Francisco Blanch (Madrid, 49 years old), one of the Spaniards with the best information on the energy situation, is taking advantage of the opportunities that the pandemic has offered for remote work.
After more than two decades abroad – the United Kingdom first, the United States later – he left New York for his hometown a year ago, maintaining his responsibility as global head of Commodities and Derivatives at Bank of America.
From that vantage point, which gives him unique visibility over the current economic outlook, he receives Business on a cool, not cold, January morning.
Question.
If they told us a few months ago, with all the fears triggered by the energy crisis, that in January we were going to be as we are, we would have signed without hesitation.
The stars have aligned in the weather.
Reply.
Gas has been paid for, and a lot of it, with a huge impact on both families and governments in the form of budget deficits.
In addition, we have been very lucky that the winter is being very mild, and that has ended up upsetting [Vladímir] Putin.
His strategy was to tighten the screws on Europe in a cold winter.
Q.
What other factors have come into play?
R.
There has been another, important one: the US has rescued the EU from its own mistakes by insisting that the sanctions policy had to be changed from a complete blockade to a ceiling on the price of oil of 60 dollars per barrel.
It has also relaxed sanctions on ships carrying Russian crude.
Sanctions have been greatly diluted and this has helped to relax energy markets.
Q.
In what sense?
R.
_
The US has said: "We are better going to try to increase the supply, that the price falls and, thus, the Russians earn less money."
In 2022, with the TTF [the Dutch gas market, the main one in the EU] at the levels it was at, and despite exporting a small fraction of it in previous years, Russia made much more money.
In the long term, for them it is bread for today and hunger for tomorrow;
but in short, we were paying the price.
In the end they have realized that the best thing to depress the income of the Russian state is, in fact, that there is more supply.
Q.
How is Russia going to get out of the quagmire it has gotten into?
A.
Much weaker.
It exports, above all, energy and weapons.
In energy they have lost their main client: today the level of confidence in Europe in Russia is zero.
And in arms, the war has not been exactly positive for its industry.
The two main legs of its economy have been severely touched.
In a democracy, there would be a change of government that would also change its negotiation strategy.
But in Russia there is a man who, as long as he remains at the top [in power], prevents a change of cycle in his relationship with the EU.
If there were [a takeover in the Kremlin], it would have an impressive effect on the energy markets, with brutal deflation.
And it would be very good for economic growth.
Q.
Although it is only a temporary effect, the war has caused a great substitution of gas and oil for coal.
This is very bad news for the environment.
A.
Last year, Europe got energy by paying a lot of money and thanks to Chinese coal, which released huge amounts of gas in Asia.
China is the largest producer and consumer of coal in the world, and has inflated to produce against its own policy, which involves reducing it to increase renewables.
But in this way it has covered, to a large extent, the hole that Russian gas has left in the world market.
Q.
There is a consensus that this winter in Europe is practically over.
Now, the focus of concern is, rather, in the next.
A.
The great luck is that we are going to come out of this winter with much higher inventories than we thought.
And that has also given us a brutal cushion in economic growth and inflation.
The difficulty for the one coming is how to refill the tanks without the Russian gas that came to Europe by tube.
It is an irony that the EU's second largest gas supplier is still Russia;
This emphasizes the great energy dependence of that country, as in the last 40 or 50 years.
Q.
_
Europe has turned to liquefied natural gas (LNG) as an emergency solution.
Is there enough LNG for everyone in the next few years?
R.
That is the big question.
Europe will probably be able to continue bringing a good part of the gas that used to go to Asia because, although it is rapidly impoverishing, it is a rich continent.
We will continue with high prices: I see it as very difficult for the TTF [the Dutch gas market, which is used as a reference for the entire block] to average less than 80 euros [per megawatt hour] in 2023. If not, you will not be able to receive the gas who used to go to Asian countries.
Q.
You don't see it as simple, then, the replacement of gas by tube by liquefied gas, by ship.
A.
The problem is that, in the short term, there is not enough liquefaction capacity [the process necessary to transport gas in methane tankers].
There are many mouths, new regasificadoras, but there is not food for all.
We are never going to go back to 40% energy dependence on Russia, like before the war, but we are going to need some piped Russian gas in the medium term.
For three reasons: because it is next door, because it has a lot of gas and because it is the cheapest gas.
Q.
You don't believe, then, that the end of the European energy crisis is just around the corner.
A.
It will not be resolved until there is a complete agreement with Russia;
until then, we will not have acceptable energy prices for companies, households and governments.
We have three or four very difficult years ahead of us in Europe.
It is no secret: there is no energy, you are going to have to continue paying much more and you are going to lose industry: fertilizers, metal processing, chemicals...
Q.
_
Europe will depend more and more on the service sector.
R.
_
There are many people who say that, in reality, these industries are not a large part of GDP.
And, in part, it is true.
But you are getting poorer at full speed.
As much as winter is being quieter than expected in prices.
BASF, for example, has closed factories and is not going to reopen them until there is clear visibility on the energy supply.
Again, either there is a realignment with Russia or we will have very complex years for the world hydrocarbon and coal market.
It was not only the main supplier to Europe, but also the world's leading exporter of gas and oil.
Filling that hole is very difficult.
Q.
How much does the reopening of the Chinese economy disrupt the plans?
A.
Quite a bit.
Both in gas and, above all, in oil.
Demand is going to increase a lot, especially in transportation.
Demand is going to increase by 300,000 or 400,000 barrels per day alone, an outrage.
And to this we must add that one of the key ways to stimulate its economy last year was to sell cars, and, although many are electric, this year it is time to drive them.
When China starts pulling, in the second half of 2023, we may have a second wave of energy inflation.
That leads us to think that oil will average $100 for the year [far from the current $80], with a peak of $110 in the summer.
No room for manoeuvre: if the US and Europe were also at the top economically, there would be no human way for oil prices not to go to the moon.
Q.
Will the energy crisis accelerate the transition to renewables?
R.
In the short term it will suffocate us all, but in the medium term it will accelerate it.
We are lucky that the generation costs of solar and wind have come down enormously.
And that is allowing, in countries like Spain, very cheap electricity generation.
Q.
Little by little the energy drops.
And food?
A.
We anticipate a reversion to the mean.
There is no OPEC for wheat, corn, or soybeans, and we believe that the upward pressure of the last few months will be reversed in 2023. Energy costs are coming down and we are seeing quite strong harvests.
It is a big disinflationary factor.
Q.
Isn't it time for the Federal Reserve and the ECB to rethink their aggressive policy of rate hikes?
R.
In the short term, the drop in energy prices provide a breath of fresh air that we didn't have three months ago, and I wouldn't be surprised if the central banks pivoted [stopped raising rates].
In the medium, inflation can mainly come from wages: if they are not accompanied, it is difficult for these price increases to be maintained.
And in Europe, where inflation has come mainly from energy and raw materials, wages are not rising like they are in the US.
Q.
Is the ECB going overboard, then?
R.
The reality is that, here, inflation is not derived from labor.
It is supply, not demand.
Q.
Does it surprise you, then, that you are going so far?
R.
A few months ago [Christine] Lagarde said that in Europe there are three workers for each job, while in the US it is the other way around: there are three jobs for each worker.
Another thing is that she forgets what she said.
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