Natural gas, of which Russia is rich in record reserves, will ensure a global transition to a green economy. Over the coming decades, our blue fuel will help both to meet its own climate commitments and to rid developing Asia of its disastrous coal dependency. But right now, by refusing Russian gas, Europe is undermining global efforts to combat greenhouse gas emissions, as well as its own sustainable development. Sergey Pravosudov, Director of the Institute of National Energy, told Plus-One.ru about all this.
Gas will serve as a transitional cushion while the world develops renewable energy technologies
Renewable energy sources, about which there is so much talk today, will in fact hardly allow us to abandon traditional fossil fuels. To begin with, humanity has never given up any fuel in history — firewood is still used in many places, even in the most developed regions.
People will still burn wood, coal and oil — the only question is in what proportions. There will be no absolute zero emissions, but there is no need for zero: it is about achieving a zero balance, which must be achieved by reducing the share of dirty energy sources and increasing the share of clean ones.
The future share of renewable energy depends on how soon we have sufficient and efficient storage capacity to store the huge amounts of green energy from solar panels and wind turbines. After all, all renewables do not generate energy 100% of the time.
The wind, for example, is on and off. Consequently, when it is there, the energy generated has to be stored somewhere. However, the technology does not yet exist to do this in sufficient quantities to defeat renewables over carbon fuels.
Gas is the cleanest of all fossil fuels. On the one hand, it can be used in conjunction with renewable energy generation: at times when there is no wind or sun, the power system can be powered by gas. Of course, this is not applicable everywhere — after all, it is a matter of cost-effectiveness: when gas capacity is on and off, its final price is higher than if it were loaded 100% of the time.
On the other hand, by replacing the dirtiest fuel, coal, with gas, countries can already significantly reduce their carbon footprint. And the potential for this is enormous — the world’s largest emerging economies, including China and India, rely for the most part on coal. If we talk about the need to significantly reduce emissions right now (which is what everyone is talking about), the most tangible global effect can come from replacing coal with gas. Decades from now, this effect could be consolidated with renewables, if they are sufficiently developed by then.
Photo: Gazprom press service
Natural gas will allow Russia to keep its climate commitments
Russia has the world’s largest reserves of natural gas — it is cheaper and more accessible to consumers than anywhere else on the planet. It is important to understand that this is not least an achievement of our government — our gas prices are regulated by the state, not by some exchange traders as in the international and other markets. As a result, the fuel and energy balance of our state is the most environmentally friendly in the world. Gas accounts for about 50%, whereas coal accounts for only 15%. By comparison, coal accounts for more than 30% in the world as a whole, 40% in the USA and 70% in China.
Today, more than 70% of all Russian regions where gasification is technically possible are fully gasified. There are some regional specifics to consider: we have a very low population density in remote regions, and with low gas prices, it is unprofitable to pull gas to many settlements in Eastern Siberia and the Far East.
However, in 2019, we launched the Power of Siberia pipeline with a capacity of about 40 billion cubic metres a year, which means that a pipe was laid through these regions, with China as a major buyer at the end of it. As a result, gasification of adjacent regions has become possible — gas is now actively replacing coal there. In the near future, we will also extend the Power of Siberia-2 pipeline to China with a capacity of up to 50 billion cubic metres per year, which will further increase the country’s gasification capacity.
By 2030, Gazprom plans to make the country’s gasification level of 100%. As a result, our economy will become even greener — the share of gas in the fuel and energy balance will increase significantly. This is one of the pillars of the government’s strategy to meet climate commitments under the Paris Agreement on Climate Change — full gasification will allow us to achieve a 30% reduction in emissions by 2030 and set the stage for further movement towards carbon neutrality by 2060.
Photo: Gazprom press service
Russia’s natural gas reserves will be a key source of greening the developing economies of the Asia-Pacific region
Today, China is the world leader in coal consumption. Its world-famous industrial and technological leap, which began in the mid-20th century, relied entirely on coal-fired power. The Middle Kingdom now consumes as much coal as the rest of the world combined. As a result, China’s big cities have become an environmental disaster, with soot and smog making it hard to breathe and people wearing respirators.
This is why the Chinese are willing to increase the share of gas in their energy mix — along with the development of renewables and nuclear power. Russia will provide China with a source of gas large enough to replace its immense coal consumption today. We can also shift to gas another major coal consumer, India, which is convinced of the need for such energy reform and is committed to it.
