ENERGY: A CHANGING WORLD

CRISES AND GEOPOLITICAL DEVELOPMENTS ALONG THE ENERGY TRANSITION

PIER PAOLO RAIMONDI UNIVERSITÀ BOCCONI, MILANO

ISTITUTO AFFARI INTERNAZIONALI 25.03.2024
 Contents

1. Energy: Basics and Concepts

2. The Energy Transition
3. Energy Geopolitics
a) Oil: 1973 and 2023
§ Hydrocarbon producers amid the GlobalEnergy Transition
b) Natural gas: the 2022 energy crisis
4. Hydrocarbon producers

2
1. ENERGY: BASICS AND CONCEPTS

3
 A strategic asset
Energy is a crucial driver of social, technological and economic
development…

…and, in turn, it depends on social, technological and economic

development.

Availability, accessibility & security

of energy supply
define our everyday life.

4
 The Energy Trilemma
Security
Balancing the three
dimensions is
considered crucial Meeting the
current and
for the future energy
competitiveness and demand with
reliable supply
the prosperity of
every country.

Addressing
Addressing sustainability
energy poverty concerns, in
by providing particular
energy access climate change
to all
Equity Sustainability

5
 Energy is a "bridge" between countries and regions

Interconnections
create interdependent
relationships. Buyers
depend on sellers and
vice versa, with
political, economic
and security
implications.

Gas pipelines in Europe 6

(Source: Isabella Ruble, 2017)
…it is also a powerful platform for
dialogue
• The European Coal and Steel Community (ECSC), created in 1951, was the first
step of the European integration. It included Belgium, France, Italy,
Luxembourg, the Netherlands, and West Germany and it aimed to deal with
production of coal – the main energy source for European countries in those
years. It was followed by several other institutions (e.g. European Atomic Energy
Community).

7
 PopulaGon and GDP: drivers of demand
The growth rate of economic activity and population are some of the
main elements of energy demand.

World GDP, after a sharp contraction in

2020 and a recovery in 2021, grew by 0.6%
in 2021 compared to 2019.

The impact of the pandemic has led to a

reduction in global energy demand of 4% in
2020. Demand has increased systematically
during 2021, exceeding pre-Covid-19 levels.

The population will increase to 9.2 billion in

2040. Urbanization trends are also a driver
(68% of the world’s population is expected
to live in urban areas by 2050).

Evolution of global GDP, total primary energy demand and energy-related CO2 8
emissions, compared to 2019. (Source: IEA, Global Energy Review 2021)
 Which countries are driving the increase in
demand?
Non-OECD countries lead the rise in energy demand: in the next twenty years demand
will stabilize in industrialized countries, but not in India or China, and it will considerably
rise also in Eastern and Southern Mediterranean countries.

Change in energy demand in the scenario of declared policies, 2019-2040, Mteo 9

(Source: IEA, India Energy Outlook, 2021)
2. THE ENERGY TRANSITION

10
 Today’s energy transition seeks to increase RES
and reduce hydrocarbons

World’s primary energy consumpLon by

Share of world’s primary energy source 11
(Source: BP, 2020) (Source: BP, 2020)
 Today’s energy transition seeks to transform energy
supply in a 30-year range
• Net Zero Emission target is designed to achieve zero net CO2 emissions from energy and industrial processes by 2050, without
compensation from other sectors, while ensuring secure energy supplies, economic growth and development
• According to this scenario, renewable and nuclear replace most of the use of fossil fuels and the share goes from 80% in 2020 to just over
20% in 2050.

Total energy supply in the NZE 12

(Source: IEA, 2021)
 Energy has always evolved throughout history
• Energy has experienced a “permanent revolu;on” since XIX century;
• Energy transi;ons take ;me. Each major energy source that has dominated world supply has taken 50 to 60 years to
rise to the top spot.
• Coal reached 5% of global supply in 1840 and gradually took over from wood, reaching 50% some 60 years later,
around 1900.
• Subsequent transiLons to oil and natural gas have followed a similar paMern in reaching benchmark levels of
supply, rising steadily aNer they achieve 5%.
100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
1900
1905
1910
1915
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015

Oil Coal Gas Renewables Other non-fossil fuels

Shares of primary energy Energy source scale-up and years 13

(Source: BP, 2020) (Source: V. Smil, 2014)
 Why do we need an energy transition?
• International efforts to limit
global warming to 1.5°C above
pre-industrial levels
• Energy accounts for ¾ of global
greenhouse gas emissions
• The United Nations Framework
Convention on Climate Change
(UNFCCC) seeks to provide a
framework and forum for global
cooperation on climate change
• COP-28 in Dubai, 30 November –
12 December 2023

2100 Global Warming Projections 14

(Source: Climate Action Tracker, 2022)
 International dimension of climate policies

Advanced economies are responsible of higher share of

historical CO2 emissions.

