There are already sufficient grounds to assume that Europe will indeed gradually abandon Russian energy carriers. Only the rates and volumes of failure can be discussed, which will depend on the new level of mutual trust that has been formed. In any case, there are no quick solutions here, even in the oil sector – it takes months and somewhere years. And in the gas sector we are talking about years and decades. In turn, our country will reorient its oil and gas supplies to the east.
At the same time, there are two motivations for abandoning Russian energy carriers. The first, officially declared, is sanctions. But since these supplies will eventually be redirected, the effect of such sanctions is limited, although they make life difficult for both sides. The second, and perhaps no less compelling reason is the fear of Europe itself being too dependent on Russian energy carriers, which becomes especially critical when relations deteriorate.
Here, however, it is possible (although not necessarily) that a curious paradox will work. Those supplies that are easiest to re-place can partially be prese-rved for a long time. Pre-cisely due to the fact that in the event of any force ma-jeure it will be easy to refu-se them. And, accordingly, vice versa. Charcoal is the easiest to replace. Next comes oil – it is relatively easy to replace sea supplies here (they predominate), more difficult – pipeline.
That is, for bulk (oil) and bulk (coal) products, in case of refusal, an interchange will occur when Russian supplies go to other markets, replacing the volumes that used to go to these non-European markets, and will now be sold to Europe.
True, second-order effects already appear here. For all participants, these are additional transportation costs. In addition, for our country, as we see, there are problems in the oil sector with calls to ports, freight, insurance and other technical issues that will eventually be resolved. But for now, all this may lead to a temporary decrease in export volumes or to the need to provide buyers with a discount to the exchange price of oil. Of course, this whole scheme of geographically inefficient exchange will lead to a shortage of the tanker fleet and additional energy costs (and, by the way, carbon dioxide emissions – if it matters to someone) – due to longer transportation.
Everything is more complicated with gas than with oil and coal. Numbers first. According to the Internat-ional Energy Agency, last year the EU imported 140 billion cubic meters of gas through pipelines and 15 billion in the form of LNG. In total, this is 45 percent of imports and 40 percent of consumption. These figures are lower than Gazprom’s yet-to-be-published non-CIS export statistics, as they include Turkey and Serbia. Including these countries, we can expect about 170 billion of total gas pipeline exports in the western direction.
In any case, at the end of 2021, we see a rather low volume of exports to Europe. This is due to the fact that in the fall Gazprom began to reduce the volume of supplies, as well as a drop in demand due to high gas prices. Leaving aside the atypical coronavirus year 2020, Gazprom has traditionally exported about 200 billion cubic meters of pipeline gas alone to the far abroad to the west. Now, however, Europe is claiming a further decline in imports from an already low 2021 base.
The easiest way for Europe is to replace Russian LNG. Here you can draw analogies with oil – in the sense that the parties will simply “exchange supplies.” For example, Qatar, which has recently been sending more and more volumes to Asia, can move part of the supplies to Europe, since the transport shoulder is comparable, although you will have to pay fees for passing through the Suez Canal. Company ” Yamal LNG “”But it has a minimal transport shoulder with the European market. But there is good news here: if we still see the redirection of Yamal LNG to Asia at least in the summer, then here we should expect the activation of the use of the Northern Sea Route (NSR) in the east direction. In winter, for now it will be necessary to move around, along a long route in a western direction, but in a few years (with the completion of the necessary icebreakers), year-round use of the NSR can be expected, for this it will be necessary to form caravans from ships in order to effectively use the possibilities of icebreaking assistance.
Finally, the most difficult thing for both the EU and us is gas pipeline supplies. It will not work here to exchange volumes, as with oil. And the entire volume of other global supply, in fact, has already been divided between consumers. Therefore, now attempts to replace Russian gas, “vacuuming” free LNG from the market, lead to the fact that with each additional cubic meter, tension and prices in the global gas market will only increase. Accordingly, Gazprom will sell reduced volumes of gas to Europe at ever higher prices.
And in this case, what should Asia do without LNG? We will have to increase coal production, which China has already begun to do, although this is not the best option. After all, then we will have to roll back several years of environmental successes, and not an abstract climate agenda, but the solution of specific problems with air quality in large cities. And in many Asian countries, new gas generation was initially built only for the use of LNG.
One way or another, Europe will take some steps to reduce demand for gas, a lot of plans have already been announced. A little bit of everything: energy efficiency, RES, again coal and, of course, “do not forget to lower the temperature in the apartment.”
But the main thing now is what will happen in five years, since around this time it is possible to get LNG from new plants that are not taken into account by the market. A possible answer to this question is in the agreement on European energy security signed on March 25 by the US and the EU.
According to this document, in 2022 the United States will increase the volume of supplies to Europe by 15 billion cubic meters. But from what base the countdown and due to what resource this will be done remains unclear, which even observers who support Europe in refusing Russian gas admit. Therefore, the main thing is an additional 50 billion cubic meters until 2030, this is new and, what is important, guaranteed American LNG, which will not have to be bought from the market, as is happening now.
In a recent article, we discussed in detail why Europe did not bother to get guaranteed supplies from the USA earlier.
Let us briefly recall: the reason is the EU’s unwillingness to abandon pricing based on European gas exchanges. But this did not suit American manufacturers.
And now – the signed document directly states that the EU is ready to accept pricing for LNG on American principles, that is, with reference to domestic US gas prices. How, in fact, it works for all other buyers.
Let’s summarize. By the sum of the factors, we may indeed see a decrease in Russian imports this year and in the medium term. But the main and unpredictable factor in demand for gas remains – the weather, which can both help the European Union realize its efforts, or, on the contrary, completely cross them out, and the volume of demand for Russian gas will even exceed the volumes of last year.
In the long term, fifty billion cubic meters can be expected to be replaced by US LNG. But even before all the new problems, Russia planned to build Power of Siberia-2, where, unlike Power of Siberia-1, the resource base is the reserves of Western Siberia and Yamal, which are now going to Europe.
Now, of course, all these processes will speed up, at the end of February, Gazprom has already signed an agreement on the design of this gas pipeline running through Mongolia to China. By the way, by coincidence, the capacity of the new pipe is the same 50 billion cubic meters.
Of course, these are additional costs. But Gazprom is greatly helped by the current situation. More recently, $300 per 1,000 cubic meters was considered a very good price for Gazprom in the EU. Let’s say that in the current year the average selling price will be $500, such a scenario is quite probable. Selling, say, 150 billion cubic meters at a markup of $200 on top of a good standard price is an additional $30 billion in revenue!
Of course, part of it will go to pay duties, taxes and other expenses, but even for an amount comparable to one year’s additional profit, you can build a new gas pipeline to China that will last for decades.