Page 7 - FSUOGM Week 10 2022

FSUOGM COMMENTARY FSUOGM

case, the new country will need a functioning
economy to be able to survive without Kremlin
handouts, and having extensive gas storage facil-
ities is an obvious bonus for any economy.
The EU is clearly highly concerned by a pos-
sible disruption to gas supplies. British Prime
Minister Boris Johnson said in a speech on
March 7 that Europe needs to “rapid diversify
away from Russian hydrocarbons” and German
Chancellor Olaf Scholz has ordered Germany’s
first two LNG terminals to be “rapidly” built. But
clearly it will take years and billions of euros to
reduce Europe’s reliance on gas from the current
40.1% of its energy mix.
Indeed, as bne IntelliNews reported in a fea- And Europe lacks the terminal capacity
ture “V-shaped market” about the causes of last to take in much more LNG. The total annual
year’s gas crisis, domestic production inside the import capacity in Europe is 156 bcm of LNG
EU has fallen dramatically in the last few years, gas equivalent, much of which is already being
so dependence on Russian gas has been increas- used, before trying to add another 200 bcm per
ing. In 2020 the EU imported well over half its year of imports to replace Russia’s export of gas
energy (57.5%), including 97% of all its oil and to Europe.
83.6% of gas and 35.8% of its solid fossil fuels, Moreover, the biggest LNG terminals are
from countries around the world. Russia remains in Spain, but Spain’s connection to the rest of
one of the biggest suppliers of those fuels. Europe’s pipeline grid is limited, because it relies
The new Green Deal is supposed to solve so heavily on LNG imports and does not tap into
this problem but the plan has another 28 years the Russian piped gas that fills most of Central
to run and the EU is looking at how to head off Europe’s pipeline network.
a huge energy crisis that could begin in only six The final option to wean the EU off Russian
The price of gas months time. There is not enough time to make gas is to reduce energy consumption. The Energy
any changes that will have any noticeable effect Efficiency Directive has a target of reducing
on the Dutch on energy supplies before this October, when the energy consumption by 32.5% by 2030, but that
TTF spot market next heating season starts. Much progress has is still eight years away and there are no quick
been made building up renewables, which now fixes that can make a substantial change in the
soared to a new account for 22.1% of the mix, but doubling that meantime.
capacity in six months is not feasible, and Europe
There is little talk of banning Russian gas
all-time high of would even in that case still need gas to deal with imports, as currently there are no alternatives;
the “base load” problem – providing energy at imports of Russian gas are simply too important.
over $3,000 per night and when the wind doesn’t blow. There has been talk of banning Russian oil
The Ukrainian route has been falling in imports and there the situation is slightly bet-
thousand cubic importance. It carried 60% of the deliveries to ter. The international oil market is much more
metres on March the EU in 2009, but fell to 25% in 2021 after rela- developed and the transport infrastructure
more extensive. The share of Russian oil in EU
tions with Ukraine sank to rock bottom. Signif-
7. icantly more gas has been arriving in Europe via imports is 26.9% according to the EU from 10
the new South Stream (or TurkStream) pipeline other significant suppliers, so cutting off Russian
that came online at the start of 2020 and another oil is realistic. But as Russian exports are by the
55 bcm of gas deliveries are available via the same token equally well diversified, this sanc-
controversial Nord Stream 2 gas pipeline, which tion will not have a major impact on Russia’s oil
would solve the problem at the turn of a spigot, export business. Moreover, imposing sanctions
but the recent round of sanctions has made the like these will boomerang back and hurt EU pro-
idea of turning Nord Stream 2 on impossible. ducers by causing supply constraints and send-
The EU is currently revising its rules in prepa- ing costs of energy soaring.
ration to build a “strategic gas reserve” facility to “The stability of the EU’s energy supply may
store extra gas for times of crisis, but work on this be threatened if a high proportion of imports
facility has not even passed the concept stage of are concentrated among relatively few exter-
planning. nal partners. In 2019, almost two thirds of the
LNG is not an option either, as there is sim- extra-EU's crude oil imports came from Rus-
ply not enough LNG being produced to replace sia (27%), Iraq (9%), Nigeria and Saudi Arabia
the Russian supplies of gas. Europe imports a (both 8%) and Kazakhstan and Norway (both
total of just under 200 bcm a year from Russia, 7%). A similar analysis shows that almost three
if the South Stream deliveries are included with quarters of the EU's imports of natural gas came
the northern and Ukraine routes, which is the from Russia (41%), Norway (16%), Algeria (8%)
equivalent to a third of global LNG production. and Qatar (5%), while over three quarters of
Removing that amount from the global mar- solid fuel (mostly coal) imports originated from
ket at a stroke would cause an energy crisis in Russia (47%), the United States (18%) and Aus-
Asia, which is heavily reliant on LNG. Qatar, the tralia (14%),” the European Commission said on
world’s biggest producer of LNG, estimates that its website discussing the problem and admitting
only 15% of its production could be repurposed that the EU remains highly dependent on Russia
to different markets. for much of its energy. ™

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