What will be the consequences for global energy supplies of Russia’s invasion of Ukraine?
And can Europe survive without massive imports of Russian gas and oil?
The AEJ’s Chris Cragg has this analysis. Chris is an experienced writer on energy and climate change who has worked for 30 years for FT Energy and other specialist publications.
Can Europe embargo Russian energy supplies?
From Chris Cragg 14 March 2022
It has been suggested that Russia’s hold on Europe’s supplies of oil and gas makes it impossible to embargo them and so force Vladimir Putin to pause or halt his invasion of Ukraine. Oil and gas are the source of some 45% of Russian federal income, so an embargo would greatly increase the impact of existing economic sanctions on its economy. However, the argument runs, the cost to the West would be too high. Gasoline prices would soar and the lights in Germany would go out, while the Poles would freeze to death.
Much as Putin might like it, this is not the case. True enough, there may have to be some fence mending between other significant oil-exporting states and their European customers, and reversing of pipeline gas flows to keep things going and it will also be expensive. But it is not an energy Armageddon. Indeed, Putin might have been better off had he ordered the invasion four months ago at the beginning of winter. Equally, if he had left it for a year or two, his energy ‘weapon’ would have been weaker than it is now.
The oil market
To take oil first, Russia’s Deputy Prime Minister Alexander Novak has warned that we are facing ‘catastrophic consequences’ and $300 a barrel oil. Brent crude, the global marker, is currently at $115. True, it did reach $130 on the 7th March, but then a UAE ambassador remarked that OPEC might help and it fell to $109. It is now roughly where it was in 2014, during the invasion of Iraq.
We are not living in the 1970s. Fracking has transformed a thirsty America into the second largest exporter after Saudi Arabia. In terms of fence mending, both Iran and Venezuela have spare capacity. True, Saudi Arabia’s Prince Bin Salman appears to be a fan of Putin, but oil market share is another matter altogether. Ironically the threat of a revived western deal with Iran over nuclear power is a useful stick with which to beat the Saudis.
There is another long-term factor in all this. The shift towards electric vehicles has yet to show up much in the statistics, which are muddled by Covid. However, there are signs of static motor fuel demand already in places where they are increasingly used, notably the USA. Either way, if investing to build a nest egg for your granddaughter, there are better places than oil to put your money. There are implications for both Saudi Arabia and Russia here, but at least the Saudis have lots of sunshine.
The situation with natural gas is rather more complicated, not least because of its important role in the transition to a greener electricity supply system. To many climate change activists, gas is just another terrible fossil fuel. This ignores two major factors. First, methane (CH3) has the smallest carbon footprint of all the hydrocarbons and thus produces the least carbon dioxide on combustion.
Secondly, when either coal or oil is burnt to produce electricity, it is used to heat water to produce steam, which is sent through a turbine to produce the power. It does this at between 30-38% thermal efficiency, or to put it simply the electricity produced will amount to only about 30-38% of the heat that went into its production.
However, gas is burnt in Combined-Cycle Gas Turbines (CCGTs). The gas is burnt in gas turbines like jet engines. The waste heat from this process goes to heat water, which is then passed through a steam turbine. The net result is the efficiency of power production increases to 50-60%.
CCGTs also have the advantage, especially in the context of the coming “energy transition”, that they can come online extremely fast — within minutes — and have the capacity to follow load on the grid and be highly flexible. That is crucial because when everybody gets up and makes tea with electric kettles in the middle of the cup final, electricity demand triples all at once. By comparison, both oil and coal-fired capacity takes days to get going after being shut down. Equally the power output is difficult to vary. The same is true of nuclear power.
Natural gas is thus the best fuel for balancing the grid as the share of renewables increases, which is why the Germans have been increasing it for power production to the fury of climate change activists. Yet it is simply impossible to run a large power grid on wind and solar alone. The output is just too variable. Naturally Europe could phase out the use of gas for direct heating, but this would require both increased insulation and a huge increase in electricity production.
Is it actually feasible for Germany and the rest of Europe to phase out Russian gas supplies, which were formerly at the heart of 1970s Ostpolitik? Just about. If Russia switched off supply, there is just enough in the European system, via reversed pipelines and additional output in Holland, Norway, the UK and Algeria plus increasing the liquefied natural gas (LNG) shipments into the UK, Spain and France, to keep Polish and German lights on.
Significantly, diversification away from Russian gas supplies has already been going on for some time. In 2021, Russia exported 155 Bcm of gas into Europe. Currently, some 68 Bcm of new LNG terminal capacity is being built or planned in Europe, notably in Germany, Poland, Romania, Estonia and Croatia, to get supplies from elsewhere. This process is likely to accelerate as a result of the assault on Ukraine.
A new energy perspective?
Russia’s actions will undoubtedly give a new emphasis to the shift away from fossil fuel consumption, not least by raising the price. That said, removing oil, gas and coal from global energy requires a truly enormous increase in renewable electricity production for heat and motive power. This is not often recognised by climate change activists.
The three fossil fuels between them accounted for an overwhelming 84% of global primary energy in 2019, and prosperous western countries are the main authors of that dependency. If we aspire to change that dramatically and still maintain similar standards of living across the world to those we now enjoy, we must face huge adjustments to our lifestyles and industrial structures. We should also realise that Asians with 60% of the global population have a per capita energy consumption around a third of that of Europeans. In the grand scheme of things in the great climate change debate, Europe or Russian gas is not really so very important.