This is the main cleavage of the internaQonal climate

negoQaQons between developed and developing countries.

Another major challenge for internaQonal climate policies is

free-riding.

15
 A just transition and the sociopolitical
dimension
The transition towards a climate-neutral economy cannot happen at the expenses of the
most vulnerable communities and most fragile social groups: this is the idea behind the
concept of «just transition».

Governments need to provide alternatives, while compensating the most vulnerable

communities and those most affected, such as coal workers. Otherwise, social unrest may
take place (e.g. French Gilets Jaunes).

In 2020 the EU created the Just Transition Mechanism to finance the Green Deal. The goal
of the Just Transition Mechanism is to support for instance coal regions in the EU, ensuring
economic growth and new job opportunities.

The EC released in July 2021 the ‘Fit for 55’ package, proposing to channel 25% of the
revenues from the new ETS into a Social Climate Fund, aimed at supporting building
renovations and the uptake of clean cars by vulnerable families and small businesses, and to
provide temporary lump-sum payments to vulnerable households to compensate for the
increase in road transport and heating fuel prices.

16
Employment in coal coal mines in Europe (Source: JRC ,2018)
3. ENERGY AND GEOPOLITICS

17
 Evolving energy means evolving energy geopolitics

q The energy evolution suggests to believe that energy resources do not exist only in objective
way, but they became energy sources thanks to social, political and economic capabilities
Ø Oil: known for many centuries, only in the second half of the XIX century began to be produced and
consumed.
Ø Natural gas: for many decades seen as a by-product of oil production

q Therefore, throughout history people have both discovered energy sources, but also
invented new ones (e.g. RES)

q The Geopolitics regards the interaction between geographic, political and international
relations factors
 Energy Geopolitics: new locations
q Energy shapes geopolitics and viceversa
q Energy resources creates its own geography, giving relevance to locations that otherwise would be
unknown.

• Cerréjon in Colombia: large coal mine relevant for Europe

• Yamal-Nenets Autonomous Region in the northwestern part of Siberia: one of the largest deposit of natural gas in
the world,
• Singapore: located in the Malacca Strait and it hosts the largest pal oil biodiesel facility in the world.

q Furthermore some (anonymous) locations, which are between producers and consumers, can gain energy
and geopolitical relevance.
• Baumgarten, southern Austria, less than 200 citizens. Yet, it became a strategic location for the EU-Russia energy
relation
• Hormuz Strait is the most crucial chockepoint for gloabl oil trade
 Energy geopolitics: shifts of hubs
q The creation and transformation of the energy supply changes constantly our perception of what is “center” and
“periphery” of the energy geopolitics.

q Think about the evolution of oil production.

• In the USA, the center of oil production went from Pennsylvania to California in the late XIX century and then it
moved to Texas and Oklahoma in the early XX century.
• The center of Russian oil moved from Baku to the Volga-Urals region and then during the Cold War to the
northwestern part of Siberia
• Internationally, the US used to be the leader in the oil production between 1850 and 1940, then the hub became the
Middle East. In the past decade, the US regained the leading role.

q The same occurred with coal production.

• For centuries, the production hub was located in Northern China. Later, the UK emerged as coal leader.
• China became quite irrelevant until XXI century. At the same time, the UK has drastically reduced the use of
coal in the domestic energy and economic system.
3.a) OIL: 1973 AND 2023

21
 1970s: the energy crisis decade
When we think about energy geopolitics, the 1970s stand out.

The 1973 oil embargo shook the global energy market. It also reset
geopolitics, reordered the global economy, and introduced the modern
energy era.

