Labelled as an EU Project of Common Interest, which could also be eligible for funding under the 2019 US European Energy Security and Diversification Act, this strategic under-sea pipeline project could bring an end to the EU’s energy crisis by securing a cheap source of natural gas, whose price is independent of LNG prices while counterbalancing Chinese, Russian and Iranian influence in Central Asia and beyond. On the other hand, Azerbaijan began the transit of oil from Kazakhstan this year in addition to Turkmenistan, which highlights the potential to use the Middle Corridor for hydrocarbons.

During the 9th Southern Gas Corridor Advisory Council Ministerial Meeting and 1st Green Energy Advisory Council Ministerial Meeting in Baku in February, EU Energy Commissioner Kadri Simson stated “Azerbaijan can potentially become the exporter of renewables and hydrogen to the EU”. At the end of last year Azerbaijan, Georgia, Romania, and Hungary agreed to establish a green corridor to supply the EU with around four gigawatts of electricity generated by windfarms in Azerbaijan with the support of the European Commission.

Over the last several months, Azerbaijan signed documents that will provide investments to create 22 gigawatts of renewable sources of energy, both onshore and offshore. In April 2021, the World Bank started funding the offshore wind development in Azerbaijan, which has a potential of 157 GW. In addition to the Caspian Sea, which ranks second in world for its wind energy potential, Azerbaijan has an estimated 27GW in wind and solar power onshore.The current construction of wind and solar plants in Alat (230 MW), Khizi and Absheron (240 MW) and Jabrayil (240 MW) as well as new investment plans, including in Nakhchivan Autonomous Republic, are expected to further boost renewables production in the Caspian state all by living up to its vast green potential. While the country, with a population of 10 million, accounts for only 0.15% of total global greenhouse gas emissions, it defines green growth as a key priority for 2030. The EU supports the implementation of Baku’s Paris Agreement commitments through the EU4Climate initiative.

The Russia-Ukraine war may create a window opportunity for the EU to engage in concrete actions rather than high-flying buzzwords, pushing the bloc to do more strategic and visionary planning regarding future projects linked to its energy security, such as TCGP, and finally diversify away from Russian energy sources for good. Azerbaijan has proved to be a stable partner in these challenging times, which manifested the vulnerability of certain EU states against Russian economic and political pressure due to Gazprom’s immense infiltration of their gas markets for the past several decades. Now it’s the time to play fair game by a new playbook and to remap the European energy partners while investing in a stable, predictable, affordable, and sustainable energy future for the EU.

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