Gas shortages Push the speed button for Europes energy independence

At present, many countries in the world are stepping up efforts to promote the energy transition in accordance with the commitments of the Glasgow Climate Convention to achieve the goals of the agreement. But the outbreak of the Conflict between Russia Ukraine has created huge uncertainty in global fossil energy markets, particularly for natural gas. Gas is becoming a flashpoint in current tensions as Europe's key route to reducing carbon emissions.

The rise fall of the market position of energy powers

As an important member of THE "OPEC+" alliance Z, Russia has a pivotal position in the international energy market, which is mainly reflected in three aspects: First, Russia occupies a high proportion in the world energy trade. According to bp Statistical Yearbook of World Energy (2021 edition), Russia exported 260 million tons of crude oil in 2020, accounting for 12.3 percent of the global total. The net export of refined oil products was 110 million tons, accounting for 9.7% of the global total. Net exports of piped natural gas amounted to 186.7 billion m3, accounting for 24.7% of global exports. Exports of liquefied natural gas (HEREINAFTER referred to as "LNG") reached 40.4 billion m3, accounting for 8.3% of global exports; Coal exports were 5.7 argles, accounting for 17.8% of global exports. Second, the EU is highly dependent on Russia for energy. According to BP Statistical Yearbook of World Energy (2021 edition), among the fossil energy exports Russia to Europe, crude oil, refined oil, pipeline natural gas, LNG coal account for 29%, 38.9%, 37.5%, 15% 50.2% of Europe's imports respectively, indicating Russia's indispensable important position in Europe's energy supply. Third, Russia's fossil energy has a high influence in the Asia-Pacific region. Russia exports coal LNG mainly to China, Japan South Korea, crude oil mainly to China, reaching 84.3 million tons in 2020, accounting for 15 percent of China's imports.

The impact of the current situation on the global energy market is mainly reflected in the following aspects:

First, global energy cooperation trade risks have risen sharply. In the context of conflicts, the instability of trade has led to an overall increase in energy prices. At present, the international crude oil price has returned to the high level of around $110 / barrel, while the prices of natural gas coal have risen simultaneously, the instability of the international energy market has significantly increased.

The second is Europe's search for new alternative energy sources Russia's marginalization the market. Global energy flow pattern began to adjust, the United States, Australia, the Middle East other places began to increase energy supply to Europe, although it is impossible to completely replace Russia's energy in the short term, but the long-term trend has been irreversible, the United States the Middle East in the international oil gas market further rise.

Third, Russian energy is forced to seek eastward export, but it is difficult to have a big breakthrough in the short term. Large countries such as China India have the potential to receive more Russian gas, but new increases will be limited in the short term due to infrastructure such as pipelines terminals. Japan South Korea are near peak gas consumption, with limited new growth, with their strategic proximity to the US Europe, both countries have little incentive to import gas coal Russia are likely to try to increase imports other sources. Fourth, the development of alternative energy such as new energy will accelerate. As Russia's energy exports to the west are blocked, it will take time for Russia to expand its energy exports to the east. During this period, the transformation of the global energy structure under the guidance of carbon neutrality will accelerate, Russia's fossil energy may face isolation the world's major energy markets.

Natural gas supply is tight has limited impact on low-carbon energy transition

Of the three fossil energy sources, oil, gas coal, the conflict between Russia Ukraine has a huge impact on the gas market. This is because natural gas transportation mode is relatively single, mainly pipeline transportation, adjustment is difficult; The stable supply of natural gas has a great impact on the end users such as residents, which directly affects the social stability of the importing country. Natural gas is an important support force for low-carbon energy transformation, which directly determines the success failure of transformation. Therefore, the operation of the natural gas market has become a hot issue in the international energy market recently, the international community is generally concerned about the prospect of natural gas supply demand the low-carbon energy transition process. But the reality of how the international gas market works may be so gloomy.

According to the "2021 Domestic International Oil Gas Industry Development Report" released by CNPC Economics Technology Research Institute, the global natural gas demand will return to the average growth rate of the past 10 years due to the impact of factors such as the expected global economic downturn the continuous promotion of carbon emission reduction policies. The worsening situation in Eastern Europe in 2022 has heightened fears of tighter gas supplies in Europe the expiry of contracts for 13 BCM of Russian pipeline gas to Europe, which accounts for less than 8.3% of Europe's imports Russia. At the same time, the INCREASE of LNG production in the United States, the use of spare capacity in Europe various measures to ensure supply can basically achieve a balance between supply demand of natural gas. On this basis, if Germany other countries take the initiative to reduce the import of Russian natural gas, although it will further aggravate the supply burden of the natural gas market outside Russia, it is estimated that the overall shortfall will be too big.

The recent high price of natural gas will have a certain impact on demand, but in the long run, the market will play a role in regulating supply demand, the demand of all countries will be better satisfied. At the same time, countries greatly affected by the event have actively proposed that it will affect the low-carbon energy transition process. For example, in adjusting energy structure, European countries represented by the UK still adhere to the principle of net zero emissions, which shows that carbon neutrality has been a common consensus among European countries. At the same time, world powers such as the United States China are also sticking to their goal of becoming carbon neutral. Therefore, the tight supply demand of the natural gas market caused by the Russia-Ukraine conflict will have a limited impact on the global low-carbon energy transition process.

