After trimming a substantial volume of natural gas supply to Europe, Russia is staring at Asian markets to divert the fossil fuel for the uninterrupted energy business. The latest World Energy Outlook 2022 published by the International Energy Agency (IEA) finds that Russia is discussing the possibility of new pipelines links to China, notably the large capacity Power of Siberia-2 pipeline through Mongolia, in an attempt at Moscow’s trickiest plan of reorientation to Asian markets.
Since Russia’s invasion of Ukraine in February this year and western sanctions thereafter, there have been sharp curtailments of the supply of natural gas from Moscow which left the European Union in a disarray. Deliveries from Russia to the European Union fell by nearly 40 percent in the first half of 2022, with Russia terminating supply contracts for multiple EU countries' buyers’ refusal to accept a unilateral change in the payment system. This is worth mentioning here that Russia has asked for payment in ‘Ruble’ following European leaders disconnected Moscow from the global payment system ‘Swift’ for foreign currency transactions.
| A LION’S SHARE Fraction of Russian gas in total natural gas demand in major Europen countries |
| Market size | Country | Russian share (%) | Share of gas in sectoral demand (%) |
| Power | Industry | Buildings |
| >20 bcm | Germany | 46 | 20 | 31 | 38 |
| United Kingdom | 3 | 43 | 32 | 55 |
| Italy | 41 | 51 | 31 | 50 |
| France | 20 | 9 | 31 | 29 |
| Netherlands | 36 | 58 | 30 | 59 |
| Spain | 11 | 31 | 38 | 22 |
| 10-20 bcm | Poland | 46 | 9 | 28 | 19 |
| Belgium | 7 | 30 | 28 | 41 |
| Romania | 6 | 28 | 37 | 34 |
| 5-10 bcm | Hungary | 78 | 37 | 30 | 50 |
| Austria | 74 | 21 | 34 | 20 |
| Czech Republic | 67 | 13 | 24 | 30 |
| Portugal | 10 | 40 | 23 | 12 |
Source: International Energy Agency’s World Energy Outlook 2022
Exports to former subsidiaries of Gazprom in Germany have ceased, and large importers such as Germany and Italy are planning a phase-out of Russian gas over the course of this decade. With its Renewable Energy Power European Union (RePowerEU) Plan, leading industrial countries in Europe are settling in motion a process to dismantle a structural dependence on energy imports from Russia built over several decades.
The role of natural gas, and the level of independence on Russian gas, in particular, vary considerably across the European Union. Around 40 percent of the European Union’s total residential space and water heating demand and 30 percent of its cooking fuel demand are currently met by natural gas. Gas also powers 20 percent of total electricity generation and meets 25 percent of its industrial energy demand, laying an outsized role in sectors such as chemicals and food production.
According to a report, natural gas demand in the European Union is set to decline by 180 bcm between 2021 and 2030 in an Announced Pledged Scenario (APS) which works out to an average fall of 6 percent per annum. Gas use in the power sector over this period may drop at a faster pace than coal use did in the European Union from 2010-2020. There is a parallel ramp-up of renewables, especially wind and solar capacity, which increase by 600 gigawatts (GW) by 2030, while coal declines by 100 GW.
Building retrofits nearly triple from the current rate of less than 1 percent per annum and 40 million head pumps are deployed (equivalent to installations in nearly one-third of the EU building stock). Together, these actions could help reduce the use of gas in buildings by 45 percent until 2030 or roughly double the pace of the reduction in oil use in the EU residential heating sector in the 1980s. Natural gas demand in the industry falls around 4 bcm per annum, faster than the decline seen in 2020 immediately after the onset of Covid-19, data compiled by IEA showed.
The global energy crisis triggered by Russia’s invasion of Ukraine caused profound and long-lasting changes that have the potential to hasten the transition to a more sustainable and secure energy system. Today’s energy crisis is delivering a shock of unprecedented breadth and complexity. The biggest tremors have been felt in the markets of natural gas, coal, and electricity – with significant turmoil in oil markets as well, necessitating two oil stock releases of unparalleled scale by IEA member countries to avoid even more severe disruptions. With unrelenting geopolitical and economic concerns, energy markets remain extremely vulnerable, and the crisis is a reminder of the fragility and unsustainability of the current global energy system.
The decline in fossil fuel demand, however, is favourable to renewable energy generation and consumption. While European nations are forced to invest in the renewable energy sector, Asian countries such as China and India have already taken a step forward to ramp up renewable energy generation toward achieving the emission reduction target.
Fatih Birol, Director, IEA, believes that the investment made so far towards renewable energy generation is insufficient to achieve the target. “Stronger policies will be essential to drive the huge increase in energy investment that is needed to reduce the risks of future price spikes and volatility. Subdued investment due to lower prices in the 2015-2020 period made the energy sector much more vulnerable to the sort of disruptions we have seen in 2022,” he said.
“While clean energy investment rises above US$2 trillion by 2030 in the States Policies Scenario, it would need to be above US$4 trillion by the same date in the Net Zero Emissions by 2050 Scenario which requires entry of new investors in this sector. Major international efforts are still urgently required to narrow w the worrying divide in clean energy investment levels between advanced economies and emerging and developing economies,” Birol added.
DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com
