“We have to consume less immediately to survive the next winter”

Energy ministers from the 27 are meeting in Brussels on Monday to consider a phasing out of oil purchases from Russia. Goal: to dry up funds for the Kremlin’s war effort, which exports two-thirds of its oil to the European Union (EU).

“There is a political will to halt oil purchases from Russia and we will have action and a decision on a phased withdrawal next week,” said a European official involved in Sunday’s discussions, without hiding that decision no. is not easy to implement”.

Two landlocked European countries, Hungary and Slovakia, depend on Russian pipelines, and the European Union also wants to avoid a global spike in oil prices.

In 2021, Russia provided 30% of crude oil and 15% of petroleum products bought by the EU. Breaking up these stores is not trivial:

Russia’s oil import bill was four times that of gas, $80 billion versus $20 billion.

Josep Borrell, EU High Representative for Foreign Affairs and Security Policy, in April

The main importers of fossil fuels from Russia (gas, crude oil, petroleum products and coal) are Germany, Italy, the Netherlands and France. The coal embargo passed on April 7 will come into effect at the beginning of August.

Thierry Bros, professor at Sciences-Po Paris, energy specialist, decodes the situation for us:

Thierry Bros. Photo DR

In mid-March you estimated that under the pressure of public opinion and the continuation of the war, Russia would export fewer and fewer hydrocarbons to Europe in favor of Asia. How about today?

We are right there. We issued this coal embargo that will go into effect in August, now we are discussing the oil embargo. It should be noted that there are two “forms” of the embargo: the political embargo, which is being discussed, but also the “self-embargo” when Total announced in late March that it would no longer buy Russian oil. In any case, whether it is a political decision or not, we are moving towards a de facto embargo: no more Russian oil will be bought by the end of the year. Politicians are trying to beautify it because the discussions are unsuccessful, but by the end of 2022 we will stop importing Russian oil or petroleum products.

Are prices affected?

It will lead to some price increase, yes. For example, we can clearly see that the price of diesel is rising sharply because we cannot produce enough of it ourselves.

And for the petrol?

What we have seen is that imports rose sharply in March due to the build up of inventories for next winter. We usually start storing in April, things started earlier and stronger there: the countries have maximized their current contracts.

From April we observe a 21% drop in imports. First, under the influence of the Baltic states, which themselves decided to stop supplying themselves with Russian gas. Then because of Vladimir Putin’s decision last week to stop deliveries to Poland and Bulgaria.

Can Putin alone cut off supplies to other countries or even the entire EU?

Vladimir Putin has been using gas weapons for a long time. Already last year, no one really understood: he had stopped selling gas on the markets, beyond what the contracts provided for. Soon after, in the summer, Gazprom’s warehouses in Germany, the Netherlands and Austria failed to fill up. I had started to raise the alarm, but the EU had not understood. That was already the political use of the gas weapon. Then last week it stopped deliveries to Bulgarians and Poles.

The choice of these countries is no coincidence: the Bulgarian and Polish contracts expired at the end of the year, so if they ask for compensation, it won’t cost Moscow too much – a few hundred million dollars. These two countries had already planned to get out of dependence on Russia by the end of 2022, so there are only a few months to “bridge over”.

If Putin did the same to Germany, the compensation would amount to hundreds of billions of euros, with a contract that runs until 2037. He could do it with Finland, which is 100% dependent on Russian gas but is now linked to European countries. In Denmark it can, but it wouldn’t be smart: Copenhagen can produce gas offshore to compensate.

And France?

At the moment it would not be very smart: it would put Emmanuel Macron in a very bad mood, even though he holds the presidency of the European Union. Putin probably won’t do this.

But anything is possible. The risk is there. In any case, we must be independent of Russian gas by 2023 at the latest. So, like in Poland and Bulgaria, we have to reckon with a few difficult months.

What alternatives are there?

You need to import from somewhere else first. But it depends on supply whether we’re at the maximum yet… OPEC isn’t at the maximum, but they don’t want to produce more oil. And on the gas side, everyone is already on the ceiling. So it will be necessary to distribute the shortage. For example, by buying back – at a high price – shipments destined for less prosperous countries such as India, Bangladesh, Pakistan. They’ll either be heading for blackouts or burning coal.

A priori we will know how to deal with it. It becomes difficult when there is an embargo or a delivery stop in Germany. It is the only country that has put itself in a systemic risk situation: as Angela Merkel explained everywhere that we have to be nice to the Russians and that there is no problem, we have never invested a euro to deal with this risk will. For example, there are no regasification terminals in Germany. The others have all “insured” themselves, but not Germany. It is the largest volume in the Russian gas market and the only one that did not conduct risk analysis. So when the risk occurs, there is no way out. It’s easy.

For example the second country [en volume, ndlr]is Italy. Currently, its Prime Minister is making the rounds in all gas-producing countries in Africa to produce additional volumes. He started warning that air conditioning couldn’t run everywhere this summer, etc.

Do we also have to reduce our consumption?

Yes, of course: if we start with the most likely scenario that we will run out of Russian gas at all in 2023, our gas needs must be about 10% lower than today. It is therefore necessary to cut 10% of consumption, preferably immediately, instead of doing an industrial load shedding at the last moment this winter.

Politicians should start educating the French on the issue to chase down waste. Every megawatt hour that is not immediately consumed can be stored with gas or oil. It is clear that to be resilient next winter we must immediately consume less.

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