News: The Ukraine Conflict has caused a resurfacing of the deepest dilemma related to the energy sector, i.e.
– whether to ensure there is affordable, secure, and accessible energy at present, or
– to secure the longer-term imperatives of economic growth and sustainable development.
Situation Prior to the Ukraine Conflict
It was globally integrated. There was one internationally acknowledged benchmark price. The OPEC was expanded to include Russia amongst its de facto members.
The market was bounded by regional pipelines and inflexible long-term LNG supply contracts. Further, the prices were quoted regionally in the US, Europe and Asia.
However, destination flexibilities have been introduced in the recently concluded LNG contracts. Also, the LNG spot trade was gaining in market share and prices were converging.
Problems, dilemmas and consequences due to the Ukraine Conflict
The petroleum market is now fragmented, fractious and volatile. Europe and the US have sanctioned 90% of the Russian crude. This has tightened the crude oil and products market further.
At present, Russian gas has not yet been sanctioned. But there are chances that Europe may also sanction Russian gas. For example, Europe has published a road map for eliminating all energy imports from Russia by 2027.
OPEC has refused to remove Russia from OPEC plus. They have refused to bow down to US pressure to increase production to cool the oil market. They want to keep control over the oil market and also benefit from the fact that Russia cannot meet its OPEC determined export quota.
The US President aims to disallow petroleum companies from drilling for oil and gas on federal lands. He has approved the issuance of fresh leases.
The US and Italy are proposing to create an oil consumers cartel because the oil consumers have been facing difficulty. For example, the retail price of gasoline is very high, and American consumers are currently paying historic high prices.
European leaders are facing a dilemma between the rock of energy geopolitics and the hard place of energy economics.
Some countries have given the green signal to reopen coal mines. This could enhance GHG emissions and prolong the life of fossil fuels.
In India, the rise in the price of oil has “forced” the government to reintroduce de facto administered pricing. The public sector oil companies could not pass on the higher prices to retail customers but instead would bear the loss. This will impact their balance sheets and investment plans.
The India government is interested in buying the assets of Shell LNG in the Siberian port of Sakhalin. The deal can enhance India’s security cover.
What are the challenges for India?
India’s investment may be subject to sanctions. Also, India may attract criticism for purchasing “contaminated” assets.
In order to reduce energy “independence” on Russia. Europe needs to invest in solar and wind generation, gas storage, LNG import infrastructure and intra-Europe gas pipelines. This can lead to generation of carbon emission certificates.
EU leaders have reaffirmed their commitment to cut GHG emissions by 55 per cent in 2030 over the levels in 1990.
The Ukrainian conflict should end. Further, Russia’s energy industry and the Russian people cannot be indefinitely ghettoised.
There should be a transition to clean energy with Political expediency because global warming presents an existential planetary threat.
Source: The post is based on an article “The Ukraine conflict has raked up old dilemmas” published in the Indian Express on 6th June 2022.