Russia will not replace the European energy market. And that’s why
InoSMI materials.
Because of the occurrence, the energy security of Europe, which depends on Russian gas and oil, has been threatened, writes Wedge Infinity. She cannot be chosen from them momentarily, however, she has already thought about the gradual deterioration of the consequences. The loss of the European market will greatly affect Russia.
When I worked for the company, I collaborated with the Russian gas company Gazprom on a project to expand the reach of gas companies. I was very surprised by the very strict security.
We arrived by car, and the guards used mirrors to look not only at the trunk and interior, but also at the bottom of the car.
The building of “Gazprom” is new, but the style is reminiscent of the Stalin era. Stalinist architecture symbolizes the Cold War period. the skyscraper has occasionally appeared in American films as an illustration of the Evil Empire. Now the image of Russia may have receded into the Cold War.
After the start of a quick operation in Ukraine, Western countries and Japan, Russian banks were excluded from the SWIFT international payment system, but Gazprombank and some other financial organizations were not included in the sanctions list by the decision of European countries: they are aggravated by Russia and fear that she will respond stop the export of energy resources. Therefore, the supply of fossil fuels from Russia to Europe continues.
Of the $337 billion of exports in 2020, more than 40% came from fossil fuels, amounting to $142 billion. But with rising energy prices, Russian exports are rapidly maximizing.
Rising Fossil Fuel Prices and Increasing Russia’s Income
The US has decided to ban the import of Russian oil, coal and liquefied natural gas (LNG). The US and Russia do not trade much coal and LNG, but there is a significant influence on oil.
The share of Russian crude oil in the market is less than 2%, but Russia supplies one-fourth of the total oil products to the US, which account for about the share of crude oil imports, and together they account for just under 7%.
The share of exports to the US is also at about the same level, so the impact on both sides is not so great, but it does have a strong effect on market sentiment. Some financial savings predict that oil prices will rise and reach 185-200 dollars per barrel by the end of the year.
European Union (EU) payments to Russia for imports of gas and crude oil also increased sharply, exceeding 100 billion yen a day. March 2 payment for only a record 689 million euros.
Commenting on this, German Vice-Chancellor, Minister of Economics and Climate Protection Robert Habeck stopped: “Rejection of imports from Russia is not possible in a few months. If it is canceled, it will cause public unrest.”
Germany’s energy dependence on Russia increased in a gradual decline from coal and nuclear energy. At the end of last year, Germany closed three nuclear power plants and gradually moved closer to nuclear power, shutting down the remaining three nuclear power plants by the end of the year.
The use of nuclear energy to import fuel from Russia, but so far Germany has not announced the cancellation of the abandonment of nuclear energy programs. Vice Chancellor Habek is also negative about this.
The EU countries are in different dependence on Russia, which is why the opinion on the ban on the import of its energy resources is divided.
Germany, which depends on Russia by more than 50%, and Italy, which depends on 40%, are unlikely to go for a ban. Bulgarian Prime Minister Kiril Petkov noted that his country could not enforce an EU import ban due to Russia’s high dependence on gas and oil range selection.
Despite this, the European Commission announced measures depending on the dependence on gas in Russia – by the end of the year, imports should be reduced by two-thirds.
In March of this year, the International Energy Agency (IEA) announced ten specific measures. The European Commission is taking the next steps.
Ten measures for dependence on Russia
In 2021, the EU imported 140 billion cubic meters of gas from Russia through pipelines and 15 billion in the form of LNG, according to the IEA. This is about 40% of EU consumption.
To reduce dependence, the IEA has formulated a definition. Among them is not to renew the contract with Gazprom for 15 billion cubic meters, which ends at the end of this year. In addition, there is a proposal not to rewrite the contract for 40 billion cubic meters, which expires in ten years.
Gas from other sources should compensate for safety margins in Russia. Quantity is expected to increase by 10 bcm from Algeria, Norway and Azerbaijan through pipelines compared to 2021, and LNG by 20 bcm, given limited supply.
In addition, the installation of night and wind farms could increase supply by 35 billion kilowatt-hours and reduce gas consumption by the equivalent of six billion cubic meters.
The emergency launch of a nuclear power plant in Europe increased consumption by 20 million kilowatt-hours and by 500 kilowatt-hours through the use of biofuel capacity.
In the calculation, it is possible to measure gas consumption by 13 billion cubic meters. If the operation of three nuclear power plants, which are scheduled to be shut down in 2022, and one that needs to be closed in 2023, continues to operate, gas imports can be reduced by 12 million cubic meters.
