Russia-ukraine conflict unlikely Triangle: How eu gas could leave Russia?

Against the backdrop of dramatic changes in the russian-Ukrainian situation, the 27 heads of state government of the European Union held a summit in Versailles palace in Paris on March 10. The location of the conference was symbolic. Versailles was the victorious Allied powers negotiated solutions to the problems caused by the first World War, which ended on January 18, 1919.

One of the big issues at the EU summit is how to wean the eu off energy dependence on Russia. European Commission President Ursula von der Leyen said in a post on social media after the meeting that the EU should stop using Russian fossil energy by 2027, a detailed plan to achieve this goal will be presented to the Commission for discussion in mid-May.

The United States will work to provide the EU with an additional 15 billion cubic meters of liquefied natural gas (LNG) in 2022 to help wean the bloc off its dependence on Russian energy supplies, the United States the European Union said on March 25. U.S. President Joe Biden European Commission President Ursula von der Leyen also announced a plan to set up a working group to ensure that EU member states receive at least about 50 billion cubic meters of additional U.S. LNG annually by 2030.

For EU countries, the issue of "de-russia" in energy supply is new. European concerns about Russia's energy dependence focus on the gas sector, given the diversity of oil supplies, ease of transport storage, the limited infrastructure of gas trade (pipelines LNG export terminals, dedicated shipping vessels, import terminals).

A 2008 study by the George Marshall Center for European Security Studies, for example, concluded: "Based on Russia's future is uncertain, Russia have been systematically restructuring Europe's gas market, production to the downstream distribution of the whole network into its state-controlled agent - Russian gas company (Gazprom), hope to get such a monopoly the goodwill of the entity is realistic."

In fact, after the collapse of the Soviet Union, the EU's pursuit of "energy transition" can be described by a "four-cornered stool" -- one corner is the diversification of natural gas sources (Russian gas accounted for 41% of eu imports in 2021); Another is to reduce the proportion of Ukraine as a transit point for Russian gas into Europe; The third part is the process of stabilizing the import of Russian gas the perspective of international law through the establishment of the Energy Charter Treaty. The fourth is to vigorously develop renewable energy such as wind solar energy, which will only increase local supply but also create a new energy industry chain.

Ukraine is a major transit country for Russian gas to Europe, the construction of natural gas pipelines in Ukraine dates back to 1912. In the 1970s 1980s, Ukraine's gas transit system was developed as part of a network of gas exports the former Soviet Union to Europe. After the collapse of the Former Soviet Union, conflicts between Russia Ukraine over the sale transit of energy continued, led to the first "gas depletion" crisis in 2005. European end-users suffer in terms of both gas consumption price volatility.

In September 2015, construction began on nord Stream 2 gas pipeline project controlled by Russia's Gazprom, with a designed annual transport capacity of 55 billion cubic meters. This is the parallel of Nord Stream 1, which went into production in 2011. Under the Baltic Sea, the Nord Stream pipeline will carry Russian gas directly to Germany, it is consumed, bypassing Poland, Ukraine other eastern European countries entirely.

In December of that year, the U.S. government lifted a 40-year-old ban on U.S. oil exports, exempting companies to apply for a license to export crude. One of the reasons for lifting the ban is that infrastructure bottlenecks export bans have led to swelling U.S. shale oil inventories, which at one point saw domestic crude prices trade at a $25 discount to global benchmark oil prices. The move follows several years of mounting calls oil producers to repeal the export ban. Europe, Asia Latin America are seen as potential export markets for US crude.

Nord Stream 2 was due to be completed by Dec. 31, 2019, which coincides with the expiration of a gas transit agreement between Russia Ukraine. But earlier this year, the United States began discussing sanctions against companies involved in the program. Trump made that clear to the visiting Polish president in June: "Russia gets billions of dollars Germany while we protect them." Since then, the United States has repeatedly imposed sanctions against companies involved in nord Stream 2's construction.

Today, the pipeline has been built. Although the pipeline is a private energy service project, in November 2021, Germany's Federal Network Authority suspended nord Stream 2's certification required the operator's corporate structure to comply with German law. On February 22, 2022, the German government announced that it had stopped approval for the operation of the controversial Nord Stream 2 gas pipeline.

