The war in Ukraine changes the geopolitics of energy | Kiowa County Press

A woman holds a bloodstained portrait of Russian President Vladimir Putin during a protest at the Russian consulate in Montreal on February 25, 2022. Andrej Ivanov/AFP via Getty Images

Scott L. Montgomery, University of Washington

Russia’s war against Ukraine will profoundly change the global energy landscape and its geopolitics. Pieces of this terrain have already begun to shift.

Like the world leading combined oil and gas exporter, Russia maintains direct energy relations with more than two dozen European countries, as well as with China, Japan, South Korea, Vietnam and others. If coal exports are added, a dozen more countries, including India, are involved. Russia has used these exports as political leverage since Soviet times.

But invade Ukraine in violation of international law made Russia a pariah. Its energy customers are not only concerned about sanctions; most are rethinking their dependence on Moscow itself. They see supermajors like BP, Shell, Equinor and ExxonMobil leave Russiapotentially giving up billions of dollars of assets, after decades of investment.

Other Russian relations may also be in trouble. Since 2016, Moscow has partnered with OPEC, the global cartel of oil producers, to control global oil supply and prices against competition from shale production in the United States. This so-called OPEC+ partnership has had some success – but now, with sanctions forcing Russia into financial isolation, its future is uncertain.

The most pressing problem is Europe, Russia’s main market. Russian President Vladimir Putin clearly thinks his country’s exports are too big to sanction and make Russia’s energy sector too valuable to attack. In my opinion, he is, at best, partly right.

Indeed, in addition to the exodus of international oil firms, there has been a massive withdrawal of investor support for Russia’s own energy companies. This suggests that the private sector is doing some of the sanctions work itself. In any case, Putin’s strategy will also fail for other reasons.

Four men in suits spin a wheel, symbolically opening a pipeline
From left, Bulgarian Prime Minister Boyko Borisov, Russian President Vladimir Putin, Turkish President Recep Tayyip Erdogan and Serbian Prime Minister Aleksandar Vucic attend an inauguration ceremony for the new “TurkStream” gas pipeline in Istanbul on January 8, 2020 . Ozan Kose/AFP via Getty Images

By leaving, Western energy companies will deprive the Russian energy sector of much-needed capital and expertise. Italy has freeze a loan for a new natural gas export terminal in the Russian Arctic. And in the longer term, the war in Ukraine has given Europe a kick transition away from fossil fuels – especially Russian oil and gas – into high gear.

Replacing Russia: Oil Options

In the short term, Russian oil will be difficult to replace for its European customers. But options exist. For oil, three stand out.

– Restore the Iranian nuclear agreement, a foreign policy priority for US President Joe Biden. Reviving this agreement, which offered Iran economic sanctions relief in exchange for limiting its nuclear activities, would allow Iran to add 1.2 to 1.5 million barrels of oil per day in the global market this year.

Iran is already load tankers in anticipation of what is happening. Not all of this oil would go to Europe, but only half could replace up to 30% of Russia’s imports from Europe, which currently total around 2.4 million barrels per day.

– Increase US oil production and exports. This is already happening in response to prices above $90 a barrel. But companies have moved cautiously, seeking to avoid oversupply that could trigger a price crash and possibly even bankruptcies.

Federal regulators could speed up production increases by offering tax or royalty breaks for wells located on federal lands. Based on recent history, I estimate that US production could increase by 1 million to 1.2 million barrels per day over the next 12 months. Depending on the amount destined for Europe, this could displace an additional 30% of Russia’s oil from Europe.

– Put pressure on Saudi Arabia to increase its production. This did not work so far, but the war in Ukraine could change things. Estimates suggest that the Saudi-led OPEC has between 3.7 million and 5 million barrels per day available excess oil production capacity. An increase of 1.5 million barrels per day could offset another 40% of Europe’s dependence on Russia.

Since fall 2021, OPEC restricted production while claiming to have increased its production. This strategy seems designed to keep prices high and not irritate Russia. OPEC’s calculus could change, however, given Russia’s sinking status and the fact that persistently high prices are creating demand for alternatives to oil.

Options for natural gas

Europe is more dependent on Russia for natural gas than oil, but options exist here too. As recently as 2019, Russian gas deliveries to the European Union and the United Kingdom averaged around 16 billion cubic feet per day, mainly by pipeline.

Then Gazprom, Russia’s state-owned utility, began to cut supplies, causing an energy shortage in Europe. Russia aimed to pressure the EU to certify the new Nord Stream 2 natural gas export pipeline and to deter energy sanctions.

To help ease the crisis, American companies have sent 60 shipments of liquefied natural gas across the Atlantic. Absent an unexpected cold spell, Europe now has enough gas in reserve to carry it out in the spring without relying heavily on Russia. In the meantime, help could come from inter-EU electricity exporters, if they are able to redirect electricity to neighbors particularly dependent on Russian gas.

World Bank President David Malpass outlines options for replacing Russian natural gas exports within five years.

Given its natural gas contracts in Asia, the United States does not have sufficient peak export capacity to replace supply from Russia. But more is to come: surge capacity in the United States is called to rise to 13.9 billion cubic feet per day in 2022 and 16.3 billion cubic feet per day by 2024.

Growth plans also exist elsewhere. Qatar aims to elevate its capacity substantially by 2027. Newly expanded gas reserves in East Africa, Papua New Guinea and the Eastern Mediterranean will secure new liquefied natural gas export terminals.

None of this bodes well for Russia, which sends 70% of its gas exports to EU countries. In the future, European governments could use the tariffs to increase the price. Meanwhile, although China has signed new oil and gas deals with Russia, Beijing’s leaders are not about to become servants of Putin’s energy plans. Instead, I expect the Chinese to continue to greatly expand their energy dependence.

Long-term energy security through decarbonization

The war in Ukraine has galvanized support for EU policy acceleration European Green Deal. This huge project aims to make the continent climate neutral by 2050 by placing climate concerns at the center of energy policy.

Approved in 2020, it includes a package of measures called “Clean energy for all Europeans“, designed for member countries to enact into legislation. The plan covers all major areas of energy use, from buildings and energy efficiency to electricity markets, with a strong emphasis on l focus on shifting to zero-carbon and low-carbon sources.

Battles over national energy choices have slowed progress so far. Howls rose from some observers in 2021 when the EU agreed to categorize nuclear energy as “clean low-carbon energy” France, for its part, recently announced its intention to build 6 to 14 new advanced reactors to improve its energy security and maintain its low-emission status.

In my view, the EU needs to move more aggressively with non-carbon sources, including renewable energy, nuclear energy and green hydrogen. Decarbonisation offers a path to energy security and can benefit from Europe’s newfound unity in the face of war.

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Scott L. MontgomeryLecturer, Jackson School of International Studies, University of Washington

This article is republished from The conversation under Creative Commons license. Read it original article.

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