Who won the energy war
The sarcastic predictions that sounded everywhere last year that Europe would certainly freeze without Russian gas did not come true. The countries of the Old World have successfully found new energy suppliers, albeit at higher prices. In turn, due to the loss of the traditional sales market, our companies had to significantly reduce production. So who won the gas war — the sanctions West or the recalcitrant Moscow? Experts advise not to rush to conclusions yet, however, it is obvious that Russia is unlikely to be able to restore the former rates of production of «blue fuel» in the near future.
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In the first quarter of 2023, gas production in our country decreased by 10%. The production of volatile fuels fell by almost the same amount over the entire last year. The trend looks daunting and so far there is no hope of overcoming the permanent shutdown of wells. Deliveries to Europe, whose states until recently served as the main foreign sales platform, have been reduced to a minimum and a return to the previous trade relations is not yet expected.
It is not strange that against the backdrop of such circumstances, the domestic gas industry is moving along a downward trajectory , and revenues from the commodity sector, which previously served as the main donor of the national budget, are steadily declining — in the first quarter, the treasury's foreign exchange earnings from oil and gas exports fell by 45% compared to the same indicator last year.
Of course, Europe also has a hard time. If in January 2022 the cost of a thousand cubic meters on the commodity exchanges of the Old World did not exceed $400, then by mid-summer the quotes of «blue fuel» had grown to $3,000 and even to $4,000. As the head of Gazprom, Alexei Miller, suggested last October, during the peak of cold weather in the coming winter, entire European cities could freeze. In general, as Bloomberg reported, the refusal of Russian gas has already cost the inhabitants of the continent about $1 trillion. “The markedly increased costs of EU members on energy carriers have slowed down the pace of development of the financial system of the continent,” says private investor Fyodor Sidorov. — The population, faced with an increase in tariffs by an average of 3-5 times, began to save money, which brought down consumer demand. As a result, the Eurozone economy has lost its most important revenue items, as companies were forced to reduce output when domestic demand fell.
However, the collapse did not happen. Naturally, it was not without very painful problems — about 70% of nitrogen fertilizer production capacities had to be stopped, aluminum production decreased by 25%, and steel production — by 5%. However, the winter turned out to be warm, which turned out to be beneficial for the Europeans, who also learned how to save energy resources: 27 EU countries with a population of 450 million inhabitants managed to reduce gas consumption by a quarter over the past 10-12 months, which made it possible to avoid blackouts. The deliveries of pipeline raw materials from Azerbaijan, LNG from Algeria, the USA and Norway have grown. As a result, in early May, the spot price of gas in Europe dropped to $400 per thousand cubic meters, that is, in fact, returned to the level of early 2022, when the energy ties between the Old World and Russia began to slowly deteriorate.
It turns out that today our country is in the position of «dogs in the manger». Given that the richest gas fields in the world are concentrated in Russia, we simply have nowhere to put our raw materials. The existing pipelines to Asian countries, with which domestic companies could replace European clients, are too narrow to fully replenish exports. In turn, the capacity for the production of liquefied gas, due to which it was possible to saturate the eastern market and offset the loss of western buyers, is clearly not enough in Russia, and the development of this segment requires significant investments and, most importantly, a long time.
A bright spot in the potential partial recovery of the export of «blue fuel» is Moscow's cooperation with Ankara on the creation of a gas hub in Turkey. As Sergei Pravosudov, director of the National Energy Institute, explains, four international pipelines converge on the shores of this country: the Trans-Anatolian TANAP from Azerbaijan, Tabriz-Ankara from Iran, and two strings of the Turkish Stream from Russia, so there is nothing fundamentally new to start the operation of the transshipment hub additionally you don't have to build. “Formally, the hub is a trading center, a specialized exchange where contracts are concluded, prices, terms and volumes of raw materials supplies are agreed,” the expert notes. “It remains only to create the appropriate software and work out logistical issues, after which the work of the new exchange can be opened.” Through the Turkish route, Russia can also supply gas to European states, which are now boycotting our energy carriers. After the hydrocarbons enter the exchange, the raw materials will lose their “citizenship”, mixing with Azerbaijani fuel, which is not subject to sanctions. However, there is a certain risk in such a scheme. Ankara proposes to pay for deliveries on the Russian-Turkish border. Moscow generally agrees, since such a scheme avoids sanctions strikes. Meanwhile, it is possible that the Turks will insist on a discount, as they will have to serve as a buffer between the two conflicting parties. Then Ankara will be able to resell Russian raw materials to Europeans, removing undeserved financial cream from such operations.
There is another idea how to mitigate the painful consequences for the extractive industry of the refusal of the EU members from our energy carriers. In April last year, Vladimir Putin called for an increase in fuel supplies to the domestic market in order to reduce prices for ordinary domestic consumers as much as possible. This process was supposed to be facilitated by the previously adopted program for the gasification of Russian regions, under which the head of state abolished fees for connecting households to local pipelines. Taking money for bringing branches to non-gasified sections is unacceptable, the president said then.
In principle, the program is gradually gaining momentum, but very slowly: by the end of 2021, the level of gasification of Russian regions was 72%, and by the end 2022 reached 73%. According to Deputy Prime Minister Alexander Novak, about 500,000 households are provided with free supply of «blue fuel» every year. On the one hand, this is two and a half times higher than the level of previous years. On the other hand, for a house with an area of 150 square meters per year, approximately 7-9 thousand cubic meters of gas are required (and in fact it can come out half as much, since we took the maximum consumption that occurs during the heating season). That is, every year domestic consumption grows by an average of 3.5-4.5 billion cubic meters every twelve months. It is unlikely that such rates will make it possible to promptly recoup the annual drop in production by 100 billion cubic meters.