Although seen as a single crisis, it actually represented a convergence of

three different crises:
1. Geopolitical: Sadat committed to reverse the outcome of 1967 Six-Day
War.
2. Energy: a tight market gave the power to the suppliers
3. Political crisis in the US: Nixon’s Watergate

In March 18, 1974, Arab countries ended the embargo.

1979: Iranian Revolution

 Some differences from 1973 and 2023
Despite some parallelism, the 2023 conflict is quite
different from the 1973 crisis.

GeopoliQcally, the Arab countries are much more

integrated into global economy.

Energy: Oil demand higher but less ‘relevant’ (oil

was 50% of world energy consumpQon. Now it’s
about a third).

The US now is the largest producer of oil, not, as it

was in 1973, the world’s largest petroleum importer.
The US shale oil and gas revolution

Source: US Energy Information Administration

The US has become major exporter: "energy dominance”
The US has become the largest LNG exporter

Source: US Energy Informa>on Administra>on

The geopolitical effects of the US shale revolution

q The US has become a top producer and exporter of oil and gas.

q This condition has put under pressure Saudi Arabia (oil) and Russia (gas).

q Moreover, it has also contributed to a more assertive foreign policy (sanctions)

and shift the geographical focus of the US foreign policy (“Pivot to Asia”).

27
HYDROCARBON PRODUCERS AMID THE
GLOBAL ENERGY TRANSITION

28
 Why is it relevant to analyze the MENA region and the
energy transition?
q There is no other region where the interplay between oil, politics,
economics and geopolitics is more visible than in MENA.

• Hydrocarbon resources have drastically shaped MENA countries both

domestically and internationally.

• They have experienced a socioeconomic growth – although several

challenges (see: rentier state theory, resource curse).

• They have gained a major geopolitical role in the current

international system.

q Given this profound link, it is crucial to analyze:

o how the energy transition will unfold and
o how MENA countries will react and adapt both domestically and
internationally.
MENA: a very heterogeneous region
 The hydrocarbon sector is the key pillar of
the socioeconomic and political architecture in the region
Two main concepts of the rentier state
• Hydrocarbon resources have shaped profoundly this region
and its countries. 1) Allocation over production of wealth

• Commonly, these countries are referred as ren8er states. 2) «no taxation without representation»
According to the academic literature (Beblawi and Luciani
1987), a renEer state is when:
o it relies on substan8al external rent to sustain the
economy, reducing pressure to develop a strong
produc8ve domes8c sector;
o it has a small propor8on of the popula8on engaged in
The entire region is characterized by this
the genera8on of the rent, while the majority of the
‘rentier mentality’
populaEon is only involved in the distribu8on or in the
uElizaEon of it; and finally
o its government is the principal recipient of the external
31
rent.
 The global energy transition:
a looming demand peak (at different speeds)?
120
Future oil demand under IEA
scenarios (mb/d)
100
STEPS
80
Historical
60
APS

40
SDS
20
NZE
0

1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020
2023
2026
2029
2032
2035
2038
2041
2044
2047
2050
6000,00 Future natural gas demand under
IEA scenarios (bcm) STEPS
5000,00

4000,00 APS

3000,00
SDS
Historical
2000,00
NZE

The global energy transition is a policy-driven process. 1000,00

Different speeds among both regions and energy sources. -

1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020
2023
2026
2029
2032
2035
2038
2041
2044
2047
2050
Source: Authors’ elaboration on IEA
 The energy transition (peak oil demand)
threatens the core strategy of hydrocarbon producers
R/P ratio in selected MENA oil producing countries, 2019 (years)

STRATEGY: not exploit its own competitive advantage of low

cost production in order to preserve its own resources for the
future generation (as they are the main source of revenues for
the government)

CONSEQUENCE: R/P raRo reaches several decades (beyond the

expected peak oil demand).

RISK: less opportunities to monetize its own reserves, vital

for the economic and social stability.

