Faced with several sanctions, particularly in the energy sector, Russia is now turning to alternative markets for its energy exports. With the latest set of sanctions imposed on Russia by the UK and European Union on Wednesday, Putin’s plan to control a 20% share of the global LNG market by 2035 looks even harder to achieve.
Russian President Vladimir Putin said Wednesday (April 14th) that Moscow would seek alternative markets for its energy exports after Western capitals sanctioned Russia for its military operation in Ukraine.
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HOW DOES RUSSIA FIT IN DIFFERENT SECTORS OF THE GLOBAL ENERGY MARKET?
Russia is currently the largest gas exporter, with Europe accounting for more than a third of its market, according to the US Energy Information Administration. As the Netherlands decided to stop pumping oil and gas by 2050 and cut production last year, Russia has become a key supplier to Europe. The Covid-19 pandemic and simultaneous lockdown also hit European and global markets last year, giving Russia even more of a grip on Europe.
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Russia’s power in the European market was on display when gas prices suddenly plummeted in October 2021, following Putin’s comments about his intervention to “stabilize” the energy market.
This increase in Russian influence in the European market has led the West to accuse Putin of trying to score geopolitical points in 2021, an accusation the Kremlin has denied, citing that he only intervened to fill the void in the gas market. After much deliberation, Russia has offered to hold talks with Western leaders on steps to increase gas supplies. He went on to blame Europe for the gas crisis due to a lack of planning.
RUSSIA’S PLANS ARE HIT
Amid Europe’s gas crisis, Russia had set a target of 20% gas market share by 2035, increasing its annual LNG production to 120 million-140 million tonnes from around 30 million tons today.
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This plan, however, was hit by the EU’s fifth sanctions package against Russia which banned the delivery of goods and technology needed to liquefy the gas. Experts say this will set Russia back years as it figures out how to replace European technologies using Russian know-how.
Sanctions are also expected to hit new Russian projects, such as Novatek’s Arctic LNG-2 and Gazprom’s Baltic LNG, at a time when its gas industry was already reeling from the exit of Shell and ExxonMobil.
The EU, meanwhile, aims to cut its dependence on Russian gas by two-thirds this year in retaliation for Russia’s invasion of Ukraine and to counter its growing influence in the market. The EU has set itself the goal of ending all Russian fossil fuel imports by 2027.
A 2021 study of Russia’s energy exports showed that Moscow exported 74% of its natural gas to Organization for Economic Co-operation and Development members in Europe, and 13% each to parts of Asia. and Oceania and the rest of the world.
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According to the US Energy Information Administration, “In 2021, Russia was the largest exporter of natural gas in the world, the second largest exporter of crude oil and condensates after Saudi Arabia, and the third largest exporter of coal behind Indonesia and Australia. Although OECD Europe received most crude oil and natural gas exports from Russia last year, countries in Asia and the Oceania region received most coal exports. of Russia.
Russia is the world’s third largest oil producer behind the United States and Saudi Arabia. At the beginning of the third week of April, the European Union began drafting proposals to ban the import of oil as part of another set of sanctions against Russia. Oil from Moscow accounts for around a quarter of EU crude imports.
Although plans have not yet been finalized, sanctions could include higher tariffs on Russian oil and a ban on certain petroleum products, European Commission President Ursula von der Leyen said.
DIFFICULT FOR EUROPE TO REDUCE ITS DEPENDENCE ON RUSSIAN OIL
While the United States and the United Kingdom have imposed a total ban on Russian oil imports, hoping to cut off an important source of income for Moscow, making a similar decision is more difficult for Europe due to its high dependence and could drive up the already high energy price level.
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The dilemma is compounded by the geographical spread of the EU and the wildly varying economic capacities of its 27 members. While large economies have a chance to cushion the impact of a Russian oil embargo, smaller economies like Bulgaria and Hungary will not be able to implement such a decision as they depend on almost 100% Russian oil.
According to the EIA, Russia is also a major supplier of crude for Belarus, Romania and Bulgaria.
European diplomat Josep Borrell said that in such a situation, European countries are trying to reduce their dependence on Russian oil on an individual basis.
THE CRUCIAL ROLE OF GERMANY
In this situation, Germany’s position as the largest economy in the EU has become crucial. While offering Ukraine more weapons, German Foreign Minister Annalena Baerbock called for a “coordinated plan to phase out fossil fuels completely” from Russia.
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However, although Berlin is calling for a ban on Russian oil, it does not actively support an immediate embargo. A survey in Germany showed around 57% of respondents said Berlin needed to keep importing to avoid supply shortages and price spikes.
German imports have already fallen to 25% from 35% before February.
After the US and UK bans, European sanctions have surely worried the Kremlin as they could seriously affect Russia’s oil revenues, with almost 49% of Russia’s oil exports going to countries in the EU. OECD in Europe. The Asia-Oceania region accounts for 38% of Russia’s oil exports while the rest of the world only accounts for 13%.
The EU’s fifth sanctions package against Russia included a ban on coal imports. The ban on Russian coal imports will come into effect from mid-August. The impact of this decision on Russia is expected to cost the country $4.4 billion a year, almost half of what Europe buys from Moscow each year.
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With Russia being the sixth largest coal producer in the world and only 6% of EU energy imports including coal, the impact of the ban on the EU should be dampened in a few months, with shipments being organized since then. Australia, South Africa and Indonesia.
PROBLEMS FOR EUROPE
However, Europe, which depends on Russia for 45% of its coal imports, will face some immediate problems, notably in the steel sector in Germany. Shortly after the ban was announced, Germany, the EU’s biggest economy, found itself scrambling for gas and oil to support its industries. In fact, Germany, which is Russia’s biggest coal importer, lobbied the EU to push back the ban for four months, sources said.
The delayed ban on coal imports is seen as the simplest punitive measure against Russia. The sanction is unlikely to significantly affect either party beyond a few months. While Europe can replace its needs with other coal producers such as the United States or India, Russia’s coal imports to Europe, which represent only 32% of its total coal, are likely to be diverted to the Asia-Oceania region, which currently buys 53% of Moscow’s export quota.
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According to the EIA, “Russia exported more than half of the coal produced by the country in 2021. Russia’s coal exports in 2021 increased by 7% to 262 million short tons (MMst). South Korea, Japan and Taiwan together received around 22% of Russia’s coal exports. A third of Russian coal exports were destined for OECD Europe. Germany, the Netherlands, Turkey and Poland together received 24% of all coal exports from Russia in 2021. Thermal coal, often used for power generation, accounted for 90% of Russia’s exports. coal from Russia.
If the EU reduces Russian oil and gas imports, Moscow’s influence over Europe is likely to be reduced. But Vladimir Putin’s announcement to seek alternative outlets in the energy sector could be a signal of Russia’s intention to have a say in the global market.