The competition here is the US, which has vast gas reserves of its own. Until the 2010s, their production was declining, but then the so-called shale revolution began — new production methods made them one of the largest exporters of blue fuel. However, we are geographically closer, we have a pipeline, while the Americans carry liquefied natural gas in tankers across the ocean — it still affects the price, especially considering that their supplies depend on weather conditions at sea.
Why there is a gas crisis in Europe
When the COVID-19 pandemic started in 2020, the world economy was in its biggest crisis. To somehow salvage the situation, governments increased currency issuance — trillions of dollars, euros and yen were issued. This led to rapid growth of the global inflation — the prices of raw materials, including gas, began to skyrocket.
In the autumn of 2021, gas prices exploded. For some reason, traders felt that Europe’s gas storage facilities were not sufficiently stocked, arguing that if the winter was cold, there would not be enough gas in storage. Europe buys gas all the time but consumes it mostly in winter, during the heating season. In summer, when gas consumption is much lower, it is stocked.
Due to traders’ concerns, the gas price has exceeded $1,000 per cubic meter for the first time ever. At the same time the winter was warm enough and there was enough gas, however, gas prices continued to fluctuate. They rose and fell, sometimes by $500 a day, which has never happened before; at certain moments they even reached $2 thousand. Clearly, this is a result of traders’ game — fuel price cannot be so volatile, given that on average over the past five years it was $300-400.
With the start of the Russian Armed Forces’ special operation in Ukraine, Europe announced that it was rejecting Russian hydrocarbons and would look for other energy sources. In particular, they have tried to buy natural gas from the U.S., but there is simply not enough. On the one hand, there is the traditional competition for this resource between Europe and East Asia. China, Japan, Korea and Taiwan are all world leaders in natural gas consumption, while Europe makes do with leftovers.
Earlier this year, the covid outbreak and lockdowns in China severely reduced Asian LNG consumption from the US, and the Americans diverted their supplies to Europe (which did not particularly calm European gas prices, by the way). Now the Chinese plants are working again and the Europeans are back on the back burner.
Next: The Europeans did not refuse to receive Russian gas supplied by Nord Stream 1, but as the special operation began, Siemens stopped servicing the turbines, they began to break, and supplies fell. Ukraine then said it would not be able to fully meet its obligations to transit Russian gas to Europe.
Finally, Poland, through whose territory the Yamal-Europe pipeline runs, announced that it was freezing Gazprom’s share in it — about 48%. In other words, the Poles simply nationalised part of the pipeline on their territory, after which Gazprom, logically, halted deliveries through it. As a result, now, in summer, when there is minimum consumption of gas in Europe, it already costs there more than $2 thousand per cubic meter, which looks absolutely insane.
Europe derails its climate plans and plunges its population into socio-economic crisis
The European leadership’s agenda remains the same — a carbon-free future. In practice, however, gas needs to be substituted, and European countries that have given up on coal are returning to it. Consumption of fuel oil and firewood is also increasing. All this is not good for European emissions — they are rising right now, although according to climate plans and commitments they should be declining. In January-March 2022, they were already 6 percent higher than during the same period last year. And at the end of the second quarter, the gas crisis has worsened significantly compared to the beginning of the year and emissions are likely to rise even further.
Traders who sell gas above $2,000 get great bonuses, the shareholders of the companies they work for are happy. European consumers groan as gas shortages drive up prices on everything from electricity to food. And European politicians “feed” them by saying that society must pull together and somehow survive the crisis.
There are talks about the need to reduce consumption, such as giving up air conditioning in summer and heating in winter so that indoor temperatures do not exceed 19 degrees Celsius. The most vulnerable and low-income citizens are promised subsidies, and there are plans to open warm public spaces in winter, where those who cannot afford to pay for heating can come and get warm.
In order to lower gas prices, Nord Stream 2 could be launched — a completely new pipeline that is fully operational. For some reason, however, Europe says that launching it would be like “throwing away the white flag”. This begs the question: why is it OK to get gas from Russia via Nord Stream 1, but not via Nord Stream 2? Finally, what is preventing to moderate the appetite of capitalists who mark up the gas prices, for example, introduce some restrictions on the gas exchange to calm down the prices? It is also possible to agree with Gazprom to increase the share of oil-linked contracts, under which gas is significantly cheaper than on the exchange.
These are realistic ways of getting back on the rails of sustainable development, but for some reason all this is left out of the picture. It is not very clear where the Europeans are going at all now, where they want to go, because they have all the possibilities to get out of the current crisis. What will happen next is unclear, so we just have to wait for winter.
Author: Ivan Bolotov
Cover photo: Gazprom press office
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