Source: BP 33
The domestic energy pressure: rising consumption
Low fossil fuel energy prices encourage rising energy
demand, which is almost entirely satisfied by fossil fuels
Primary energy consumpLon in MENA countries, 1965-2019 (Exajoule) Primary energy Consumption by fuel, 2019

"In one generation we went from riding camels to riding Cadillacs. The way we
are wasting money, I fear the next generation will be riding camels again."
 Negative consequences of a rising inefficient
consumption
Oil consumption per capita in selected countries in 2019, GHG Emissions in GCC states by source, 2018 Arab States per capita carbon dioxide
(barrel per capita in a year) emissions compared to other countries (2021)

Erosion of hydrocarbon export volumes Consumption of fossil fuels + low efficiency rate
= = 35
Economic loss Environmental damage
 Similar goals but different pursposes
Prior to the COP26 in 2021, hydrocarbon producers were
considered as ‘obstrucQonist’ for climate policies.

Since 2021, GCC countries have announced net-zero targets by

and around 2050 (=paradigm shig).

This is driven by internaUonal pressure but also domesUc

pressure.

However, net-zero does not mean zero oil.

While the global energy transiUon has emerged as a climate issue,

for GCC countries the transiQon is driven by economic reasons.
 Growing ambition, still modest results largely
Renewable energy targets and indicators in the MENA countries in 2019
Share of RES in
Installed electricity Installed RES electricity Electricity RES generation in Share of RES in total
Country National RES target
capacity (MW) capacity (MW) capacities production (GWh) (GWh) power generation (%)
(%)
27% of power generation and 37% power generation
Algeria 23,469 734 3.13 89,967.8 834.5 0.01
capacity by 2030
Bahrain 5% of power capacity mix in 2025 8,770 7 0.08 34,767.3 0.0 0.00
20% of electricity production in 2022 and 42% for
Egypt 59,855 5,894 9.85 195,211.8 17,491.2 0.09
2035,
Iran 80,210 12,558 15.66 314,062.7 31,020.3 0.10
Iraq 38,238 2,730 7.14 97,330.1 2,535.1 0.03
Israel 30% of RES in total electricity generation by 2030 19,141 1,500 7.84 71,964.1 3,023.6 0.04
31% of RES in power mix and 14% of RES in energy
Jordan 5,926.8 1,485.6 25.07 21,001.3 3,039.0 0.14
mix by 2030.
at least 15% of its electricity needs from renewables
Kuwait 19,778 105 0.53 75,071.0 160.1 0.00
by 2030
Lebanon 30% in electricity and power demand by 2030. 3,809 400 10.50 20,547.3 1,038.7 0.05
Libya 10,869 5 0.05 35,113.0 8.1 0.00
Morocco 52% of total installed power capacity by 2030. 10,675 3,701 34.67 41,786.7 7,927.6 0.19
Oman 30% of power generation by 2030 8,884 59 0.66 38,102.7 4.0 0.00
Qatar 20% of its energy demand by 2030 12,675 5 0.04 49,872.7 0.0 0.00
Saudi Arabia 50% by 2030 85,185 412 0.48 366,746.7 728.4 0.00
Syria 10,057 1,497 14.89 17,266.9 754.0 0.04
Tunisia 30% in electricity mix by 2030 (= 3.6 GW of capacity) 5,760 369 6.41 22,099.3 766.9 0.03
UAE 44% of its energy consumption by 2050 37,460 1,918 5.12 138,454.1 3,779.8 0.03
 A new emphasis on the Mediterranean
q The reconfiguration of energy flows provides an opportunity for a new momentum for the
Mediterranean due to its characteristics (geographical proximity, existing interconnections
and natural resources)

q Italy seeks to seize such opportunity (Mattei Plan)

q Structural challenges: rising domestic consumption, political instability and insecurity,

environmental footprint
 OPEC+ cuts: drivers and objectives

§ Since October 2022, OPEC+ countries have announced § OPEC was able to cut production given the inability/unwillingness of U.S.
several producRon cuts (2 mb/d in October ’22 and 1.1 shale oil to grow at the same rates as in 2016-2020.
mb/d in April ‘23).
§ Shale oil had become the fastest available spare capacity that could
§ IniRal strong reacRons from imporRng countries, compete with OPEC. This broke the existing oil order.
especially the US.
§ With less supply elasticity in the market today, OPEC is less concerned
39 about
losing market share if it defends high prices.
 Will Saudi-Russia deal resist to competition in Asia?
§ Saudi Arabia and Russia has sealed a deal
in 2016 (OPEC+).
§ Over the last years, the coordination has
expanded. Yet some clouds may appear in
the future due to competition on the same
market (Asia and especially China) and lack
of enforcement.
§ Saudi Arabia has slashed oil production by
close to 1.5 million barrels a day since
April. Exports have followed.
§ Yet Russia’s seaborne crude exports in
October were down by just 70,000 barrels
a day from their May-June average.
§ That compares with a cut of about
250,000 barrels a day in September.
Polarization of international energy relations?

