Europe is the biggest victim of the gas war behind the conflict between Russia and Ukraine



Recently, the situation between Russia and Ukraine has become the focus of the world's attention, and this local war is a microcosm of the confrontation between the United States and other Western countries in the military, economic, political and other fields, and will inevitably affect the development pattern of Europe and even the world in the future. Today, let's take a look at the economic strife behind this geopolitical clash, using natural gas as an example.

Energy hard power: Russia has the world's largest natural gas reserves

Natural gas refers to the mixture of hydrocarbon and non-hydrocarbon gases naturally stored in the formation. In petroleum geology, it usually refers to oil field gas and gas field gas. Its composition is mainly hydrocarbon, and contains non-hydrocarbon gas; Natural gas combustion produces much less atmospheric pollutants and greenhouse gas emissions than coal and oil, in today's era of sustainable and renewable development, carbon neutral goals have been put on the development agenda of many countries, natural gas as the cleanest fossil energy in the energy system is gradually rising status.

According to the latest data released by the EIA, as of the beginning of 2021, the world's largest proven natural gas reserves are Russia, with a total of 47,798 cubic kilometers of proven natural gas reserves, followed by Iran and Qatar, and the United States ranked fourth with approximately 13,167 cubic kilometers of proven natural gas reserves.

Energy soft power: After the shale gas revolution, the United States surpassed Russia in natural gas production

Shale gas is natural gas extracted from shale rock, mainly composed of methane, and is an important unconventional natural gas resource. The formation and enrichment of shale gas has its own unique characteristics, and it is usually distributed in the shale source rock strata with large thickness and wide distribution in the basin. The research, exploration and development of shale gas resources in the world first began in the United States, relying on mature development and production technology and perfect pipeline network facilities, the United States has become the only country in the world to achieve large-scale commercial exploitation of shale gas. Since the "shale gas revolution", the United States natural gas production has been climbing, in 2009, the United States with 624 billion cubic meters of production for the first time surpassed Russia to become the world's largest natural gas producer, and then the gap is widening, by 2020, the United States natural gas annual production reached about 36.3 million terajoules, about 1.31 times the annual production of Russian natural gas.

The US-Russia energy battle: Europe becomes the main battleground

As a major producer of natural gas in the world, the United States and Russia produce natural gas in addition to supplying domestic demand, mainly for export to earn foreign exchange.

1. Comparison of the proportion of US and Russian natural gas exports to production

Although the United States has surpassed Russia in natural gas production, the demand for natural gas in the United States is much higher than that of Russia because of its developed industrial system and relatively large population. A large amount of natural gas is used for the domestic market, and only a small part of the natural gas is currently available for export. In 2020, the United States exported about 16 percent of its natural gas production, while Russia exported 33 percent of its natural gas production.

2. Changes in US-Russia natural gas exports

From the specific quantity point of view, from 2011 to 2020, the United States natural gas exports have been rising, and the gap with Russia's natural gas exports is getting smaller and smaller; In 2020, Russia exported about 9.13 million terajoules of natural gas, down 8.1% year-on-year, while the United States exported about 5.89 million terajoules of natural gas, up 15.5% year-on-year.

3. Comparison of distribution of US and Russian natural gas exports

At present, the most important natural gas exports of the United States are Mexico and Canada, mainly because these two countries are onshore neighbors of the United States, and the United States has established a very well developed natural gas transportation pipeline. In 2021, the United States exported about 46.5% of its total natural gas exports to Mexico and Canada. In addition, Northeast Asia is also an important market for US natural gas exports, and in 2021, the proportion of US natural gas exports to China, Japan and South Korea will be 6.76%, 5.34% and 6.82%, respectively.

The main market for Russia's natural gas exports is Europe, with about 52% of Russia's natural gas exports going to the European market in 2020, of which Germany, Italy and France account for 15%, 11% and 8% of Russia's total natural gas exports, respectively. Next to Europe are Turkey and China, which will account for 6% and 5% of Russia's total gas exports respectively in 2020.

4. Europe becomes the main battleground in the US-Russia gas war

Europe is relatively short of fossil energy resources, and only Norway is rich in natural gas reserves among the major countries. From 2011 to 2020, the EU28's natural gas production has remained below half of its consumption for many years, and in recent years, it has declined all the way due to factors such as the shutdown of Norwegian gas fields. By 2019, the EU28's natural gas production is about 4 million terajoules, accounting for only about one-third of its total natural gas consumption.

The lack of its own natural gas resources leads to the European region's natural gas resources are very dependent on imports, for the United States and Russia, the European energy market is a fat meat. As U.S. natural gas production continues to increase, it is bound to expand the market for natural gas sales, and an energy war over natural gas is quietly unfolding on the European continent.

5. The battle for natural gas is also a battle for political supremacy

In recent years, European countries have reached a series of cooperation with Russia to ensure energy supply, among which Germany, despite the opposition of the United States, insists on jointly building the "Nord Stream 2" gas pipeline project with Russia. If this project is successfully put into operation, it will not only guarantee the energy supply of European countries, but also ease the tension between European countries and Russia and promote regional peace. This is not something the US wants to see; Thus, we saw that the United States repeatedly stirred up regional tensions at the beginning of the year and imposed sanctions on companies related to Nord Stream 2, which eventually led to the conflict between Russia and Ukraine.

For the United States, the natural gas war in the European market is not only to seize the energy market to obtain foreign exchange, but more importantly to enhance the influence of the United States on the European and even the world energy market and prices to achieve the purpose of controlling other countries and maintaining hegemony.

Behind the gas war, Europe is the biggest victim

1. Natural gas - one of Europe's energy lifeblood

According to data from the European Union's energy Directorate, the proportion of natural gas in the EU's energy consumption has reached 25%, second only to oil's 32%, and the proportion of natural gas in Europe's energy consumption is likely to rise further in the future as governments gradually reduce the use of coal and nuclear power. Dependence on imports for so much of their energy needs is a big concern for European countries.