Despite much planning, the United States Europe still face many challenges in jointly realizing the "de-Russia" of European natural gas imports. One challenge is that, although in recent years, the United States exports to the eu's LNG has been increasing, the output of about 22 billion cubic meters in 2021, the current U.S. LNG plant has full capacity, if you want to fulfill its promise of gas to Europe, extra must change already arranged to export to other countries (including China) market arrangement.

The second challenge is competitive pricing, which is a huge problem for US LNG in Europe. Although the Us has increased its political diplomatic efforts to persuade the EU to import more US LNG under the Trump administration, the lucrative markets for US LNG have always been South Central America, India Northeast Asia. In Europe, Russia Norway account for most of the gas market due to plentiful supplies relatively low prices.

In other words, already-high European gas prices will have to rise further to attract LNG already contracted for export by U.S. energy companies to the EU. Even if 15 BCM the US is achievable in 2022, it is still far replacing Russian gas imports. The EU imported about 155 billion cubic meters of gas Russia in 2021.

The third challenge is that it will take time for the US European markets to improve their LNG trade alignment. The U.S. 's own LNG export terminal development builds on long-standing trade agreements already in place. Between implementing existing agreements implementing new supply targets to Europe, US companies must follow market-based trading rules. The LNG import infrastructure of European countries has been mainly built by pipelines. During the Trump administration, the United States urged the EU to increase funding to accelerate the construction of LNG ports. But it usually takes two to three years to build a new LNG import facility, the pipeline network the port to the customer needs to be reconfigured. These are all predictors of investment needs affordability.

To observe whether the EU's energy "de-Russia" ambition can be realized, we should only look at the changes in the geopolitical game at the government level, but also note that the leading companies in global oil gas production are involved in the Russian energy market. According to a report by Reuters on February 28, 2022, 12 energy companies eight countries, namely the United States, The United Kingdom, Germany, France, Italy, Austria Norway, invest operate in Russia. Chevron, ExxonMobil, Halliburton, BP, Shell, BASF, Total, Engie (France), Eni (Italy), Uniper(Germany), OMV(Austria), Equinor(Norway) other global energy technology services market operators are included in the list. Under the situation of great changes in the political diplomatic pattern of Russia by the United States, the European Union NATO, these enterprises have the obligation to implement the sanctions imposed by their home country government on Russia, but they are also constrained by factors such as the demand for investment return in the international capital market the geological commercial space for enterprises to expand their business in markets of other countries in the world. The economic laws of the evolution of the global energy industry are still playing a role of leverage.

That is to say, the current international energy political situation is clear, the EU is determined to achieve the goal of "breaking away Russia" natural gas, but its specific pace is restricted by multiple factors. How to simultaneously ensure adequate supply, affordable consumer prices, the competitiveness of energy enterprises in the global industrial chain is a common challenge facing European American countries. In some ways, this is almost an impossible triangle -- Europe the US need new sources of supply if they are to secure supplies without Russia. In terms of global natural gas production capacity, Qatar Algeria are a few countries with room to increase production, but they cannot replace Russia's current supply to Europe in the short term. policy-based compression of imports is bound to transmit economic pressure to Z end-users; Controlling consumption increase through "rationing" is contrary to the pursuit of stable economic social development. Whatever the reason, the basic model of economic sanctions should be to avoid hurting yourself but hurt your opponent.

For those energy enterprises in Russia, Europe the United States, their coping strategies do have options such as reduction, transfer withdrawal of investment in Russian projects. After the war ended, however, the companies' home governments needed them as a conduit for economic political influence in Russia's aftermath. Moreover, no matter how the war ends, Russia's identity as a sovereign state will change. Therefore, these enterprises must also judge their specific behavior options the perspective of the new market access conditions they may encounter in "re-entering Russia".

In short, how the EU its member States balance their geopolitical aspirations (diversification of gas supply sources) with the current challenge of the impossible Triangle is a serious challenge only for the parties directly concerned but also for the wider global gas industry. Especially against the backdrop of COVID-19, the recovery of global economy trade is still optimistic. How to cope with the challenges maintain the stability of the global energy economy will indeed test the political wisdom of all parties concerned.

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Source: Thepaper.cn

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