Russia-Ukraine war could derail a renewable energy future

On February 24, 2022, Russia declared war on its neighbor Ukraine. The annexation of Crimea in 2014 marks the first time since the end of World War II in 1945 that a European nation is attempting to redraw borders through hard power. Regionally, the war changed geopolitical and economic structures in Europe but globally, reopening the East-West dispute, or by some the Cold War, practically dividing the world into two halves.

Russia is a hydrocarbon giant with crude oil and hydrocarbon exports worth $5 million billion in 2020. 42% of these exports (still) go to the European Union (EU), while 40% of EU gas (and 65% of Germany’s gas) is sourced from Russia’s hydrocarbon reserves in the Caspian-Volga basin and eastern Siberia. Before the start of the war in Ukraine, natural gas was delivered via the Yamal-Europe pipeline to Belarus-Poland and the Nord Stream 1 pipeline passing under the Baltic Sea. Despite warnings of a potential recession by 2030, Germany, the main European beneficiary of these Russian exports and the largest European economy in the early days of the war, announced it would halt its Russian oil imports by the end of this year. From gas supply.

Currently the Russian oil market is untouched by sanctions. Center for Research on Energy and Clean Air (CREA) reports indicate that Russia’s oil export revenue rose to $98 billion in the first 100 days of Russia’s invasion of Ukraine. And according to some estimates, the price of crude oil will remain above $100 per barrel until the war escalates. So, with Russia’s leader, Vladimir Putin, manipulating the global oil market through war, insecurity around oil supply is at its peak and global demand is on the rise.

Russia is using the EU’s dependence on its natural gas as leverage in this war. Russia’s demand to trade oil and natural gas in rubles — bypassing banking problems imposed by sanctions and weaponizing oil and natural gas — is not a new strategy for Russia. Its predecessor, the Union of Soviet Socialist Republics (USSR), invaded Afghanistan after the oil price boom of the 1970s. In 2008, Russia invaded Georgia under the pretext of liberating South Ossetia and Abkhazia when oil prices rose to $140/barrel. In 2014, Russia’s annexation of Crimea followed a rising trend in oil prices on global markets. The only way to stop this economic advantage Russia has by dictating hydrocarbon prices in Europe depending on the outcome of a conflict unilaterally initiated by Russia is to move towards a sustainable energy infrastructure. It’s not quick or cheap.

As an immediate solution, a viable option is to import Azerbaijani gas via Turkey via the Trans-Adriatic Pipeline and the Trans-Anatolian Natural Gas Pipeline (TANAP). Other options include exploring North Sea gas reserves, gas supplies from Norway and re-opening the vast Groningen gas field despite risks of land subsidence. Or the current US proposal to supply the EU with 5 billion cubic meters of liquefied natural gas (LNG) to offset Russian hydrocarbons.

In the long run, the picture simplifies seeing renewable energy as the only solution. As one of the world’s largest greenhouse gas (GHG) emitters, with total emissions of approximately 2.5 billion metric tons of CO2 equivalent, in 2020, Europe must accelerate its transition to renewable energy, as energy market fluctuations increase due to war. And this is the only way to free the EU from the power shackles of Russia. In 2020, EU members agreed to a deal to reduce their emissions by 55% of 1990 estimates by a 2030 deadline. A long-term recovery package named ‘NextGenerationEU’ was also introduced. The rapid development of solar, wind and hydrogen-based energy technology is leading the way towards a renewable transition, and research grants have been opened to develop hydrogen technology (economically viable) as a close alternative to conventional natural gas. It is part of the ‘Fit for 55’ plan to set the EU green in 2021. The Russia-Ukraine war has changed hydrocarbon geopolitics and may affect this energy transition. As Gazprom cuts natural gas supplies through the Nord-1 pipeline, Germany’s only option is to fill its stores in winter and reopen coal-fired thermal power plants that were previously closed due to CO2 emissions concerns. Therefore, the war will significantly slow down the EU’s renewable energy transition. As winter descends on EU states this year, Russian supply shortages could set off a chain reaction by driving up energy costs, reducing the EU’s expected economic growth and raising the risk of unemployment and inflation.

It is now clear that, slowly but surely, Russia will lose the European oil and gas market worth $108 billion, according to estimates from last year, as the Kremlin seeks to gain as much market as possible in the East. Trade in the West is shrinking rapidly. Pumping cheap hydrocarbons to China and India is the most viable alternative for the energy giant.

In 2022, China bought $7.47 billion worth of oil from Russia, more than double its purchases last year.

India is the third largest consumer of oil, importing 80% of it. As of February 2022, Russia has become the second largest oil exporter to India after Iraq, supplying 0.74 million barrels worth of oil per day. India’s oil exports from Russia fell from 1% to 18% after the start of the war. In 2021, Russia was ranked 9th in the list of oil importers for India. With sanctions hitting sales of Urals crude, India is benefiting.

For now, Russia is strengthening the BRICS (Brazil, Russia, India, China and South Africa) to foster closer economic ties with these nations and create a potential market for its Urals crude oil. After the recent BRICS summit, other countries such as Argentina and Iran applied for membership. Several Asian countries were affected by the post-war shocks and sanctions on Russia. Russian oil tankers are getting fewer ports to dock and it faces supply chain disruption to Asia, rising oil prices and other commodity prices. Singapore imported 5.7% and Thailand-3.3% of oil from Russia in 2019. Russian energy firm Rosneft has acquired 45% ownership in the domestic refinery to set up Indonesia’s state oil and gas company (Pertamina), which currently has a market value of $ 13.8 billion. The proposed Russia-China-India (RCI) oil/gas pipeline project could avoid Western sanctions and leave Russia’s energy market unscathed even if the EU limits its gas imports. Russia may also compensate through its military sales. After the invasion, Russia agreed to sell the S-400 missile defense system to India.

In the long run, the influx of cheap Russian hydrocarbons could prove to be a poisoned apple, as it would hold back any renewable energy projects until economies using fossil fuels can do well enough. Abandoning the drastic transition to renewable energy (already) means that the price will be paid by future generations.

The article was written by Abhirup Chaudhary, Professor and Cosmin Korendia, Vice-Chancellor, Jindal School of Environment and Sustainability, OP Jindal Global University, Sonipat, Haryana, India.

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