2, the European natural gas market, Russia is the main source of imports

At present, the main sources of natural gas imports in Europe include Russia, Norway, Algeria and other countries, of which Russia has the largest natural gas reserves and the cheapest price, so it deserves to occupy the largest share of the European natural gas market. According to the data released by the Economic Commission for Europe, Slovenia and other 10 countries all natural gas imports from Russia, the EU 27 countries overall dependence on Russian natural gas imports reached 41%, of which Germany reached 49%, France is 22%.

According to data from the International Energy Agency, Germany's total gas imports in 2020 will be about 3,092,300 terajoules, France's total gas imports will be about 1,920,800 terajoules, and the EU28's total gas imports will be about 17,038,900 terajoules. Combined with data published by the Economic Commission for Europe, it can be calculated that the total gas imports of the EU 28 countries from Russia in 2020 will be about 6,985,900 terajoules, which is about a quarter of China's total electricity consumption in 2019.

3. Supply is short, prices are soaring, and Europe is in an energy crisis

Since the beginning of 2021, affected by factors such as winter heating demand and rapid economic recovery, European energy demand has soared, but due to the decline in wind speed in the North Sea, wind power generation is much lower than in previous years, and there is a huge supply gap in the European energy market. In order to ease the energy shortage, European countries once asked Russia to increase short-term natural gas supply, but Russia refused Europe's request because Germany and other countries repeatedly delayed the approval of Nord Stream 2 under the pressure of the United States, and even reduced the natural gas supply of Yamal-Europe, one of the main pipelines of Russian natural gas to Europe, to zero at the end of 2021. Other gas suppliers to Europe, such as Qatar and Algeria, are unable to make up such a huge energy gap in a short period of time, and Europe has fallen into a serious energy crisis. According to Gas Infrastructure Europe, regional stocks of gas in Europe fell to 74.71% of full load levels in 2021, the lowest level in nearly a decade.

The huge energy supply gap has led to soaring energy prices. Since March 2021, European natural gas prices have begun to increase rapidly. The TTF benchmark Dutch natural gas futures price, which is regarded as the bellwether of European natural gas prices, has risen from 19.17 euros/megawatt hour in March to 180.27 euros/megawatt hour at its highest. The risk of power outages due to rising gas and electricity prices is clouding the skies over Europe's economic recovery.

Russia has made a fortune riding the wave of Europe's energy crisis. According to data from Index mundi, starting in March 2021, the average price of Russian natural gas exports began to rise rapidly, peaking at $38.03 / million British thermal units by the end of 2021, about four times the average price of US natural gas exports in the same period, and 10 times the average price of Russian natural gas exports in early 2020.

4. Europe is suffering from rising energy prices

According to the data released by the IEA, Europe's imported natural gas energy in 2021 is about 60,92,137 million megawatt-hours, combined with the TTF's natural gas futures settlement price calculation can be obtained, if Europe maintains the current natural gas imports, the price rise caused by the European energy crisis will increase the annual cost of natural gas imports in Europe by about 700 billion euros. In this geopolitical gas war, European countries are the biggest victims.

The future of Europe's energy market: Finding a way through the fog

1, in the short term, the energy crisis will continue, and American natural gas will take the opportunity to enter the European market

As the conflict between Russia and Ukraine continues to intensify, the sanctions and counter-sanctions between Western countries and Russia are increasingly severe, and the war concerning the world's important energy suppliers will also make the international energy market in continuous turmoil; Europe's energy crisis will continue until the supply of natural gas and other energy sources is resolved.

In the short term, in the context of the European energy crisis, the United States may become the "savior" of the European energy market; Since the discovery of large-scale shale gas in the early 2000s, natural gas exports from the United States have been on the rise, reaching more than 5.28 trillion cubic feet by 2020. At the end of 2021, the United States once surpassed Qatar in monthly LNG exports, becoming the world's largest LNG export country that month.

Before the European energy crisis, it was difficult for American natural gas to squeeze the Russian natural gas market in Europe through normal commercial competition, mainly for three reasons: first, compared with Russian natural gas, American shale gas is more difficult to exploit, and the early research and development and equipment investment is larger, and the cost is higher; Second, natural gas from the United States reaches Europe by sea. In order to improve transportation efficiency, natural gas needs to be liquefied into LNG(liquefied natural gas), and the liquefaction process brings additional costs to natural gas transportation. The third is that the cost of transporting gas by sea is higher than by pipeline in Russia. But as tensions between Russia and Ukraine rise, Russia and Europe fall into full confrontation, and rising gas prices provide huge profit margins for American gas; In the coming period of time, the United States may increase investment in LNG compression equipment and increase the supply of LNG products to seize the European natural gas market.

2. In the long run, renewable energy is the only way out for Europe

In the long run, Europe will have to continue to "keep a distance" with Russia under the influence of the United States, and the energy gap in Europe will rely on the United States to fill for a long time in the future. For fossil-energy poor European countries, this is "out of the dragon hole, into the tiger's den"; In order to get rid of other countries' control of their energy lifeline and achieve true energy, economic and even political independence, European countries must vigorously develop new energy sources. According to Eurostat, the share of renewable energy in energy consumption in the EU-27 has continued to rise since 2011, reaching 20.95% in 2020, an increase of about 2.5 percentage points year-on-year. Although this proportion is already very high in the world, new energy has the disadvantages of unstable power generation and high cost compared with traditional energy, and Europe still has a long way to go if it wants to fully rely on new energy to meet its internal energy needs. European countries have become the biggest victims of the gas war, which is caused by the conflict of interests between the United States and Russia.