Russia suffers hard-to-recover losses when losing the European energy market

Russia spent almost 50 years building the energy market in Europe, but it took less than 50 weeks to destroy it with the war in Ukraine.

While Russia has found a number of other markets for its crude oil, mainly in India, finding alternative customers for refined petroleum products and gas will take years, with huge losses. According to Julian Lee, an analyst at Bloombergthat is still a bright scenario for Russia, as the world is gradually turning away from fossil fuels.

When Russia launched a military operation in Ukraine at the end of February last year, another war on the European energy market also opened. The European market, which used to consume nearly 2.5 million barrels of crude oil every day, about a million barrels of other refined petroleum products and 155 billion cubic meters of gas a year, suddenly disappeared.

The flow of crude oil from Russia to Europe began to decline shortly after Russian troops crossed the border with Ukraine. On December 5, when the European Union’s ban on importing Russian crude oil by sea took effect, the flow of oil continued to decline sharply and Bulgaria, which was temporarily exempted, became the only market. The rest of Europe continues to buy Russian crude.

The flow of refined petroleum products is also following a similar trajectory, before the sanctions took effect on February 5.

Russian President Vladimir Putin signs a gas pipeline in Vladivostok, Russia in 2011. Photo: AFP.

Russian President Vladimir Putin signs on a gas pipeline in Vladivostok, Russia in 2011. Photo: AFP.

The natural gas market in Europe is also disappearing for Russia. The huge network of gas fields and pipelines, developed in the Soviet era and costing hundreds of billions of dollars to deliver gas to Europe, is almost crippled.

One estimate in 2017 showed that Russia invested around $100 billion in developing gas fields on the Yamal peninsula, most of which are connected to Europe through pipelines, including the Nord Stream pipeline running across the Baltic Sea connecting Germany and Russia. Moscow then planned to double its investment in these fields by 2025.

However, much of this investment is now in vain, according to Julian Lee.

“While Russia may be able to salvage some of its energy ties with Europe after the conflict is over, the EU countries will certainly not allow them to depend on Russian gas as in the past,” Lee said.

European governments and consumers have become serious about curbing energy consumption, while soaring prices for gas and electricity over the past year spurred investment in renewables and efforts to reduce electricity price.

Russian oil companies have been trying to redirect oil supplies after being turned away by Europe, thanks to high demand from Indian refineries. However, the diversion also cost Russia and its oil industry dearly. Moscow had to cut prices by as much as $35 per barrel, about 40%, to bring oil to the Indian market.

Until the end of last year, Russian oil accounted for about a quarter of India’s crude oil imports, replacing goods from traditional Middle Eastern suppliers such as Saudi Arabia, Iraq, and the United Arab Emirates (UAE). ) and Kuwait.

“Differing crude oil is one thing, redirecting refined petroleum products into that market is quite another. I’m sure there will be some countries buying cheap Russian diesel, while exporting the produce. their refined products go to Europe, but they will ask Moscow to lower prices in order to make a profit,” Lee said. “This will be the loss that Russia has to bear.”

But petroleum, whether crude or refined, has an advantage over natural gas, because it can be transported easily and cheaply by sea.

Over the past five decades, Russia’s gas exports have been directed westward, through huge pipelines thousands of kilometers long, linking gas fields from Siberia and then the Yamal peninsula to customers in the Middle East. Europe.

Russia has recently begun looking for new markets in the east, and the Siberian Energy pipeline is shipping gas to China. But this gas source is extracted from new fields, more than 2000 km east of the Yamal peninsula and more than 900 km south. Building the pipeline from Yamal to the east to connect with the Siberian Energy project is not easy.

Russian gas giant Gazprom said the cost of the Siberian Energy pipeline and related fields was about $55 billion. However, another independent estimate puts the figure close to double and says the investment is unlikely to be profitable for Russia.

Observers say that China cannot buy all the gas that Russia produces. Despite its huge energy needs, China does not want to repeat Europe’s mistake of being too dependent on Moscow. Therefore, Russia will need to find other customers to replace the lost European market.

Pipelines that deliver Russian gas to Europe.  Click image to see details.

Pipelines that deliver Russian gas to Europe. Click on the picture to see details.

Russia wants to boost gas supplies to India, a rapidly growing country with growing energy needs. But shipping gas to India is more difficult than to China.

The gas pipeline will have to cross the world’s highest mountains or run through Afghanistan or Pakistan, where the security situation is often unstable. Both of those pipelines will be much more expensive to build and operate than those connecting to Europe, according to Lee.

“President Vladimir Putin’s war in Ukraine has cost Russia the European energy market, which is not easy to replace. Although Moscow and Europe may eventually reconnect once the Ukraine conflict is over, Russia will pay the price in a very long time,” warned Lee.

Thanh Tam (Theo Washington Post)

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