In addition, in the short term, it is ruled out that some countries in the face of the "urgent" energy demand the "stagnation" of supply adjustment, in order to deal with the imbalance return to coal, but this will become a trend of development.

Energy security became Europe's number one goal

In the face of the complex situation brought by the conflict between Russia Ukraine, European economies generally feel the passivity of over-dependence on the energy of a single country, as well as the possible problems of national security national survival. As a result, economic efficiency is no longer the primary consideration for European economies, long-term energy security is the primary objective. Therefore, whether it is oil, gas coal, European economies are choosing to restructure their industrial chains, adjust their logistics networks find alternative suppliers alternative sources of energy. In March, the European Union proposed the Joint Initiative on Cheap, Safe Sustainable Energy in Europe (REPowerEU). The plan aims to significantly accelerate the clean energy transition, reduce Russian gas imports by two-thirds, about 100 billion cubic meters, increase Europe's energy independence.

In the short term, stabilising retail energy prices is a priority for European economies, such as providing assistance to companies facing high energy costs devising temporary tax policies on windfall revenues carbon trading revenues; Adjust the energy distribution structure promote joint procurement of natural gas by member states to control costs increase reserves, so as to focus on securing gas supplies for the winter of 2022.

In the long run, the current European countries have taken different degrees of "gas" measures.

First, accelerate the transformation of the energy structure, diversify the natural gas supply system, accelerate the development of photovoltaic, methane renewable energy to produce hydrogen, replace fossil energy consumption with electrification.

The second is to find new sources of natural gas. It is estimated that increased gas imports countries such as the US Qatar could meet Europe's needs of 60bn cubic metres. The United States has launched a plan to supply the EU with an additional 15 BCM of LNG by the end of 2022. Germany Qatar also recently concluded a long-term energy partnership; Italy has reached an agreement with Algeria to increase its imports Algeria to Tianjin by about 40 percent.

Third, accelerate the construction of natural gas infrastructure. Germany has decided to speed up the construction of two LNG terminals in Port Willem (Lower Saxony) Brunsbitel (Schleswig-Holstein), which could also be used to receive liquid hydrogen in the future. Fourth, we will launch a new energy strategy. The UK's new energy Strategy plans to increase investment in areas such as nuclear new energy, as well as the redevelopment of north Sea oil gas fields. Fifth, provide subsidies to energy users to stabilize the economy. France will impose a price cap on energy costs plans to spend more than 24 billion euros to fight rising energy prices protect the purchasing power of French households. In practical terms, GRDF, France's main gas supplier, may be prepared to take special measures to reduce gas use by large industrial users shopping malls, while individual users, public services the military will be affected.

Enlightenment to China's energy transformation

First, energy imports should be diversified. the energy dependence of Europe, especially Germany other countries on Russia, there is the problem of excessive dependence on a single country, whether it is oil, natural gas coal. This approach conforms to the principle of economic cost Z minimization, but it is difficult to effectively deal with all kinds of supply disruption shocks that may occur. Therefore, China should promote the diversification of energy import sources as much as possible to reduce the impact of supply disruption in a single source.

Second, the energy mix needs to be diversified. As the scale of energy demand increases, over-reliance on a smaller variety of fossil fuels also creates risks. In the conflict between Russia Ukraine, the EU faced the supply risks of oil, gas coal simultaneously for the first time, which was also rare in the world energy history, its risk degree exceeded the two oil crises in the 1970s to some extent. With the advancement of the world energy science technology revolution, more more new types of energy, including renewable energy, have joined the supply structure, providing countries with more possible choices reducing the risk of supply disruption. Therefore, China needs to increase its support for non-fossil energy encourage energy sources to perform within their supply potential.

Third, energy reserves need to be adequate. In Europe in recent years in terms of low carbon energy transformation is more radical, as the pioneer of global energy transformation, in 2021 the European renewable energy production, was forced to use natural gas to supplement the generation gap, add subject to factors such as the development environment, decrease gas production in the region, the inventory down to record lows, aggravated the tense situation of supply demand of natural gas. This also means that countries will need more gas reserves to cope with possible risks based on fossil-dominated energy structures, short-term external supply disruptions to the impact of climate change on renewable energy production. Therefore, China needs to increase investment in energy storage infrastructure to improve its capacity to cope with various uncertainties risks in the energy transition.

Z, improve energy efficiency strengthen energy conservation. As can be seen the eu's new energy strategy, improving energy efficiency is an important measure to cope with the tight energy supply situation, which has both short-term long-term effects. In the short term, we can save energy by changing people's behavior, in the long term, we can save energy by improving energy efficiency. China should use market price tools, use fiscal incentives, strengthen publicity supervision to improve energy efficiency enhance energy conservation to ensure energy security.

(The author is Director of Institute of Energy Finance, China University of Petroleum)

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Source: International Energy Network

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