The Russia-Ukraine crisis has put the energy market on high alert for possible disruptions of Russian energy supplies to Europe. While most of the talk and headlines focus on a potential disruption of Russian pipeline gas exports to Europe, a significant decline in Russian crude and oil product exports westwards to Europe would also have a devastating effect on the energy supply in Europe, which is already grappling with a gas and power crisis.
A plunge in Russian oil exports to Europe would also be a very bullish factor for oil prices, which could hit and exceed $100 in case of a conflict in Ukraine, analysts say.
Still, a major disruption of oil flows from Russia to Europe is highly unlikely at this stage because such a probability would deal a devastating blow on both sides, according to experts. Any strict sanctions on Russian oil exports to Europe would deprive the continent of its single largest oil supplier at a time when governments are struggling with soaring energy prices that are also stoking high inflation and slow activities in energy-intensive industries.
At this point, it’s unlikely that oil and gas supplies from Russia to Europe will be cut significantly since it would be mutually destructive for both Moscow and the European countries. Russia exports half of its crude to Europe and relies on those oil revenues, which make up a large share of its government revenues. Europe, for its part, imports from Russia more than one-third of the natural gas and more than one-quarter of the crude oil it consumes.
The West-Russia standoff over Ukraine showed once again Europe’s high dependence on Russian energy supplies. As it stands, there isn’t an immediate alternative to those supplies, despite the efforts of the United States and the EU, which are scouring the world for additional LNG supplies that could be sent to Europe in case the crisis escalates into a conflict.
A look at the crude export reality for Russia and Europe shows how one needs the other in the oil trade in this corner of the world.
Russia, the world’s second-largest oil exporter after Saudi Arabia, exports around 5 million barrels per day (bpd) of crude oil. Nearly half of it, or 48 percent, went to European countries in 2020, according to data from the U.S. Energy Information Administration (EIA). Europe, particularly refineries in Germany, the Netherlands, and Poland, take 48 percent of all Russian crude oil exports.
So, Europe is Russia’s main market for its oil and natural gas exports, and by extension, Europe is its main source of revenue.
Crude oil and natural gas revenue accounted for 43 percent, on average, of the Russian government’s total annual revenue between 2011 and 2020, according to data compiled by the EIA.
On the other hand, Russia is the single largest external supplier of crude, natural gas, and solid fuel to the European Union.
Russia accounted for 26.9 percent of European Union crude oil imports and 41.1 percent of the natural gas imports in 2019, the last pre-pandemic year, Eurostat data shows. Russia is the single largest supplier of oil, the fuel most used in the EU’s final energy consumption. Petroleum products, such as heating oil, gasoline, and diesel fuel, represent 41 percent of final energy consumption in the EU, according to Eurostat.
In 2021, Russia remained the largest supplier of natural gas and petroleum oils to the EU.
The mutual dependence of Europe and Russia on oil and gas suggests that any escalation of the Ukraine crisis and a subsequent significant drop in Russian energy supply would come at a very high cost for both the EU and Moscow. This makes analysts think that a major disruption of Russian oil and gas flows to Europe is unlikely, at least at this point.
By Tsvetana Paraskova for Oilprice.com
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The European Union (EU) is a colossal economic power but toothless in geopolitical terms. And as long it continues to succumb to pressure from the United States, it will always pay a heavy and very damaging economic price.
It is becoming clear by the minute that if the Ukraine crisis escalates into a military conflict, the United States will impose the harshest ever sanctions against Russia including oil and gas exports and Nord Stream 2 gas pipeline. Moreover, it will exert the maximum pressure on the EU to do likewise.
With or without the Ukraine crisis, US President Biden and his advisors were looking for an excuse to continue their opposition to Nord Stream 2 gas pipeline under the false pretext that it will tighten Russia’s grip on Europe’s energy security. But this is fooling nobody. The overwhelming majority of Europeans and the whole world know that the motivation is to sell US LNG at the expense of Russia’s cheaper piped gas supplies.
The United States has a long and failed history of opposing Soviet and now Russian oil and gas pipelines dating back to the 1960s. Now it is trying its luck with Nord Stream 2 but it will fail as well.
Germany will never oblige and will lead a fierce opposition inside the EU against such action. This will seriously harm transatlantic unity and damage US relations with Germany.
Germany will never join the United States in ending Nord Stream 2 which cost an estimated $11 bn to build even in the event of an escalation of the Ukraine crisis into an armed conflict. If it does, it will sink more than 150 major German companies which were involved in the construction of the pipeline and which contributed more than half the costs of the pipeline. Moreover, it will be a major loser in economic and energy terms. Germany depends on Russia for 60% of its natural gas and oil needs.
The EU is dependent on Russian oil and gas supplies for 27% and 40% respectively. The Ukraine crisis is exposing to the world how dependent the EU is on Russian gas and oil supplies. As it stands, there isn’t an immediate alternative to those supplies, despite the efforts of the United States and the EU, which are scouring the world for additional LNG supplies that could be sent to Europe in case the crisis escalates into a conflict.
And while the EU will impose new sanctions on Russia over the Ukraine crisis, oil and gas exports and Nord Stream 2 won’t be among them because Russia will immediately retaliate by halting all supplies to the EU thus prolonging and worsening an already damaging energy crisis.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
Norway is nr. 4 gas exporter in world 2019 about 114 USA 131,8 katar 143 russia 260, 9 australia 100,7 billion m³.
Daily EU natural gas storage levels from GIE AGSI in the network. (Aggregated Gas Storage Inventory) currently 12.2: 33, 83% - 0.34% at the rate in about 100 days empty but previously manipulated data down here several times and observed worldwide.
Gazprom delivered a lot of gas through Nord Stream I to Norway, also via Holland, which does not have its own surplus, exports a lot of LNG to Rotterdam via Genie company, also delivered to Germany, as well as gas pipeline to Azerbaijan, open about 36 LNG terminals in Europe with reserves. A lot in the future. Gas from the Euro-Mediterranean region awaits optional fracking in England, France and Germany. Nuclear power in France is also used in Germany, the wind and solar peaks are exported at a loss, Germany has a lot of local lignite without long transport routes and no longer releasing CO2 and CH4, also clean with centrifugal filter chimneys.
OK . . . let's say escalation to the point of 29% of the economy being affected, since Putin has been chalking up contracts and laying pipes to China and other friendly countries.
Geopolitics sure is messing with this world.