A person uses a gas pump at a gas station in London.
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European countries are facing the possibility of their energy supplies being cut off, as a dispute between Moscow and the West over payments for Russian exports flares up.
European countries rely heavily on Russian oil and gas supplies, but Moscow’s invasion of Ukraine in late February saw the EU and UK impose a range of sanctions including cut Russian energy imports.
In early March, the EU pledged to cut Russian gas imports by two-thirds by the end of the year, while Britain said it would phase out Russian oil imports by the end of 2022.
But those moves come with risks for a region already facing an energy crisis. Tight natural gas supplies have seen wholesale prices rose to a record high in Europe last year, with UK households coming to see their energy bills up more than 50% from April 1.
Natural gas distribution
Germany warning on wednesday that it may soon face a natural gas emergency that could necessitate a split in gas supplies. German Economy Minister Robert Habeck said the “early warning” measure did not mean the country had to use gas sparingly, but rather urged consumers and companies to reduce energy consumption.
Meanwhile, the Austrian government announced on Wednesday that it has activated the first step of a three-stage emergency plan under which it will monitor the country’s gas market more closely. Officials cited the need for payments in Russian rubles as the reason for activating the contingency plan, noting that should it reach the third phase of the plan, emergency control measures such as the division of exports section may take effect.
According to Chi Kong Chyong, director of the Cambridge University Energy Policy Forum, Germany and Austria may not be alone in taking extreme emergency measures if Western countries continue to lock horns with Russia.
Putin said last week that the Kremlin would demand payment in rubles for gas sales from “unfriendly” countries – a request that was rejected by the G-7 nations. On Thursday, The Russian leader said he signed a decree said foreign buyers must pay in rubles for Russian gas from April 1.
“If they cannot agree on payment terms and the flow of gas from Russia is stopped, then other European countries will also have to take urgent measures,” Chyong told CNBC. “Despite entering a warmer period when we consume less gas, we still need gas flowing into our storage facilities for use in the coming winter months when temperatures drop and we We need gas to warm up again.”
“If the flow of Russian gas stops, all European governments – including the UK – need to start activating emergency plans that include ‘preload’ public campaigns to get ready for our citizens save energy during the winter months,” he added.
Allocate diesel engine
Meanwhile, Jim Watson, professor of energy policy and director of the UCL Institute for Sustainable Resources, said it was “certainly possible” that the UK could see a government imposing fuel rations. for cars.
Watson told CNBC by phone that Britain faces more difficulty in transitioning away from Russian oil than it does moving away from Russian natural gas because the country is more dependent on oil imports.
Speaking to British lawmakers during a meeting of the British Parliamentary Treasury Committee in March, Amrita Sen, research director at Energy Aspects, warned that sanctions on Russia’s energy exports could have could have a serious impact on Europe.
“Russia has a lot of other intermediaries and other companies that can buy and sell its raw products,” she said. “Especially on the product side, diesel is where we’re concerned the allocation could come as soon as the end of this month in Germany. You can totally see the consequences of that in the UK.”
Meanwhile, Russell Hardy, CEO of Swiss oil trader Vitol, told a FT Commodity Summit last month: “Europe imports about half of its diesel from Russia and about half of its diesel from the Middle East. The systemic diesel shortage is there.”
He added: “Diesel allocation is a possibility. Time.
Reduced demand
The U.S. Energy Information Administration estimates that Russia exported 4.7 million barrels of crude oil per day in 2021 — nearly half of which was exported to European OECD countries. The Netherlands, Germany and Poland are the largest importers of Russian oil in the region.
Meanwhile, 74% of Russian natural gas exports went to OECD Europe last year, according to the EIA.
Watson thinks that implementing policies that reduce public demand for oil can help the UK government reduce its dependence on imported oil, arguing that boosting public transport adoption and bringing Outlining other behavioral policies “about people and their choices” is also “certainly possible.”
Last year, panic buying of petrol in the UK led to severe shortages that left many gas stations dry, with military personnel deployed to provide fuel. But Watson notes that the situation is different now, and a more likely outcome of the risks surrounding energy supplies is continued high prices in the UK – a country currently under facing the worst cost of living crisis in decades.
“I think it’s a bit of a challenge to set these up [measures] following the government’s top-down policies that say the population should drive slower, drive less, fly less, switch to public transport,” he said.
A ‘real and effective weapon against Putin’
Earlier this month, the International Energy Agency publish a report released 10 policies they say could help quickly cut global oil demand by 2.7 million barrels per day. The policies, slated for implementation in “advanced economies and beyond,” include reducing the speed limit on motorways by 10 kilometers (6.2 miles) an hour, making traffic less cheaper public transport, introducing car-free Sundays and alternating private car use in major cities.
Rory Stewart, former UK Secretary for International Development and Senior Fellow at Yale’s Jackson Institute, said in a tweet earlier this month that it was possible to cut the income Russia receives from oil exports by focusing on reducing demand.
“It will take a government and civilian effort comparable to the Covid response,” he said.
His proposed policies, which he said would be maintained throughout the Ukraine crisis, include reducing the UK’s speed limit to 50 mph, making all public transport available. plus became free and called on companies like Uber to open up the technology to allow free civilian carpooling.
“This will reduce Russian oil demand and prices, [and] Stewart said.
Chyong of Cambridge University told CNBC that the key to hurting Russia through energy sanctions is implementing policies focused on cutting demand.
“This point is about trying to reduce the demand for fossil fuels – this is our real and effective weapon against Vladimir Putin,” he said.
“Exponential negative relationship between demand and price [exists] because right now we’re facing a very tight energy system across the globe and every extra unit of demand drives up prices disproportionately. The flip side to this effect is that reducing our demand would result in a disproportionately high marginal benefit – a dramatic reduction in prices. “