Thanks to the implementation of measures such as lowering heating temperatures, replacing gas boilers with heat pumps, and improving the efficiency of thermal insulation of buildings, this information is specified in the general installation requirements from Russia for 50 billion cubic meters, which is equivalent to almost forty years of imports.
Moreover, coal-fired power plants are working instead of gas to generate 120 million kilowatt-hours of electricity, which will save 22 billion cubic meters of gas.
Oil-fired installations can be used to reduce consumption by several billion cubic meters. In total, 80 billion cubic meters can be saved, which is equivalent to almost half of imports from Russia.
Doing everything possible, including the use of coal, nuclear energy and LNG purchases in the US, Qatar and elsewhere, can reduce dependence on Russia, but prices will rise.
Moreover, only a limited number of measures can be implemented in the short term. The IEA and the European Commission have announced that in the medium term, by 2030, it is possible to reduce dependence on gas consumption by 2030.
Rising energy and electricity prices due to reduced dependence
If, for beauty, dependence on LNG purchases in Russia, prices will rise due to the costs of liquefaction and transportation, and the cost will be higher than with gas supplies through pipelines.
Even if instead of consumed gas coal and oil, more than 20% of the coal consumed by the EU and about 30% of the oil consumed today is supplied by Russia. It is impossible without searching for alternative transitions.
Even if new ideas are found, there are fears that electricity prices will rise. When collecting coal and oil, which emit more carbon dioxide than gas, it will be necessary to buy allowances for increased carbon dioxide emissions under the European Emissions Trading System. The cost of this purchase will be added to the cost of electricity.
The price of an emission quota rose from 30 euros per tonne of carbon dioxide at the beginning of 2021 to almost 100 euros at the beginning of 2022, but on February 24, when Russia began military concentration in Ukraine, it began to fall sharply.
Then it recovered a little and as of March 8, it accounts for about 66 euros. One kilowatt-hour is produced on the basis of carbon equivalent to six euro cents. Natural gas-fired power plants also emit carbon dioxide, and this drives up electricity prices likewise.
China will not replace the EU
Even with rising energy and energy prices, the EU is likely intent on reducing fossil fuel imports from Russia to reach zero dependency by 2030 as credibility has been lost and safety is predominantly a priority.
There is an opinion that in this case there will be no problems in Russia, since, as an alternative, exports to China are increasing, but this is not so. China cannot be replaced.
This is due to the fact that the volume of procurement and infrastructure occupy. China is the world’s energy consumer, as well as an accessory and consumer of coal.
Although the growth in coal use has slowed in recent years due to use to limit its association with air pollution and global warming issues, it still requires more than 60% of economic energy.
Energy consumption in China is about seven times that of Japan. In oil equivalent, this is 3.4 billion tons. Due to the increase in imports of crude oil and gas availability has also increased.
China’s crude oil exporting countries are shown in Figure 5 (This and other drawings were found in the original article. – Approx. InoSMI.). Import from Russia is about 15% of the total. If the West stopped buying Russian oil, Russia could sell it on the Chinese market.
Meanwhile, Russia exports 140 million tons a year to Europe, so China is having a hard time replacing all of that. The share of gas imports through pipelines is shown in Figure 6, and the share of LNG imports is shown in Figure 7.
Over 20 years, European countries have purchased 167.7 billion cubic meters of gas through pipelines and 17.2 billion cubic meters of LNG from Russia. China imported 3.9 and 6.9 billion cubic meters respectively.
If European countries stop buying Russian gas, then China, which imports almost as much LNG as Japan can, will “take” part of the supply.
But as far as pipelines are concerned, China and Russia are connected only with the “Power of Siberia”, which transports gas from the birthplace of Eastern Siberia. According to the expected 30-year contract, up to 38 billion cubic meters can be supplied annually.
When President Putin announced in early February that a contract had been agreed for the supply in 2026 of ten billion cubic meters per year from Sakhalin to Heilongjiang province via an underwater pipeline.
The scale of Gazprom in Europe differs from exports to China by an order of magnitude, and there are no pipelines through which gas from the European market could be redirected to China.
Even if a gas pipeline is built, in the short to medium term it is expected that demand will not increase enough to cover all the volumes destined for Europe (projected gas consumption in China in Figure 8).
If Russia loses the European market, China will not be able to replace it. This will be a strong blow to the Russian economy, but Western consumers will not succeed.
Author: Ryuzo Yamamoto