By Michael E. Webber 4 minutes Lily
In December 2006, The Economist magazine published a cover design of Russian President Vladimir Putin, dressed as a 1930s gangster in a dark suit and fedora hat, under the caption ‘Don’t mess with Russia’. Putin was holding a gasoline nozzle, grabbing it like a machine gun. The target was presumably Europe, which was heavily dependent on Russia for oil and natural gas.
The cover story subtitle asserted, “Russia’s habitual abuse of its energy muscle is bad for its citizens, its neighborhood and the world.” Today, this statement still rings true with Russia. cut in natural gas deliveries to Poland and Bulgaria.
Inasmuch as energy specialist who has lived and worked in Europe, I know that gas is a precious commodity that is essential for industries, power generation and building heating, especially in northern Europe where the winters can be rigorous and long. This explains why European countries import gas from many sources, but have become dependent on Russian supplies to keep their homes warm and their economies running.
From oil embargoes to gas cuts
The energy weapon can take many forms.
In 1967 and 1973, Arab countries have halted oil exports to the United States and other Western countries that have supported Israel in conflicts against its Middle Eastern neighbors. The suspension of supplies was a means of inflicting economic hardship on opponents and obtaining political concessions.
Today, an oil embargo might not work so well. Oil is a fungible commodity in a global market: if one source halts shipments, importing countries can simply buy more oil from other suppliers, although they may pay higher prices in spot markets than they do. they would only have done so under long-term contracts.
This is possible because more than 60% of the world’s daily oil consumption is delivered by ship. At all times, a flotilla of maritime vessels is transporting crude oil from one point to another around the globe. In the event of disruptions, ships can change direction and arrive at their destination within weeks.
Therefore, it is difficult for an oil-producing country to prevent a consuming country from buying oil on the world market.
In contrast, natural gas is transported primarily by pipeline. Only 13% of the world’s gas supply is provided by tankers carrying liquefied natural gas. This makes gas more of a regional or continental commodity, with sellers and buyers physically connected to each other.
It is much more difficult for buyers to find alternative sources of natural gas supply than other sources of oil, as the laying of new pipelines or the construction of new natural gas import and export terminals liquefied can cost billions of dollars and take many years. Therefore, gas cuts are felt quickly and can last a long time.
The true cost of buying Russian gas
The dependence of European nations on Russian energy, especially natural gas, complicates their foreign policy. As many observers have pointed out since Russia’s invasion of Ukraine in February 2022, European consumers’ heavy reliance on Russian oil and gas over the decades has financed and emboldened the Putin regime and made European governments hesitant about bad behavior. It is no coincidence that Russia invaded in February, when it is coldest, and European demand for gas for heating buildings is highest.
Since the European gas network spans many countries, the shutdown of gas supply from Russia to Poland and Bulgaria does not only affect these two countries. Prices will rise as gas pressure in pipelines that cross these countries to other nations drops. The shortage will eventually spill over to other countries further downstream, such as France and Germany.
If Europeans can quickly reduce their gas consumption as the heating season draws to a close and gas-fired power plants are replaced by other sources, they can slow the onset of pain. Fuller use of liquefied natural gas imports from shore terminals could also help.
In the longer term, the European Union is working to increase the energy efficiency of existing buildings, which are already effective against American buildings. It also aims to fill gas storage caverns to 90% capacity during off-peak seasons when gas demand is lower, and to increase local production of biomethane – which can substitute for fossil gas – from waste. agricultural or other renewable organic sources.
Building more import terminals to ship liquefied natural gas from the United States, Canada or other friendly countries is also an option. However, creating new fossil fuel infrastructure would conflict with efforts to reduce greenhouse gas emissions to slow climate change.
Ramping up wind, solar, geothermal and nuclear plants as quickly as possible to replace the continent’s natural gas plants is a key priority for the EU. The same goes for the replacement of natural gas heating systems with electric heat pumps, which can also provide air conditioning during the continent’s transition period. increasingly frequent and intense summer heat waves. These solutions align with EU climate goals, suggesting that Russia’s gas cuts could ultimately accelerate European nations’ efforts to switch to renewable energy and more efficient use of electricity.
All of these options are effective but time consuming. Unfortunately, Europe doesn’t have many options until next winter. The outlook is worse for energy customers in poorer regions, such as Bangladesh and sub-Saharan Africa, who will simply go without in the face of rising energy prices.
Will Russia’s cut-off backfire?
While gas supply disruptions will no doubt inflict pain on European consumers, they are also hard on Russia, which badly needs the money. Currently, Putin is ordering “hostile” countries to pay russian energy in rubles to boost the Russian currency, which has lost value under the weight of economic sanctions. Poland and Bulgaria had refused to pay in rubles.
Cutting the gas supply in February would have been costly for Russia and would surely have provoked even more negative reactions in Europe. By using natural gas as a weapon in good weather, Russia can flex its petro-muscles without being too aggressive or losing too much money. The key question now is whether Europe needs Russian gas more than Russia needs revenue from European sales.