Russian threats to cut gas re-draw global energy map
ALGERIA has long been a medium-stakes player in the global game of oil and gas exports, but the energy crisis in Europe has created an opening for the nation to up the ante.
Italian Prime Minister Mario Draghi flew to Algiers just a few weeks ago to ink an agreement to boost natural gas imports from Algeria by 40% through an underused pipeline that runs beneath the Mediterranean Sea.
Other oil and gas exporters that were not previously front and centre in the global energy conversation, such as Angola, Nigeria and the Republic of Congo, are also emerging as potential players for the future of Europe.
And European nations hurrying to unshackle themselves from Russian gas are turning to more reliable, but costly, liquefied natural gas (LNG) providers such as Qatar and the US.
The moves are part of a scramble in Europe to respond to the energy crisis prompted by Russia’s invasion of Ukraine. Russian President Vladimir Putin cut off natural gas supplies to Bulgaria and Poland for refusing to pay in roubles. Other large consumers of Russian gas, including Germany and Italy, have sought to reassure their citizens that they are seeking workarounds if Putin expands the cutoff as he has threatened.
But the next 18 months are going to be a harrowing time for Europe, as the impacts of high prices ripple around the world and governments struggle to power their factories, heat their homes and keep their electricity plants running.
There are not enough alternatives in the near term to avoid major economic pain in the coming winter if Russia shuts down supply. What has transpired is a sudden global reordering of the energy markets stoked by an abrupt turnaround by Russia, which spent decades trying to use its generous oil and gas reserves to integrate into the world economy, said Daniel Yergin, an energy historian and vice-chairperson of S&P Global.
For now, Europe’s gas market has become a patchwork. Italy can turn to Algeria, Bulgaria can turn to Greece, and Poland can pivot to a long-planned expansion of a terminal for LNG imports and a pipeline coming online from Norway.
Germany, the economic engine of Europe, is particularly unprepared for the moment. More than half its supply of natural gas was coming from Russia before the invasion of Ukraine.
Germany has shrunk that down to 35%, but it is not well positioned to get to zero Russian gas anytime soon. It lacks infrastructure to import liquefied gas, and the nation’s aggressively anti-nuclear posture has left it with just three reactors online; the other 14 were closed down after the tsunami hit the Fukushima nuclear complex in Japan in 2011. German Economy Minister Robert Habeck has said he expects his country would slide into recession without Russian gas.
It has implemented the early warning phase of an emergency energy plan, including a public campaign to push conservation. But if natural gas supplies drop precipitously, the next step could be rationing.
Gas would flow first to hospitals and households, leaving businesses at risk of losing power.
Instead of buying oil and natural gas from Russia, where production costs are very low and pipeline transportation cheap, Europe must turn in the immediate term to more expensive alternatives such as the US which until seven years ago had no gas export facilities at all. European companies must add on $1.50 (R24) per thousand cubic feet – from 30% to 50% of the cost of the gas itself – to get a tanker of LNG to make the trip from the Gulf of Mexico to Europe. Then the empty ship must make the return voyage, a total of 24 days in transit.
European nations are also moving to diversify their supply, but a quick turnaround project that makes available new supplies of natural gas takes at least two to four years. At the same time, investors may be wary of big natural gas projects as governments and businesses soon look to more environmentally friendly energy.
The prices of renewable energy worldwide, after two decades of decline, have edged up over the past year, and there is little room in Europe to quickly add legions of new renewable customers.
Roberto Cingolani, the minister in charge of Italy’s energy transition, said that Italy has been racing to reach deals with African countries, and is hoping to be energy independent from Russia by 2024.
He said Italy is better positioned than other EU nations to handle the transition, because it already has two pipelines to Africa and another going east towards Azerbaijan. But the contingency plan will take time to ramp up and the country would be vulnerable in the short term if Russia cuts off its supply.