Europe reliant on Russian oil and gas: Washington

Europe reliant on Russian oil and gas: Washington

There have been growing tensions between the West and Russia over Ukraine, leading to concerns about vital Russian oil and gas flows to Europe, prompting the United States to offer reassurances that it will help its European allies find alternative supplies.

It may be impossible for Washington to accomplish that task.

Even without a build up of Russian forces on Ukraine s border and U.S. warnings of painful sanctions if tanks rumble across, the world s oil and gas producers have struggled to meet global demand, pushing crude prices to their highest since 2014 and driving European gas prices to stratospheric levels last year.

Russia denies it plans to invade. If a crisis happens, there are few alternatives to fill a gap caused by disruption to supplies from Russia, one of the world's top three oil producers and the second biggest gas producer.

How reliant is Europe on Russian oil and gas?

Russia supplies the European Union with a third of its needs for crude and gas. Gas is pumped via pipelines that pass through Ukraine or other eastern European nations, heating homes and powering industry across the 27 nation bloc and its neighbours, such as Britain.

Russian supplies have become increasingly important as Europe s own oil and gas production, mainly from the North Sea, has dwindled, although Norway is the biggest North Sea producer still supplies about a third of Europe's gas needs.

Why can't we buy more fuel from the Middle East and beyond?

Some European states, particularly those once in the Soviet Union's orbit, have complained that the EU has become too dependent on Russian gas. It's not easy to change the balance.

European states have expanded terminals to receive liquefied natural gas LNG shipments from the Middle East, the United States or elsewhere. The pipelines from North African producers bring gas to Europe.

Russia still dominates, with its abundant gas reserves, the proximity of its fields and an extensive existing pipeline network. A major new pipeline, known as Nord Stream 2, has been built from Russia under the Baltic Sea to Germany, though it hasn't started yet, due to a dispute that has been fuelled by the recent political tensions.

Coyne: The many lies of Russia-Ukraine realists Why would a disruption to Russian supplies hurt so much now?

After a rollercoaster ride over the past two years, global energy markets are particularly tight at the moment.

The COVID-19 epidemic was the immediate reason. Oil and gas prices went through the floor as economies locked down and factories ground to a halt, prompting energy producers to scrap investment plans. The global economy came back, but there wasn't enough capacity to meet the growing demand.

That is only part of the story. Large Western firms have been discouraged from investing heavily in fossil fuels because of the green transition. Several majors have started to shift their focus towards renewable energy projects. The fossil fuel crunch is being felt now, and the renewable energy benefit will take years to kick in.

The world consumes around 100 million barrels per day of oil per day, with Russia accounting for about 10% of that. According to some generous estimates, the world's spare capacity, or the amount of extra production that can be switched on fairly quickly to meet a sudden disruption, is below 3 million barrels per day or less. That extra capacity can't fill a gap left by Russia, which is largely located in Saudi Arabia and other Gulf states.

The gas market offers a similar picture. A few years ago, the market was poised for an LNG glut. Demand has rocketed and the global market has become tight as a drum because gas is becoming a favoured green transition fuel because it produces less emissions than coal and oil.

Where can Washington get extra supplies for Europe?

The administration of President Joe Biden doesn't have a lot of options.

The U.S. government has been in talks with international energy firms about supplying more gas to Europe, U.S. officials said this month. Industry sources said companies responded by pointing out how tight the market was.

Washington can't turn to its own producers to fill a gap.

U.S. energy firms that rely on costly hydraulic fracturing technology, or fracking, have turned the United States into a major energy exporter. They were hammered harder than most by the price plunge in 2020. One LNG facility is currently being built, which could add additional capacity this year, and only a few of the projects were put on hold.

If Washington can find more oil via the spot market for Europe, diverting gas cargoes will cause a bigger headache. Gas is easier to sell via long-term contracts and making adjustments is therefore trickier.

Qatar, a U.S. ally in the Gulf and a major LNG exporter, told Washington it would be ready to reroute cargoes but said it would need U.S. help persuading other buyers to accept such a move, a source said in January.

A disruption to Russian energy supplies would send already red-hot electricity and gas bills higher for European households.

The surge may take six to nine months to trickle through, because of the lag in passing wholesale gas market prices onto utility bills.