MOSCOW (Archyde.com) – “Energy supply to the West may be cut off completely”. Such threats from Russian President Vladimir Putin, whose relations with the West continue to sour over an invasion of Ukraine, could prove to be a double-edged sword for Russia.
The European Union (EU) on Thursday announced plans to cap the price of Russian gas. Shortly before that, Mr Putin hinted that Russia would cut supplies if such caps were introduced, saying: “What we can do is like the famous Russian folklore (breaking holes in the ice and catching fish with their tails). ) only to warn wolves that their tails will freeze.”
If Russia, the world’s second-largest oil producer after Saudi Arabia and also the world’s largest exporter of natural gas, loses its energy supply to Europe, the world’s energy markets will be further disrupted, and international prices are likely to jump further. is large.
In August, Gazprom’s chief executive, Russia’s state-owned gas company Gazprom, said European gas prices could soar to $4,000 per 1,000 cubic metres. It was priced at about $2,200 as of Thursday.
However, if the EU continues its de-Russianization plan in terms of energy procurement, Russia will also suffer.
A document summarizing Russia’s energy strategy, presented at a closed-door meeting hosted by Prime Minister Mishustin on August 30, outlines the “constraints and risks” in the energy sector associated with the war in Ukraine. . Archyde.com confirmed the full content.
The document, titled “On the strategic direction of business activities under the new circumstances until 2030,” states that if supplies to foreign customers are reduced, losses in domestic sales at low prices will be offset by export earnings. He pointed out that the conventional system would collapse. As a result, it is likely that there will be a shortage of funds necessary for gas development in each region.
The document states that if the EU ends imports of Russian gas by 2027, it will 1) lose revenue by 400 billion rubles ($6.55 billion) annually by 2030, and 2) gas exports by 2027. According to the analysis, it wouldn’t be strange for the total amount of water to decrease by 100 billion cubic meters annually. On top of that, Russia’s investment in the gas sector by 2030 is expected to decrease by about 41 billion dollars.
Oil and gas sales to Europe have long been Russia’s main source of foreign currency. Putin, who took over the presidency from Boris Yeltsin at the end of 1999, aimed to use his country’s energy resources as a trump card to regain Russia’s power, which had weakened after the collapse of the former Soviet Union.
Mr. Putin, who has once again used energy as a weapon in his diplomacy in the confrontation with Europe and the United States over Ukraine, said that since Russia has embarked on a new path in this war, he has not lost anything, but rather gained. uttering strong words.
Mr. Putin is repeating the message that if Europe doesn’t want to buy Russian oil and gas, or if it caps prices, Russia will switch its main customers to China and India.
But to do this, the document says, the construction of the eastward pipeline must be accelerated.
Currently, the only major gas pipeline from Russia to China is the Power of Siberia 1. The total volume expected to be transported this year is 16 billion cubic meters, or just 11% of what is shipped to Europe each year in normal times.
The “Power of Siberia 2,” which will link the Bobanenkovo and Harazabey gas fields on the Yamal Peninsula to China, has not yet been completed.
If Europe can find an alternative source of energy to Russia, Russia faces considerable challenges.
According to the worst-case scenario outlined in the document, by 2027 European countries could completely cut off their reliance on Russian oil, severely damaging the Druzhba oil pipeline and Baltic ports. .
Druzhba carried 36 million tonnes last year, while ports on the Baltic Sea handled 60-80 million tonnes of crude oil annually in 2019-21.
According to the document, Russia’s energy industry faces old challenges of rising production costs, such as mining difficulties, and new headwinds of export switching costs and rising demand for tankers.
The unavailability of Western technology, especially in the areas of liquefied natural gas (LNG) and oil refining, will also force Russia’s energy industry to make tough choices.
The document warns that the withdrawal of technology partners from LNG production projects will delay the timing of new facilities coming online. They fear petroleum product exports will drop by 80 million tonnes, about 55% of last year’s level, and refining activity will fall by 25-30%, making it impossible to produce enough gasoline for domestic consumption, pushing up fuel prices. .
Gazprom, which has been doing well lately and posted a record profit of 2.5 trillion rubles in the first six months of this year, faces a long-term cloud.
Analysts say the company, which holds about 15% of global reserves and 68% of Russia’s, may eventually need to shut down its fields or burn unused gas.
(Reporter by Guy Faulconbridge)