Russia-Ukraine War: Its Effect on the Oil and Gas Industry

Russia-Ukraine War: Its Effect on the Oil and Gas Industry

President Vladimir Putin has threatened to cut gas supplies to “unfriendly” countries if they don’t start paying for gas imports in Russian roubles.

The US, EU, and the UK placed restrictions on oil and gas imports from Russia after it invaded Ukraine in February.

What sanctions are there on Russian oil and gas?

The US has declared a complete ban on Russian oil, gas and coal imports. The UK is to phase out Russian oil by the end of the year, and the EU is reducing its Russian gas imports by two-thirds. The UK government says this allows enough time for it to find alternative supplies. Deputy Russian Prime Minister Alexander Novak has said rejecting Russian oil would lead to “catastrophic consequences for the global market”.

Oil and gas prices have risen since the invasion of Ukraine, and if Russia were to halt exports they could rise further.

What would happen if Russian gas stopped flowing into Europe?

Heating prices – which are already high – would increase even more. Russian gas accounts for about 40% of the EU’s natural gas imports. If this dried up, Italy and Germany would be especially vulnerable. Europe could turn to existing gas exporters such as Qatar, Algeria or Nigeria, but there are practical obstacles to quickly expanding production. Russia only provides about 5% of the UK’s gas supplies, and the US doesn’t import any Russian gas.

Gas prices in Europe and the UK (and to a lesser extent, the US) jumped significantly after the invasion, due to worries about supply shortages, although they then fell back.

Could alternatives to Russian gas be found?

The US has agreed to ship an additional 15 billion cubic metres of liquified natural gas (LNG) to Europe by the end of this year. The aim is to supply 50 billion cubic metres per year of additional gas until at least 2030. But energy policy research analyst Ben McWilliams says it’s not very easy to substitute the gas that flows from Russia. “It’s harder to substitute gas because we have these big pipes that are taking Russian gas to Europe,” says Mr McWilliams. Europe could also ramp up the use of other energy sources, but doing so is not quick or easy.

“Renewables take time to roll out so in the short term this is not a solution,” says research analyst Simone Tagliapietra.

“So for next winter – what can make a difference is fuel switching such as opening up coal-fired power plants, as Italy and Germany have plans to do in case of an emergency.”

The EU has proposed a plan to make Europe independent from Russian fossil fuels before 2030 – including measures to diversify gas supplies and replace gas in heating and power generation.

How much oil does Russia export?

Russia is the third biggest producer of oil in the world, behind the US and Saudi Arabia. Of about five million barrels of crude oil it exports each day, more than half of that goes to Europe. Russian imports account for 8% of total UK oil demand. The US is less reliant, with about 3% of its imported oil coming from Russia in 2020.

What about alternative oil supplies?

Mr McWilliams says it should be easier to find alternative suppliers for oil than for gas, because while some comes from Russia, “there’s also a lot of shipments from elsewhere”.

US President Joe Biden has ordered a major release of oil from America’s strategic reserves in an effort to bring down high fuel costs. The US has been asking Saudi Arabia to increase its oil production, but it has rebuffed previous US requests to boost output in order to reduce oil prices.

Saudi Arabia is the biggest producer in Opec, the oil cartel which accounts for about 60% of the crude oil traded internationally. Because of this Opec has a key role in influencing oil prices. So far, no Opec member has agreed to any requests to boost output.

Russia is not in Opec but has been working with it since 2017 to place limits on oil production, in order to maintain earnings for producers.

The US is also looking at relaxing Venezuela’s oil sanctions. It used to be a key US oil supplier, but recently Venezuela has largely been selling its oil to China.

What will happen to my heating and fuel bills?

Consumers will face rising energy and fuel bills as a result of this war. In the UK, household energy bills have been kept in check by an energy price cap.

But bills will rise by £700 to about £2,000 in April when the cap is increased. They are expected to reach about £3,000 when the cap is increased again this autumn. UK petrol and diesel prices have also soared, and the government has now announced a cut in fuel duty as motorists struggle with record prices.

“I think if we’re in a world where Russian oil and gas stop flowing to Europe then we’re going to need rationing-style measures,” says Mr McWilliams.

“Part of the conversation now is, can we tell households to turn their thermostats down one degree, which can save a significant chunk of gas.”

This Article was derived and written by By Jake Horton, Daniele Palumbo & Tim Bowler
BBC Reality Check

https://www.bbc.com/news/58888451

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