Is the embargo on energy resources in the EU getting closer? financial analytics

Is the embargo on energy resources in the EU getting closer? financial analytics

Probably, from day to day, this topic will become the main one in the headlines of the media. Yesterday, the European Commission said that Europe is ready to abandon Russian energy resources and will impose an embargo on oil, gas and coal by the end of this year. They will announce their intentions in the near future. Is the embargo on energy resources in the EU getting closer?

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To begin with, let’s consider the situation for the current day. Recently, the Financial Times published statistics on current sales of energy resources in Russia. Since the end of February, Russia has earned 63 billion euros on supplies. 71% of this amount is accounted for by EU countries.

The most popular customer was Germany. It bought gas for 6.5 billion euros, and oil and petroleum products for almost 3 billion euros.

They began to talk about the embargo more often and more confidently after Germany declared its readiness to abandon our energy resources.

What should we do, and what will happen to them?

About Russia: a significant part of the income will fall out. About 40-50%. Many counterparties are already falling off following the example of Poland and Bulgaria. Some countries, like Hungary, are likely to stay with Russia because they don’t have the money and resources to replace it.

What are the options?

China will take on another part of the purchases, but they are already in third place after Germany and Italy. It will not be possible to completely block the income of China, because:

A) China has a demand limit.

B) The current logistics capacity has a limit.

To pump more energy resources to the east, we need more pipelines. The problem lies in the transport system of energy delivery. We do not have spare pipes, it is expensive and long to build new ones. Although it is possible.

In addition, we cannot block the pipes to Europe and accumulate these surpluses. We don’t have so many storage facilities. Production reduction, canning of production facilities and, probably, staff reduction of oil and gas companies will begin for a while.

The ideal outcome could be a reduction in production, the construction of new delivery routes and the search for new markets. We will have to trade oil at a discount for a little longer, but if the energy sector of the economy does not show flexibility, it will sink under its own weight.

The current situation has pushed Europe towards alternative and renewable energy sources. But they have their drawbacks, as they are unpredictable.

For example, wind power generation last month was able to provide only 17% of the consumption in the EU. This is very little. Most likely, only coal will be replaced with green sources. And the EU still needs oil and gas.

The EU understands that such changes will be costly. For example, they will come to supplies through oil ports and terminals.

Another thing is when gas is delivered by a gas pipeline.

The Algerian gas pipeline has long been laid to the south of Europe and supplies gas. Is Algeria able to cover the entire demand in the EU? No, Algeria does not generate that much gas. But this does not mean that by building new production facilities and gas pipelines, he will not be able to. The EU will help in this.

The redistribution of the world economy?

It seems that the era of countries with weak economies and a large amount of natural resources has come. Because Nigeria is also close to Europe. Their production is worse, but it is cheaper for the EU to finance large new construction projects in Nigeria and pump gas there than somewhere else.

Add Qatar here, and in a couple of years there will be an alternative to Russia for gas.

Venezuela is waiting in the wings for oil. I think the local regime is preparing to lift sanctions and invest in the infrastructure of the oil sector.

Decades of sanctions have battered them badly, and now the country cannot send large volumes of oil around the world.

What is the outcome?

The replacement of Russian energy resources will be very expensive for both sides. Inflation will fly to update historical records both there and here. Countries will start to engage in large construction projects, and money will flow from large economies to smaller economies.

Is the embargo on energy resources in the EU getting closer? financial analytics

Facts about gas exports

Yesterday I wrote about the prospects of the oil and gas embargo, and today I will entertain you with the language of facts — statistics.

What is Europe abandoning? Who are the potential replacements of Russia and will they pull the demands of Europe?

Russia ranks first in the world in terms of proven recoverable gas reserves (48.9 trillion. cubic meters) and the second in terms of production per year (744 billion cubic meters).

Europe imports about 175 billion. cubic meters per year, which is approximately 23%. This is the largest sales market for Russia.

Russia meets about 40% of Europe’s gas demand. There are countries where Russian gas consumption is >90%, and there are countries where it is about 10%.

The main gas suppliers for Europe, in addition to Russia, are Norway, Algeria, and the Netherlands. They cover about 46% of consumption. In the future, Qatar, Nigeria, Venezuela and Iran may be added to these countries.

But will they be able to?

Alone, only Qatar could satisfy Europe’s demand (production of 183 billion cubic meters per year) and Iran (production 290.8 billion cubes per year). But in this case, Qatar will have to send almost all of its production to Europe, and Iran is our brother in sanctions. Also problems.

Algeria (production 89.6 billion cubic meters per year) and Norway (119 billioncubic meters per year) without investments, the construction of pipelines and the development of new production capacities will not cover the entire European demand. Their proven reserves (6 trillion cubic meters) Europe will have enough for 30 years, with the condition that 100% of their exports will warm the countries of the Old World.

Venezuela can be invited to this group, but they have a bad infrastructure and mining facilities. Venezuela produces 20.6 billion cubic meters of gas a year, although there are about 6 trillion in reserves.

Nigeria can also take part of the demand, but the story is similar to Venezuela — there are a lot of reserves, also by 6 trillion, but the annual generation is below 50 billion. cubes. Nigeria also needs long-term investments in the gas industry, building business processes, etc.

As a result, Europe ‘s options remain as follows:

• buy all gas from Qatar
• look for loopholes with sanctions on Iran
• invest in Algeria, Nigeria, Norway, Venezuela with the connection of Qatar’s capacities

However, these countries serve not only the EU. And that’s where the difficulties will begin in finding an equilibrium point between the demand of all customers, production capacity and production opportunities for years to come.

Conclusion

I don’t believe that Russian gas will stop coming to Europe this year. Such maneuvers will take a lot of money not only for gas, but also for investments.

It will definitely not work for a year to switch, but it is quite possible on the horizon of 2-3 years.

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Leading economic and political commentator. Editor-in-chief of the online magazine Realize a Dream. Alexey Ponomarenko

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