Brent crude briefly fell below $100 a barrel on Monday, a week after hitting a 14-year high of $130 on March 6, easing fears of an energy-fueled recession and chronically high oil prices. gasoline.
This is the first major correction in energy markets after a period of heightened volatility. Last week, Moscow followed through on its threat to militarize its energy exports in retaliation for Western sanctions by imposing extensive export bans. Alexander Novak, Russia’s deputy prime minister, says his government has the ‘full right’ to ‘impose an embargo’ on gas supplies by stopping the gas supply via the Nord Stream 1 gas pipeline.
Rising oil and gas prices triggered by the conflict in Ukraine posed the threat of the worst stagflationary shock to hit Europe since the 1970s. energy in Europe have spiraled out of control, with European natural gas trading at around $62/mmbtu, which translates to $360 a barrel of oil on an energy equivalent basis. As the United States and the United Kingdom ban Russian energy exports and the European Union announces that it will cut Russian gas imports by two-thirds by the end of the year, the West scrambles to replace Russian energy supplies.
Few European nations, however, are feeling the heat of the energy crisis as keenly as Germany.
Europe’s largest economy is in dire straits after effectively cornering itself with its energy policies. For decades, successive governments in Berlin have pursued a policy of maximizing the country’s dependence on Russian oil and gas, and nuclear energy almost completely abandoned, with the last two functioning reactors due to be shut down in 2022. As a result, Germany has become heavily dependent on natural gas, with the fuel accounting for 25% of the country’s total primary energy consumption. Although Germany itself has large reserves of natural gas accessible by hydraulic fracturing, Berlin has banned this technology, which means that it must import 97% of its gas mainly from Russia, the Netherlands and Norway.
In the worst-case scenario of Russia halting all pipeline exports, Goldman Sachs chief European economist Sven Jari Stehn and his team say eurozone GDP growth is expected to fall by 2.2pp in 2022, with considerable impacts in Germany (-3.4 pp) and Italy (-2.6 pp).
Germany’s misfortunes are partly excusable. The dramatic exit from nuclear power is as much a part of the country’s Energiewende (energy transition) as the move towards a low-carbon economy. Natural gas is cheap and reliable, produces half the emissions of coal, and is an essential input in many sectors. In Germany, 44% of gas is used for heating buildings in 2020, while industrial processes consumed 28%. Gas is the best and cheapest raw material for the manufacture of synthetic nitrogen fertilizers, of which Germany is a key supplier. The gas is also used in refining, chemical production and many other types of manufacturing. All of these are difficult, if not impossible, to completely replace with green power anytime soon.
Look to Africa
As a catastrophic energy crisis unfolds, Germany has announced it will join the bandwagon of nations backing away from their climate targets by increase your coal consumption, which has overtaken wind to become the main input to the world’s electricity generation in 2021. Indeed, Germany has no choice but to burn lignite in its power plants, widely considered the one of the dirtiest fossil fuels and extracted in vast surface mines. mines that litter the German countryside. the European Commission has already given its absolution to countries replacing Russian gas with coal and thus producing higher emissions.
But coal is only a stopgap solution, and Germany also needs to be clear about its long-term energy future – a future without Russian gas. Nuclear power is out of the question given that few, if any, European nations are as opposed to nuclear power as Germany. Last month, German politicians vehemently denounced the EU’s attempt to label nuclear energy as sustainable.
Vijaya Ramachandran, director of energy and development at the Breakthrough Institute in Berlin, should turn to Africa if it is serious about achieving energy security. Ramachandran notes that the continent is blessed with significant natural gas production, reserves and new discoveries being exploited. Very little African gas has been exploited, either for domestic consumption or export.
Algeria is already a major established gas producer with significant untapped reserves and is connected to Spain by several undersea gas pipelines. Germany and the EU are already working on expanding the capacity of the gas pipeline linking Spain to France, from where more Algerian gas could flow to Germany and elsewhere. The Libyan gas fields are connected by gas pipeline to Italy. In both Algeria and Libya, Europe should urgently help to exploit new fields and increase gas production. New pipelines under discussion currently focus on the proposed Eastern Mediterranean Pipeline, which would bring gas from Israel’s offshore gas fields to Europe.
But Africa’s biggest sources are south of the Sahara, including Nigeria, which has about a third of the continent’s reserves, and Tanzania. Senegal recently discovered large offshore deposits.
Ramachandra says Germany shouldn’t ignore these opportunities. For example, the proposal Trans-Saharan pipeline will transport gas from Nigeria to Algeria via Niger. If the project is completed, the new pipeline will connect to the current one Trans-Mediterranean, Maghreb-Europe, Medgasand galsi gas pipelines that supply Europe from transport hubs on the Algerian Mediterranean coast. The Trans-Saharan Gas Pipeline would be over 2,500 miles long and could provide up to 30 billion cubic meters of Nigerian gas to Europe per year, which is equivalent to approximately two-thirds of Imports from Germany in 2021 of Russia (for comparison purposes, the Yamal-Europe Gas Pipeline, one of the main routes for transporting Russian gas to Europe, is 2,607 miles long). On his side, Nigeria is enthusiastic on exporting some of its 200 trillion cubic feet gas reserves, with Nigerian Vice President Yemi Osinbajo arguing in favor of the essential role of natural gas, both as a relatively clean transition fuel and as an engine of economic development and a source of foreign exchange.
Unfortunately, the Trans-Saharan pipeline will likely take a decade or more to complete, and LNG shipments to Germany would bring quicker relief.
But, again, Berlin’s kamikaze energy policies got in the way: Germany did not build a single LNG import terminal as part of its policy to make the country dependent on Russian gas and, to in turn, to make Russia more dependent on Germany. But there is hope: Berlin has already given up on its old ways and says it will now build LNG infrastructure.
Fortunately for Germany and other stranded EU countries, Ramachandran says LNG loading ports can be built in Africa relatively quickly, with the Field of the Great Ahmeyin Turtle, an offshore gas field straddling the maritime border between Senegal and Mauritania, is a perfect example. When the field goes live next year, it will place the two West African countries among Africa’s leading gas producers. Floating liquefaction plants above the offshore gas field produce, liquefy, store and transfer the gas to LNG carriers which ship it directly to importing countries. Although initial production from this field is small, it is expected to double in a few years and the field is located in a larger natural gas basin with significantly larger reserves.
Elsewhere in Africa as well, gas production will continue to grow as projects in Tanzania, Mozambique and other countries come on stream over the next few years.
The development of a gas pipeline as large as the Trans-Saharan Gas Pipeline is likely to present many challenges as it passes through areas plagued by conflict and insurgencies. But it is time for Berlin to abandon its myopic energy strategy, stop funding Putin’s brutal wars and help Africa develop and integrate economically.
By Alex Kimani for Oilprice.com
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