Economic science. 2.Foreign economic activity
Lukina
E. A.
Rostov
state university of economics (RSUE)
EU-Russia energy relations
As it is known today, currently mineral products (mainly oil and gas) account
for around 71 percent of Russia’s exports. Taxation oil and gas production and
export contributes around 50 percent of the Russian federal budget. The EU is
the main export market for Russian oil and gas. According to Gazprom Export, in
2013, Russia exported 133 bcm of natural gas to the EU. This is 68 percent of
Russia’s total pipeline gas exports. According to the latest figures from
Eurostat, in 2012 Russia exported 170 million tonnes of crude oil to the EU –
some 71 percent of Russia’s total crude oil exports of 240 m tonnes in 2012. So
clearly, oil and gas exports to the EU are important for Russia.
In that case, how
dependent is the EU on Russian exports?
The EU as a whole relied on imports to meet 86 percent of oil consumption and
66 percent of natural gas consumption in 2012. Given that the EU consumed 589m
tonnes of crude oil in 2013 and 462 bcm of gas in 2013, Russia supplied 29
percent of EU oil consumption in 2012 and 27 percent of EU gas consumption in
2013.
So, in that case both, EU and RF are very
interdependent, strategic trading partners in the sphere of energy.
It is very important
to underline that unfortunately for
the EU, while Norwegian gas exports to the EU have increased significantly over
the past decade, it looks as though Norwegian gas production may have hit a
plateau, and is unlikely to increase further. Worse, Norwegian oil exports to
the EU have declined by 66 percent over the past decade. It is true that the US
is slowly developing its LNG exports, but there are challenges here. The US
Department of Energy has only approved a small number of licences for LNG
exports, because they want to ensure that enough gas remains for the domestic
US market. Furthermore, most US LNG export projects are aimed at the
Asia-Pacific market, where prices are higher. In 2013, the average price of gas
at the US Henry Hub was $3.7 per Million British Thermal Units (MBtu). In
Europe, the price of Russian gas on the German border was $11.2 MBtu, while in
Japan, the average price of LNG imports from Indonesia was $17.3 per MBtu.
Quite simply, if Europe wants US LNG imports, they will have to pay Asian
prices, which are significantly higher than Russian gas prices.
In that conditions,
EU have some alternative. The alternative is
to source more gas from the developing global LNG market. According to the
Group of International LNG Importers (GIIGNL), the global LNG market is set to
remain tight (i.e. a competitive seller’s market with high prices and demand)
until at least 2016. By 2020, new LNG export projects (particularly in
Australia and the US) should come online. The question is whether the EU and
its Member States will be able to attract those deliveries.
The EU does have the capability to reduce its
imports of Russian oil and gas, but it will not be able to abandon them
completely. Russia supplied 23 percent of total EU energy consumption in 2013.
Clearly, it would be difficult to replace these volumes of oil, gas, coal, and
uranium. To the extent that these volumes can be replaced, the result will be
higher prices for European energy consumers.Moreover, there is an opportunity for Russia to reroute its exports towards
Asia, and especially China in the near future.
Indeed, Russia has already started doing so. In
2011, Rosneft began exporting 15 million tonnes of crude oil each year to China
via the East Siberia-Pacific Ocean (ESPO) pipeline. In March 2013, Rosneft
agreed to supply an additional 15m tonnes per year for the next 25 years. When
deliveries to countries other than China are included, Russia exported 37m
tonnes to the Asia-Pacific region in 2013 – far below the 170m tonnes it
exported to Europe.
In terms of natural gas, Russia currently has
just one LNG export terminal for deliveries to the Asia-Pacific region – a 10m
tonne (13.8 bcm) capacity LNG export terminal on the island of Sakhalin,
majority owned by Gazprom, with the participation of Shell (Netherlands),
Mitsui and Diamond Gas (both Japan). This terminal accounts for less than 10 percent
of Russia’s total gas exports each year.
New LNG export projects are being developed.
Novatek (with the participation of Total [France] and CNPC [China]) is building
another 15m tonne (20.7 bcm) capacity LNG export terminal in Russia’s northern
Yamal region, to be launched in 2017. Rosneft is planning a 5m tonne (6.9 bcm)
capacity LNG export terminal on Sakhalin with the participation of ExxonMobil,
to be launched in 2018. Gazprom recently agreed to expand the Sakhalin-II
project by 5m tonnes (6.9 bcm) and is planning a new 15m tonne (20.7 bcm) LNG
export terminal at Vladivostok, to be launched in 2018-19.
These combined LNG projects could give Russia
an extra 55.2 bcm per year of gas export capacity by 2020. However, it should
be remembered that these projects will be competing with new US LNG export
capacity and increasing Australian LNG export capacity on the Asia-Pacific LNG
market, and it is not guaranteed that Russian gas exporters will be able to
find contracts for the full 55 bcm per year of new LNG exports.
And one of the most
perspective way for RF
is the proposed gas pipeline to China. At the G20 in St Petersburg in September
2013, Gazprom and CNPC announced that they had agreed the route (from East
Siberia to North-East China), the volumes (38 bcm per year), the contract
length (30 years) and the start date for deliveries (2018). In contrast to the
development of LNG exports, the pipeline exports to China would be guaranteed
for several decades by a single contract. All that remains to be agreed is the
price. Reports suggest that Gazprom is seeking $13 per MBtu ($485 per thousand
cubic metres), while CNPC is prepared to pay $11 per MBtu ($410 per thousand
cubic metres). This price differential of $75 per thousand cubic metres is
equal to $2.85bn for each year of the contract. Over the 30-year life of the
contract, this price difference could be worth $85.5bn. Therefore, it is hardly
surprising that the two sides have driven hard bargains and have yet to make
concessions sufficient to finalise the deal. Russian media reports suggest
that, given the deterioration in relations with the West, President Putin will
be more inclined to ensure that the deal is finalised when he visits China in
May. However, given that gas exports to China will require the development of
two new gas fields and the construction of a 4000km pipeline in East Siberia,
the start date of 2018 seems extremely ambitious.
The gas deal would deepen Russia’s dependence
on China, insofar as the pipeline deliveries cannot be switched to other
consumers. However, the combination of new pipeline and LNG exports also
represent a welcome diversification away from the European market, which is
currently Russia’s major export market for oil and gas.
RESOURCES
1.
Annual report of The Gazprom Export 2014.// http://www.gazprom.ru/about/marketing/europe/
2.
World Economic Journal // http://world-economic.com/about.html