In 2022 oil and gas production of added

members
Argentina 706 kbpd 41.6 bcm
Egypt 613 kbpd 64.5 bcm
Iran 3.8 mbpd 259.4 bcm
Saudi Arabia 12.1 mbpd 120 bcm
UAE 4.0 mbdp 58 bcm
Ethiopia
Iran: international sanctions and recent developments
Iranian Crude and Condensate Exports, 2016-23 (kbpd)

Result of relaxed
sanction enforcement.
Potential changes due to
the Middle-East conflict

China’s Seaborne Oil Imports from Iran and Russia,

January 2017- Aug 2023 (kbpd)

Source: Authors’ elabora1on on ENERDATA

§ Iran’s oil production heavily affected by the

Iran heavily reliant on China.
evolution of international sanctions. China has become crucial for
countries under sanctions
§ Natural gas almost entirely consumed (Russia and Iran)
domestically and no LNG export capacity
 Potential security risks:
disruptions will affect all in terms of prices,
but mainly Asia in terms of volumes
 Qatar: an LNG powerhouse,
traditionally reliant on Asian markets,
today challenged by the US
2019 2022
 LNG waves: Qatar aims at regaining its crown
LNG exports by main exporting country, bcm, 2000-2022
120

100

80
Qatar has felt the pressure of growing competition from other LNG
60
producers.
It decided to lift the moratorium while the prices were low (2017) and
40
leverage on its competitive advantages.

20

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

US Russia Qatar Australia

Source: EI (2023)

New wave of LNG export capacity will be mainly located in

the US and Qatar.
This two producers can supply both the EU and Asia due to
their geographical position.
 Expansion plans and new contracts for Qatar

For Qatar, the challenge will be to ensure enough contracts

both for the existing and new volumes.
 Major global geopolitical trends that shapes
the geopolitics of the energy transition
Ø Policy developments:
Ø climate a rising concern/priority
Ø Globalization under pressure (US-China rivalry, economic security, de-risking)
Ø Rising clash between Western/OECD countries and ‘Global South’

Ø Technological developments:
Ø EVs
Ø RES
Ø H2

Ø Market developments:
Ø The US shale revolution: consequences for oil (OPEC) and gas (Russia)
Peak oil demand but not at Main MENA gas exporters: gas export composition (LNG vs. pipeline) and the
LNG share of total gas exports in 2019, (bcm)
the same pace everywhere

Oil producers/exporters

Main LNG exporters and their export outlets, 2019

Energy demand will be crucial => diversification of exports and

transport mode (in the case of gas) is essential to remain relevant!
 Not all MENA producers are equal
in front of the energy transition
§ The energy transition will impact on global oil and gas demand, potentially reducing and threatening
MENA countries’ main revenue source.

§ They need to implement reforms both in the energy and economic sectors.

§ Yet, not all MENA producers start from the same point. Some socioeconomic and political
indicators may contribute to the success of their adaption to a low-carbon future, such as population,
governance and financial reserves.

§ They may also face different challenges depending on the energy resource that they export (oil vs.
gas).
49
 Low production cost (competitive advantage),
but high social costs
Production cost per barrel Breakeven fiscal oil price for selected oil exporter ($/barrel)
250

194,6
200

155,6
150
129,8
109
94,899,7
100 87,387,6 86,583,6
70,270,3
62,560,3
54,354,7
48,845,7
50

0
Iran Algeria Libya Oman Saudi UAE Iraq Kuwait Qatar
Source: WSJ & IMF Arabia

2019 2020

MENA countries believe that they will be the “last barrel standing” due to low production costs

MENA producing countries have among the lowest production costs, yet they need to consider their (high) «social» 50
cost.
 New features will become relevant
as decarbonization policies are set
Average carbon intensity of crude production, 2015 (g of CO2e/MJ) Gas flaring in 2019, (bcm)
25

