Despite the growing popularity of the "green economy" and other ecologically friendly forms of production in industrialised countries, oil remains the backbone of the current global economy.
In the global energy markets, Russia has a prominent role. It is one of the top three crude producers in the world, competing with Saudi Arabia and the United States for first place. Russia is significantly reliant on oil and natural gas income, which accounted for 45 per cent of Russia's federal budget in 2021.
Russian crude and condensate output peaked at 10.5 million barrels per day (bpd) in 2021, accounting for 14% of global supply. It has oil and gas producing facilities across the country, but the majority of them are in western and eastern Siberia. Russia sold a projected 4.7 million barrels per day (bpd) of petroleum to countries worldwide in 2021.
Russia exports a significant crude amount to European consumers (2.4 million bpd) that contributed 25% of all oil imports by the EU as of October 2021. In recent weeks, the policies and conditions that have led to this dependency have been closely scrutinized.
What made Europe so reliant on Russian gas?
Reducing Europe's reliance on Russian gas has been a hot topic in Brussels for the past 15 years. Despite warnings from a January 2009 incident that resulted in a two-week disruption of Russian gas transit via Ukraine and Russia's invasion of Crimea in 2014, Europe has continued to buy Russian natural gas. On the other hand, Russian pipeline gas deliveries to Europe surged after 2014, and Europe also began importing Russian LNG from the Yamal LNG project, which started in 2017.
There are three main reasons for Europe's continued reliance on Russian gas:
After 2010, Europe's natural gas production began to fall dramatically. Between 50 and 60 per cent of Europe's demand was met by European gas supply in the 2000s. The Netherlands, Norway, and the United Kingdom were the top three producers. However, in the last 10 to 15 years, UK natural gas production has begun to drop, while earthquakes linked to gas production in the Netherlands have hastened the loss of the Groningen field's gas output, which was once Europe's largest.
Alternative sources of supply are insufficient to bridge the rising import gap. Europe's net imports have climbed by more than 80 billion dollars since 2016 due to decreased production.
While Europe raised its LNG regasification capacity to roughly 250 billion cubic metres per year by 2020 (a 40% increase from 2010), LNG imports have not been enough to meet the growing demand.
Furthermore, Europe serves as a worldwide LNG supply balancing market, absorbing excess LNG supplies when the market is oversupplied and redirecting LNG cargoes when the market is tight. Europe is also competing with Asia for LNG purchases. Imports from North Africa (Algeria, Libya) have declined, while deliveries from Azerbaijan are expected to be modest in 2021, at 15 billion cubic metres.
Oil and Gas – Patent Analysis
RU Patents (Russian Patents)
Russian patent trends have seen dynamism over the past many years. Patent filings fell during the Great Recession in 2008, in both Oil and Gas patents and the total patent universe. Following this decrease, both industries experienced a period of rapid intellectual property acquisition that lasted until 2012. The numbers are thought to decline further as the world awaits cleaner and environmentally friendly energy sources. Russia owns about 5893 patents out of which 35% are held by top 10 players.
Russia's largest gas producers are Gazprom and Novatek; however, numerous Russian oil corporations, including Rosneft, also have gas producing facilities. The state-owned Gazprom is the largest gas producer, but its share of output has dropped in recent years as Novatek and Rosneft have increased their capacity. In 2021, Gazprom was still responsible for 68 per cent of Russian gas output. Traditionally, production was concentrated in West Siberia, but in the last decade, investment has transferred to Yamal and Eastern Siberia and the Far East and the offshore Arctic. The availability of highly skilled employees, the overall high quality and intensity of research and development (R&D), and the corporations' policies of placing their technological centres in major cities all contribute to the greater concentration of patenting activity in metropolitan locations.
EP Patents (European Patents)
European Union has only 4667 patents in the Oil and Gas domain with 29% holdings by the top 10 players. The patent trend cannot rise because of the geographical conditions prevalent. The volume of oil output in the European Union has decreased dramatically since the turn of the century. During this time, production peaked at 168 million metric tonnes in 2000. This had dropped to 19 million metric tonnes by 2020. The United Kingdom was once a major oil producer in the EU, but its reserves have shrunk by nearly half since 1995.
Recent Developments in the wake of the Russian invasion of Ukraine
In response to Russia's invasion of Ukraine in 2022, the United States and the European Union have implemented harsh sanctions to destroy Russia's economy. However, these ambitious moves come with some potentially nasty consequences: Russia is not just one of the world's major energy exporters but also Europe's main source of these fuels.
The International Energy Agency proposed several new measures to help the EU reduce its dependency on Russian natural gas. New recommendations include, among other things, stopping new gas supply contracts with Russia, replacing Russian supplies with gas from alternate sources, speeding up renewable energy deployment, and expanding power generation from bio-energy and nuclear reactors. The proposal also calls for hastening the replacement of gas boilers with heat pumps and boosting energy efficiency improvements in buildings and businesses.
What will be the impact on Russia?
While Europe relies on Russia for a considerable portion of its energy demands, it is also Russia's largest client, consuming over three-quarters of the gas it produces, resulting in huge cash for Moscow. Russia also sells oil to Europe, and oil and gas exports account for a significant amount of Russia's state budget. A longer-term trade blockade of Europe would be unfavorable.
To lessen its reliance on Russian gas, the EU will need to make a concerted and sustained policy effort across many sectors, as well as strong international engagement on energy markets and security. There are several links between European policy decisions and global market equilibrium. Improving international coordination with alternative pipeline and LNG suppliers, as well as other significant gas importers and users, would be critical. Clear communication between governments, industry and consumers is also necessary for successful implementation. As the world's foremost energy authority, the IEA will continue to serve as a focal point for the global conversation on attaining a secure and sustainable energy future.