BarcelonaRussia’s invasion of Ukraine has once once more brought to the fore the geopolitical importance of oil and gas, which have become virtually another weapon of war. A fact already seen in other conflicts, especially in the Middle East, but which puts on the table once more the weakness of Europe in terms of energy. The keys must be sought in the slow ecological transition, which in a global world places the Old Continent in a situation of great dependence.
Europe and the United States have not hesitated to sanction Putin for this war, trying to financially drown his regime with measures such as the exclusion of the Swift – the global interbank system -, the freezing of its foreign reserves and the mass withdrawal. of Western companies operating in Russia. But Vladimir Putin has an ace up his sleeve: his oil and his gas. “It is a very important weapon, between 35% and 40% of the energy of the European Union comes from Russia,” says Xavier Ferrer, chairman of the International and EU Economic Commission of the College of Economists of Catalonia. To understand this situation we need to answer some questions:
Energy sources
Gas and oil still provide more than half of the energy
Despite large investments in zero-emission and renewable energy, the fact is that oil and gas – and even coal – play a predominant role in the global energy mix. Between crude oil and natural gas, they contribute almost 56% of all the world’s energy. And European production from these two energy sources is minimal, while Russia ranks second on the world podium in gas and oil extraction.
According to the World Bank, Russia owns 30% of the world’s natural resources, especially oil, natural gas and precious metals. With a GDP of 1.3 trillion euros, only oil contributes 8% of the total. In addition, Vladimir Putin’s country has 27.8% of the world’s gas reserves (regarding 47,572 million cubic meters). In other words, a quarter of the world’s gas production is from Russia and the country has reserves to maintain this rate for 60 years. Russia has a “seemingly healthy economy, but it is not diversified, as 30% depends on energy,” says Xavier Ferrer.
The world’s leading oil producers
In millions of barrels a day
The world’s leading producers of natural gas
and BCM
Nevertheless, Russian energy companies are not on the world podium, among other things because they sell subsidized oil and gas in the domestic market. Among the world’s largest oil and gas companies, Gazprom is eighth, Lukoil ninth and Rosneft tenth. None of them have a turnover of more than $ 100 billion, and they have energy giants such as the Chinese Sinopec and PetroChina, or the Western Black Gold Exxon, Royal Dutch Shell, BP, Total and Chevron.
Europe, captive
More than half of the EU’s energy depends on third countries
Eurostat makes it clear. The trend in the European Union is an increase in the energy dependence of third countries. 58.2% of total energy in the EU is bought abroad. And dependence is especially severe in the case of gas.
Origin of oil and natural gas imports from the EU
As a percentage by state
Within this European energy dependence, the Russian contribution is poorly replaced. In the case of oil, Russia is the largest European supplier, with almost 30%. Russia’s dependence is even worse in the case of gas. 41.1% of this hydrocarbon consumed by Europe comes from the Russian Federation. Replacing them with other suppliers is also very difficult, and there is an added difficulty: Russian gas enters Europe largely through pipelines. Replacing this supply with other sources would force Europe to import liquefied natural gas (LNG), ie gas that is transported by ship and requires regasification infrastructure. LNG is much more expensive than gas transported by pipeline, as it must be liquefied at source, shipped, and regasified at the destination. 25% of regasification plants in Europe are in Spain, but the poor energy interconnection of the state with the rest of the EU makes it very difficult to increase the amount of gas that can be injected from Spain to the rest of Spain. the EU.
“Stopping importing gas and oil from Russia would plummet the country’s GDP, and the people there would rethink many things,” said Victor Ruiz Ezpeleta, a professor at the EAE Business School. The big problem is that Europe cannot break Russia’s dependence overnight. To give you an idea, the European plan to decarbonise energy by 2050 envisages investments of one trillion euros. In addition, the whole economy and transport would have to be electrified so as not to depend on gas and oil.
The US advantage
Biden may be allowed to ban importing energy from Russia
While European dependence on Russian gas and oil is preventing the EU from taking embargo measures to further drown Vladimir Putin’s regime economically, the United States has already taken concrete action and banned Russians from buying oil and gas. U.S. President Joe Biden has a significant advantage over his European partners in taking such action. The US is a producer of oil and gas. In fact, their reserves might be supplied, even though they buy energy from other countries. Its dependence on Russian oil, less than 8%, is residual. In addition, they can supply Russian oil and gas with more of their own production.
This is possible because they use the fracking. When oil became cheaper, many companies fracking they went bankrupt because the extraction that this system uses is only profitable if the average price of a barrel is above $ 46. With the current rise in price – a barrel of crude oil above $ 100 – oil and gas extracted with this system are more than profitable. According to consulting firm Primary Vision, last year there were 167 drilling rigs fracking and by now they have risen to 264.
The role of OPEC
A price increase due to geopolitical uncertainty
OPEC (the Organization of the Petroleum Exporting Countries) is a cartel that has played on prices in previous oil crises. “Now, however, the price is driven by uncertainty, not by a question of supply and demand,” says Joaquim Daura, vice president of the Energy Efficient Cluster of Catalonia. Faced with the situation in Ukraine, agencies such as the International Energy Agency (IEA) have called on producer countries to increase extraction to help moderate prices.
But for now, the so-called OPEC +, which are OPEC partners plus some countries that are not in the cartel acting in a coordinated manner – including Russia – has decided to increase production by only 400,000 barrels per day. OPEC + produces regarding 40% of the world’s oil.
If what the leaders of OPEC + agreed to in their last teleconference are fulfilled, the production of these countries should be 41.698 million barrels per day. With the distribution of these countries, Russia has a production of just over 10 million barrels per day. A production that might be affected if the US embargo persists and if other countries look for other suppliers because, in addition, the exclusion of Russian banks from the Swift makes it difficult for Russian producers to pay for this oil.