The Danger of Energy Dependency

Surely by now, you have all heard the news about Russia’s invasion of Ukraine. In response to this unprovoked invasion, many Western nations have imposed sanctions on Russia, a major exporter of energy resources. The United States has completely banned Russian coal, gas, and oil imports, the UK plans to phase out its Russian oil imports by the end of 2022, and the EU is set to reduce its gas imports from Russia by two-thirds. Naturally, various questions arise: Will the West be able to survive without Russian imports? Exactly how dependent is the West upon Russian energy? What would happen if Europe was cut off from Russian energy?

Russia is the largest exporter of oil to global markets, exporting about 5 million barrels of crude oil per day. Most of Russia’s exports go to European nations and China. Last year, Europe bought about 42% of Russia’s total oil production, while China alone bought around 14%. Some European nations, such as Lithuania, Finland, and Slovakia are almost entirely dependent upon Russia for oil, getting over 70% of their imports from Russia. For comparison, only about 3% of the United States’s oil imports come from Russia, and 8% of the UK’s imports are Russian. This explains the United States’ and the UK’s harsh sanctions on Russian energy. Other nations, however, are not in as great of a position.

Over the past decade, Germany has continually become more dependent upon Russian energy. Germany receives about two-thirds of its gas, half of its coal, and around a third of its oil from Russia. German Chancellor Olaf Scholz has reported that the nation has enough natural gas to last until next winter, although Europe’s gas storage facilities are only a third full, less than they typically are at this time of year. The German government has also signed off on a 1.5 billion euro ($1.7 billion) payment to acquire emergency natural gas. However, given current gas prices, this would only amount to about a week’s worth of gas for the nation. This puts Germany in a dangerous position if Russia were to shut down its exports. Russia shutting down its gas exports to Germany may not be overly likely, but it is definitely a possibility, as Russian gas revenue only amounts to a quarter of Russian oil revenue.

Naturally, nations are looking for alternative sources of energy to replace what could possibly be lost in imports from Russia. Ideally, renewable energies would be used to soften the blow. However, a shift to renewable energy would take lots of time and money for installation, and would simply not be feasible in the short term. Additionally, fossil fuels are much more efficient than renewable energies, making them more difficult to replace. To help counteract the problem in Europe, the U.S. is planning to ship about 15 billion cubic meters (bcm) of liquified natural gas into the continent by the end of 2022. Then, the U.S. is set to supply 50 bcm of gas to Europe each year until 2030. In addition, the U.S. has requested that Saudi Arabia (the second-largest producer of oil in the world) ramp up its oil production in order to lower prices. Also, the U.S. is looking at relaxing oil sanctions imposed on Venezuela.

Obviously, hindsight is 20/20, but I’m quite sure that Russia’s conflict with Ukraine will serve as a stark reminder for countries to diversify their energy supply and not become too reliant upon one nation — especially one headed by a power-hungry dictator. Hopefully, the conflict in Ukraine will begin to simmer down and the world will dodge this major energy scare.