Can Europe Survive Without Russian Gas and Oil?
The Middle East and north Africa are flush with natural gas. Asia accounts for almost three-quarters of LNG imports. The EU must take decisive action to promote energy savings while protecting vulnerable households. It must also continue implementing its Green Deal, which includes boosting renewable energy production and energy efficiency and saving. This will ensure a more stable energy supply for Europe, and reduce its dependence on fossil fuels. It should also consider the impact of the gasification project in Russia on energy prices.
These countries have the world’s largest gas reserves, and have the know-how to use that gas for domestic consumption and export. This gas is likely to find a renewed market in Europe and will likely be sold at higher prices. But how can we make this gas a sustainable supply?
The shift away from oil and gas is driven by demographics, economics, and concerns about supplies. Since 2000, the population of the MENA region has grown rapidly, and with the high cost of fossil fuels, the region has struggled to meet its growing demands. Many MENA countries have been forced to rely on expensive imports of fossil fuels in the past, but that hasn’t been enough. In some places, regular blackouts are a crippling experience.
Demand for LNG is growing rapidly in Asia-Pacific, which is a critical source for supplying the region’s energy needs. The region is increasing its consumption of natural gas and liquefied petroleum gas at an average annual rate of 6.6 to 7.8 percent. In 2013, LNG imports from Asia accounted for almost 40% of global imports. China is also a major LNG supplier, with the country importing almost one-fifth of the entire world’s LNG.
Although the vast majority of LNG trade is conducted under long-term contracts, trading on a spot basis has become increasingly common. In the last decade, spot trade in LNG has increased from five per cent to 20 per cent. This is partly due to the fact that some LNG projects do not sell the entirety of their output under the terms of their contracts, and instead sell the excess output on the spot market. This phenomenon is particularly common in the Asia-Pacific region, where traditional LNG importers such as Japan and Korea rely almost exclusively on LNG imports for their natural gas supplies.
The EU must act decisively to support the transition to a clean energy future while protecting its most vulnerable citizens, such as those in Eastern Europe. The EU must prepare smart rationing programmes and ease infrastructure bottlenecks, while also encouraging energy savings. It must also prepare for contingencies and develop policies that support the mutualization of energy supplies. The EU must also ensure that its citizens are protected from Russian gas embargoes, which threaten gas supplies.
The European Commission has the authority to request that member countries take mandatory measures to reduce their gas consumption. Five member states must agree on the measure, and at least five of them must agree on how to meet the goal. The EU must act decisively to promote energy savings while protecting vulnerable households without Russian gas, otherwise the fallout will be asymmetric. The European Commission must act decisively to protect these vulnerable households, but it must also ensure that the EU does not become a nation of gas-dependent states.
The gasification project in Russia is a win-win for all involved. The country will gain political leverage by controlling the price of gas in the regional market and increasing its economic leverage. The EU is projected to import 20% of its energy needs from Russia by 2030. If the gasification project succeeds, Russia will have more consumers to sell to, thus increasing its market share. Furthermore, the project will also bring more economic benefits to the country as more people will be able to afford gas.
Although the EU is unlikely to impose a complete ban on Russian oil imports, it has stated that it will follow the G7’s decision in principle. An EU embargo would cut off half the global economy from Russian oil. However, the Russian government continues to sell hundreds of thousands of barrels of crude per day at discounts to countries like India. Meanwhile, the rise in global benchmark prices has increased the Kremlin’s tax receipts.