20

15

10

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at

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Qa
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§ New features such as low flaring, reduction of methane leakage and better
energy efficiency in the operations as well as natural advantages create a
competitive advantage compared to other producers such as Venezuela and
Canada, which are characterized by higher energy and carbon intensity.
§ The issue of carbon intensity will become a major factor in a world with carbon
Lower carbon intensity in KSA and UAE is due to a combination of the nature prices and carbon border taxes.
of the reserves and high investments in technology and infrastructure.
51
§ Thus, countries are already working on these issues in order to secure future
exports.
 Decarbonized exports: clean energy and hydrogen
§ Countries could export decarbonized products, such as (clean) electricity and hydrogen.
§ The idea of electricity trade between MENA and Europe has a long history (e.g. Desertec), but modest results due to multiple obstacles.
o Low RES penetration;
o Lack of electricity interconnections between the two Mediterranean shores. There are 10 interconnections between the EU and its neighboring countries:
only two are in the southern and eastern Mediterranean: Morocco and Turkey

52
Source: ENTSO-E
 The new momentum for hydrogen
• Hydrogen trade is gaining momentum as electrification shows some constraints and the EU seeks to play a role in the hydrogen economy. Yet, the EU may need
to turn to hydrogen imports due to limited domestic production.

• This would provide the opportunity to the MENA countries to exploit their renewable potential, but also their gas reserves (coupled with CCS potential).
Meanwhile, it would give the chance to the EU to rebrand its energy and climate partnership with the Mediterranean countries.

• Ideally, North African have a competitive advantage compared to Gulf countries: existing pipelines with the EU (an expected hydrogen importing region). But
they faces other challenges.
Technical potential for producing green hydrogen under US$ 1.5/kg by 2050, in EJ Green hydrogen domesLc consumpLon versus producLon potenLal

53
 North Africa-EU hydrogen trade: opportunities and plans
SoutH2 Corridor (promoters speak of
Hydrogen is gaining a new momentum especially in the 4 Mt/y H2 import potential by 2030)
EU.

• In 2020, the UE was evaluating the possibility to

import 40 GW of green hydrogen from North Africa
by 2030.
• In 2021, FF55 envisages a target of 6.7 Mt/y
• In 2022, the REPowerEU Plan envisages a hydrogen
target of 20 Mt/y (more than threefold) by 2030, of
which 10 Mt domestically produced and 10 Mt
imported. These are very optimistic targets!
• So far little concrete interest from North African
countries

Despite the challenges, North African countries could

become in the long run a crucial hydrogen partner for
the EU given its strategic geographical location and the
existing infrastructure (pipelines from Algeria and 54
Libya).
The hydrogen quest in the Gulf states
Gulf countries are increasingly
considering to develop hydrogen to
position themselves in a low-carbon
energy trade. Given their hydrocarbon
reserves, these countries are
considering also the production and
export of blue hydrogen.

For trade, they are working on projects

to export hydrogen (ammonia) to the
Asian countries as in the case of Saudi
Arabia and Japan deal.

Saudi Arabia, the UAE and Oman have

been the first movers in the region.
Recently, Qatar has recently joined the
race.
55
The challenges to international hydrogen trade
CHALLENGES POTENTIAL STRATEGY

Water scarcity
Expansion of water desalination: adding costs and rising
energy consumption.
Competition with other water-intense industries
Against this backdrop, it’s better for these
countries to to produce decarbonized final
products (steel, cement and fertilizers) with
Developing enough renewable energy capacity to power
domestic clean hydrogen and export them. In
hydrogen export AND decarbonize the domestic sector. doing so, they will be able to:
otherwise it would be a paradox (green exports for abroad § Pursue industrial policy;
while still burning fossil fuels at home). § Overcome some transportation issues;
§ Protect these products from carbon pricing (e.g.
CBAM);
§ Have higher returns
Certification and standards § Allow the world to decarbonize at a lower cost
Lack of coherent and universal certification and
standards undermine hydrogen trade and off-takers
3.b) NATURAL GAS: THE 2022 ENERGY CRISIS

