Russia is one of the world’s largest natural gas producers and exporters. Natural gas is Russia’s most important export commodity, accounting for around 60 percent of its total exports. In 2018, Russia exported around 50 billion cubic meters of natural gas, about half of its total exports for the year. Unfortunately, Russia’s growing rivalry with the West has led to a tense relationship with the European Union (EU), the United States and other countries. The West has accused Moscow of using natural gas as a political weapon by cutting off supplies to countries that refuse toalign with Russian interests. The tug-of-war between the natural gas supply and Russia has been a recurrent theme in the global energy market. This article will explore the current factors that are affecting the natural gas supply and demand in the market and the potential impact on Russia’s economy and prices.
Europe’s Dependence on Russia
Europe depends on natural gas imports from Russia. In 2018, Russia supplied around 30 percent of Europe’s natural gas needs while Europe supplied Russia with 22 percent of its natural gas needs. Almost all of Europe’s gas imports come from Russia via pipelines that run through Ukraine. However, the relations between Russia and Ukraine have been strained since 2014, when the Kiev government, backed by the EU, launched a crackdown on pro-Russian activists in Ukraine’s southeast. The conflict between the two countries has left the country’s gas transit system as badly damaged as its infrastructure. The situation is further exacerbated by a sharp increase in demand for natural gas in Europe. This is due to the European Union’s efforts to wean itself off coal. In response, the EU has installed over 6.5GW of wind and solar capacity in the past few years, making it the world’s largest market for clean energy.
The Ukraine Crisis
The Ukrainian crisis of 2014 and its aftermath have been a major factor that disrupted the natural gas supply and demand in Europe. The crisis started when the government in Kiev, backed by the West, launched a crackdown on pro-Russian activists in Ukraine’s southeast. The conflict between the two countries has left the country’s gas transit system as badly damaged as its infrastructure. The situation is further exacerbated by a sharp increase in demand for natural gas in Europe. This is due to the European Union’s efforts to wean itself off coal. In response, the EU has installed over 6.5GW of wind and solar capacity in the past few years, making it the world’s largest market for clean energy. The escalating tensions between Kiev and Moscow forced Ukraine to explore alternative routes for exporting natural gas to Europe. This led to the construction of the Interconnector Yunokom inter-European gas pipeline (IE pipeline) from Russia to Ukraine.
Rising Demand in Asia
The global natural gas market has been facing a number of challenges recently. First, the United States and Mexico have boosted their shale gas production. The shale gas revolution and the development of LNG export terminals have made it cheaper and easier for countries to import natural gas. As a result, in 2018, Asia accounted for over 45 percent of the total global natural gas imports. It is worth noting that Asia has been one of the fastest-growing regions for natural gas demand in recent years. In 2018, China’s demand for natural gas grew by 6 percent, while India’s demand grew by 3 percent.
United States’ Shale Gas Revolution
The United States has been one of the fastest-growing beneficiaries of the shale gas revolution that started in 2008. In 2018, the US became a net exporter of natural gas for the first time in decades. This was possible because of the development of shale gas in the US. At present, the US produces around 9 billion cubic feet of gas a day, which is around 80 percent of its total natural gas production. The US has also been exporting natural gas to Canada via the 50-year-old line that connects Alaska and the Yukon. The development of shale gas in the US has also made it possible for the country to become a net exporter of natural gas.
Impact on Russia’s Economy and Prices
As mentioned above, Europe is heavily dependent on natural gas imports from Russia. Natural gas is one of Russia’s key sources of revenue. More than 60 percent of Russia’s revenue comes from its gas industry. Because of this, a decline in natural gas prices can have a major impact on Russia’s economy. In the last few years, Russia has been hit by a number of economic sanctions imposed by the West, including the US and EU. During this period, natural gas prices have declined significantly. However, the impact of this is not yet visible as it will take several years to reflect in Russia’s economy.
Conclusion
The current supply and demand dynamics in the global natural gas market are having a major impact on Russia’s economy. The country has been trying to balance its relations with the West, while trying to fill the gap in its natural gas supply. However, uniting the competing demands of Europe, Asia and the United States will be challenging for Russia. The natural gas supply and demand dynamics will continue to be a major factor affecting prices in the global market in the near future.
