Russia will find it difficult to find alternative buyers for natural gas in particular if the EU reduces its purchases, writes HS’s financial journalist Jarno Hartikainen.
West they are now hitting Russia where it is hurting the fossil footing of the country ‘s economy the most.
The United States announced on Tuesday that it would immediately ban the import of Russian fossil energy into the country. The ban covers crude oil, petroleum products, liquefied natural gas and coal. Britain, on the other hand, announced a ban on imports of Russian oil, which will take effect early next year.
The EU is not banning Russian energy imports. Instead, on Tuesday, the European Commission published a proposal for measures to rapidly reduce the use of Russian energy, especially natural gas. According to the Commission, Russian natural gas consumption could be reduced by a third by the end of this year.
The measures are a continuation of the economic sanctions that Western countries have used to punish Russia for attacking Ukraine. The new measures are intended to dwindle Russia’s main source of income. Half of Russia’s exports are fossil fuels, especially oil. They account for nearly a third of government revenue.
In particular, the U.S. decision sounds dramatic: the world’s largest consumer of oil sets the world’s largest oil exporter. In fact, the EU’s policy is the one that matters most to Russia. The price of decisions for the EU is also tougher.
Reason is the reciprocal energy dependence of the EU and Russia.
The United States uses little Russian oil. In November, only 7% of imported oil was of Russian origin, and imports have still fallen significantly in recent weeks.
Britain is also a marginal buyer. In November, the country imported an average of 170,000 barrels of oil a day from Russia, while at the same time about four million barrels a day of Russian oil flowed into the EU.
It is therefore much easier for the United States and Britain to declare Russian energy put in place. There is a vibrant, global market for oil, so replacing Russian oil is not an impossible task for countries, although it is unlikely to be a problem. U.S. refineries, for example, use a lot of certain Russian petroleum products in their processes.
Russia, on the other hand, can simply sell oil elsewhere. The largest single buyer of Russian oil is China.
EU the situation is different. Russia is the EU’s main energy supplier.
The EU imports almost all the natural gas it needs, 45% of which came from Russia last year. In the case of oil, the share was 27 percent.
Half of Finland’s energy imports came from Russia.
Such volumes are not just about to be replaced, even for oil. If the EU were to impose an import ban, European refineries whose crude oil would come from Russia by pipeline would be in a difficult position, for example. The Družba pipeline, more than 5,000 kilometers long, imports oil from Siberia to Germany, Poland, Hungary, the Czech Republic and Slovakia.
With regard to natural gas, the situation is even more difficult, as the world market is only for liquefied natural gas, while most of the natural gas used by Europe comes from Russia through pipelines. In the short term, pipeline gas cannot be fully replaced by lng imports.
But addiction also works in another direction.
The EU is Russia’s main export market. About 60% of oil and about three quarters of natural gas go to EU countries. More than 60% of all Russian exports to Europe are fossil fuels.
Especially for natural gas in Russia is difficult to quickly find other buyers. China, for example, will not just become a substitute export market. At present, China accounts for only 2 percent of Russia’s pipeline gas exports.
The gas fields from which gas comes to Europe are not even connected to the Chinese market. Russia aims to connect those fields to the Chinese market with a new pipeline connection, but an agreement with China has not yet been reached. Even if the investment decision were made tomorrow, it would be years of construction work that will swallow billions of euros. Due to the sanctions, it is not clear whether Russia would have the money or the technological capacity to build a new pipeline connection.
From Russia’s point of view, the EU’s policy means that the outlook for fossil exports to Europe will become significantly gloomier. If last summer the view was that natural gas would be an important source of energy for the transition period for decades, then now Russian gas is wanted off the palette in the next few years. Tens of billions of euros in export earnings are at stake.
The actions taken by Western companies on their own initiative come to the fore. Shell announced on Tuesday that it would stop buying Russian fossil energy. The purchase of crude oil from the day market will stop immediately, and the company says it will take a few weeks for the use of Russian oil to cease altogether. Similar companies have made similar announcements.
This in the heated atmosphere of the moment, some may be disappointed that the EU did not impose a total ban on imports of Russian energy. However, an accelerated transition is probably a better solution. However, the purpose of economic sanctions would be to do more harm to the counterparty than to itself.
The effects of these “soft” measures, for example in the form of increased energy prices, may soon test the patience of European consumers and the unity of their citizens. It is only two weeks since the Russian invasion of Ukraine, and no one knows how long the war and sanctions will continue. There is no indication that the situation will soon be over.
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