57
 The role of the Russian gas in Europe
• Natural gas contributed to the construction and consolidation of the energy bridge
• In 2021, the EU imported about 155 bcm from Russia (40% of EU imports). Dependence on Russian gas varies among European countries
• Until 2021/22, Russia was a stable supplier despite previous tensions.
• The EU dependence on Russian gas has always been at the center of harsh debate (economics vs geopolitics)
• The energy crisis is the end of a paradigm.
• It ends the era dominated by the concept “Wandel durch Handel” (Change through trade)

Europe’s gas supply and demand balance, bcm

58
Volumes and prices: two interlinked issues

59
 The EU managed to cope with the crisis
§ Shifting places: LNG replaced Russian pipeline gas as Europe’s
new base load
§ This makes Europe more dependent on global market dynamics
§ The EU substantially reduced its gas demand thanks to fuel
switching, milder temperature and demand reduction (or
destruction).

60
 The very limited impacts on energy security due to East
Med tensions (post-October 7th 2023)
q Israel-Hamas war has caused no impact on oil, while in the first days heavily affected Israel’s natural gas
production and exports to Egypt.
Ø Chevron ceased temporarily production in Tamar field. Israel’s gas exports to Egypt halted temporarily as
well. Israel’s gas is not directly sold to Europe, but it’s essential for Egypt’s LNG exports.

q Egypt exported only 3.3 Mt of LNG in 2023 (down from 7.1 Mt in 2022). Europe and Turkey amounted to
2.17 Mt (64% of the total), while 1.1 Mt headed to Asia in 2023.
Ø Europe (+UK, TR) imported 125.5 Mt in 2023 => European countries are not particularly exposed to
Egypt’s LNG.

q Egypt is facing serious challenges to satisfy its domestic demand, despite record Israeli gas imports.

61
Since late 2023, Houthis have started to attack and disrupt shipping
through the Bab el Mandeb Strait (10-15% of World trade)

62
 The Gulf is home of key maritime chokepoints for
international trade and energy

Total shipments via these routes accounted in the first

The Suez Canal, the SUMED pipeline, and the Bab el- half of 2023 for about
Mandeb Strait are strategic routes for Persian Gulf oil and § 12% of total seaborne-traded oil, and
natural gas shipments to Europe and North America. § 8% of global liquefied natural gas (LNG) shipments 63
 EU-Middle Eastern LNG: a very limited interdependence
LNG exports in 2022, bcm

Final months of 2023, Europe received:

o 4-5 Mt/month of US LNG
o 1-1.5 Mt/month of Russian LNG
o 1-1.2 Mt/month of Qatari LNG
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In 2023, only 20% of Qatari LNG was heading to Europe o Plus a bundle of others
The small impact of supply, combined with lower demand and
full EU storage levels, explain the relaxed European gas
prices

§ The small impact from Qatari LNG deliveries, which need to go around the Cape of Good Hope for
European markets, combined with the availability of additional US (and Russian) LNG as well as...
§ ... full storages thanks to a mild 2023/24 winter so far and continued demand reductions...
§ ...explain the relaxed gas market European gas prices
§ Some concerns remain however for the longer term, depending how the Middle East conflict and
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security situation evolves.
After an initial nervosity after October 7, energy markets have relaxed due to market fundamentals.
Concerns over the duration of disruptions and tensions remain however.

Smoke rises from the Marlin Luanda tanker after it was struck by
a Houthi missile on January 26, 2024 in the Gulf of Aden

The 2021-22
container shipping cost
increase was due to
the rampant goods
demand as economies
opened up after a
wave of Covid-19 and
consumers avoiding
face-to-face services

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 A globalized market: US-Qatari swaps would allow to
optimize the market
Following the US shale revolution, the gas If there remains a security risk over several Swaps between US and Qatari LNG
markets are much more globalized. months in the Red Sea, we may see new
§ US maximizing Atlantic basin deliveries,
+ pattern of LNG flows: => § Qatar maximizing Asian deliveries
The Panama drought crisis has in 2H2023 § more Qatari LNG going to Asia
rerouted some US LNG cargos for Asia. § more US LNG going to Europe would make a lot of sense.

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Thanks for your attention!
Keep in touch:

Pier Paolo Raimondi

email: pp.raimondi@iai.it
@PierRaimondi

www.iai.it/it
www.iai.it/it/iai/lavorare-allo-iai

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