Impact and Influence of Russia-Ukraine Conflict on Energy Market

Energy and Russia

1. The world's second largest crude oil producer. According to the "BP Statistical Yearbook 2021", Russia's proven oil reserves in 2020 will be 107.8 billion barrels, accounting for about 6.2% of the world's reserves, ranking sixth in the world, after Venezuela, Saudi Arabia, Canada, Iran and Iraq. higher than the United States. The United States, Russia and Saudi Arabia are the world's top three oil producers, with production of 16.476 million barrels per day, 11.03 million barrels per day and 10.667 million barrels per day, respectively, in 2020. In 2021, Russia's crude oil and condensate production will be 10.52 million barrels per day, ranking second in the world.

2. The world's second largest natural gas producer. According to the "BP Statistical Yearbook 2021", Russia's proven natural gas reserves in 2020 will be 37.4 trillion cubic meters, accounting for about 19.9% of the world's reserves, ranking first in the world, followed by the United States, Qatar and Turkmenistan. The United States and Russia are the world's top two natural gas producers, with output in 2020 of 914.6 billion cubic meters and 638.5 billion cubic meters, respectively. Russia and the United States are major competitors in exporting natural gas to Europe, so the Nord Stream 2 project, Russia's direct gas pipeline project to Germany, has been blocked by the United States.

3. Coal market share. Russia is a country with the largest reserves of coal resources in the world. Its recoverable reserves amount to 157.01 billion tons, accounting for about 17.2% of the world's recoverable reserves, ranking second in the world, second only to the United States. Russia is the sixth largest coal producer in the world and the third largest exporter of coal in the world. According to the Russian Federal Customs Service, Russia’s total coal exports in 2021 will reach 223 million tons, accounting for more than half of Russia’s coal production. According to country-by-country analysis, China accounts for about a quarter of its coal exports, and European countries account for more than a fifth. China, Japan, South Korea and European countries are the main export destinations for Russian coal.

Russia's position in the international energy market

Europe is heavily dependent on Russia for fossil energy. Europe is highly dependent on foreign energy. According to the BP Energy Statistical Yearbook, as of 2021, among the proven fossil energy reserves in the world, Europe has the smallest fossil energy reserves in the world, and the proportion of oil and natural gas reserves in the world is about 1% and 2% respectively.

Since 2015, Europe has vigorously promoted the transformation of its energy structure, and adopted an energy development strategy of abandoning coal, suppressing nuclear energy, increasing gas, and vigorously developing renewable energy such as scenery. However, wind and solar power generation are unstable, and natural gas, which accounts for 1/5 of the power generation, has become more and more critical because it meets the needs of carbon reduction, and has gradually become one of the important power generation methods in Europe.

Oil is the main fuel for final energy consumption in the EU. According to Eurostat, petroleum products such as fuel oil, gasoline and diesel account for 41% of final energy consumption in the EU. Natural gas in Europe is used for winter heating as well as power generation and industrial production. Russia is the world's second largest oil producer. According to EIA data, crude oil imports by refiners in countries such as Germany, the Netherlands and Poland account for 48% of Russia's total crude oil exports. In 2020, the natural gas consumption in Europe was 379.94 billion cubic meters, and the import volume in that year accounted for 85.84% of the consumption.

Russia is Europe's largest supplier of natural gas, selling to Europe a third of its exports and nearly half of Europe's imports. European crude oil, natural gas and coal are all highly dependent on imports, especially if there is a problem with natural gas supply, the energy supply of European countries will be in a passive situation. As a result, Europe is heavily dependent on Russia for oil and gas demand.

Russia is China's largest energy supplier. In 2021, the bilateral trade between China and Russia will reach US$146.835 billion, a year-on-year increase of 35.8%. China imported 79.322 billion US dollars from Russia, an increase of 37.5%, and exported 67.565 billion US dollars from Russia, an increase of 33.8%. Russia is China's second largest oil importer (after Saudi Arabia), the second largest natural gas importer (pipeline gas Turkmenistan accounted for 57.6%, Russia accounted for 17.3%, liquefied gas Australia accounted for 40%, Russia accounted for 6%. %), the second largest importer of coal (after Indonesia), and the largest importer of electricity.

To sum up, the EU and China are heavily dependent on Russia's fossil fuels such as oil, natural gas and coal, and cannot find corresponding substitutes in the short term. Economic sanctions on Russia will have a major impact on the economies of the EU and China.

Russia's economy is heavily dependent on energy

Energy is the lifeblood of Russia's economy. Former US Secretary of State Henry Kissinger once said that whoever controls the oil controls all countries. This sentence is very accurate in the age of fossil energy. Between 2011 and 2020, crude oil and natural gas revenue accounted for 43 percent of the average annual total Russian government revenue, according to the U.S. Energy Information Administration (EIA). It can be seen that the Russian economy is very dependent on energy.

If the international community imposes comprehensive sanctions on Russia, its intensity will exceed that of Iran, and Russia's economy will face a major threat. Although in the short term, the EU claims that the sanctions do not involve natural gas. However, if the sanctions are further intensified, Russia's oil and natural gas exports will be greatly affected, and its economy is at risk of falling into a trough.

Close energy ties between Russia and China

Russia is China's largest energy supplier. Russia is China's second largest oil importer (after Saudi Arabia, accounting for about 15%), the second largest natural gas importer (after Australia, accounting for about 10.5%), the second largest coal importer (only second In Indonesia, accounting for about 18%), the largest electricity importer.

1. Chinese crude oil market. According to data released by the China Petroleum and Chemical Industry Federation, in 2021, China's crude oil production will be 199 million tons, crude oil imports will be 513 million tons, and the foreign dependence on crude oil will be 72%, a year-on-year decrease of 1.6%. In 2020, China and Saudi Arabia imported 84.92 million tons of oil, accounting for 15.67%, ranking first, and imported 83.57 million tons from Russia, accounting for 15.42%. The two together account for one-third of imports. China imports a huge amount of crude oil from Russia, which is difficult for other countries to make up or replace.

Future Outlook and Analysis of Energy Market

1. The international energy market will fluctuate at a high level, and China should choose the right time to purchase oil and natural gas to make up for the lack of inventory. After the outbreak of the new crown epidemic, international oil prices experienced a brief decline, and China seized the opportunity to increase its oil reserves. According to relevant reports, the current reserve can meet the consumption of 80 days, which is more sufficient than before the outbreak of the new crown epidemic. After Russia takes special military action against Ukraine, international oil and gas prices will fluctuate sharply. Based on the good energy cooperation relationship with Russia in the early stage, China should maintain rationality and restraint, and appropriately replenish inventory. Regarding the imminent sanctions on energy and other aspects of Russia by Europe and the United States, we should base ourselves on our own and focus on our own economic interests and development.

2. Pay attention to the prediction and judgment of international energy price trends. In this Russia-Ukraine conflict, compared with other countries' media and related departments, the domestic media and related departments were slightly behind in their response, and they failed to give early warning and take relevant measures to evacuate Chinese citizens. We should take this as a lesson, strengthen analysis and forecasting in politics, economy, diplomacy, military, energy, etc., track international prices of energy products such as oil, gas, coal, etc. for a long time, and take precautions to respond in advance.

To sum up, the EU and China are very dependent on Russia for energy, and sanctions against Russia will hurt themselves. However, the United States, the world's largest producer of crude oil and natural gas, stands to benefit from higher energy prices. Although some media praised Russian President Vladimir Putin's actions, it remains to be seen who will have the last laugh. Russia will face unprecedented international sanctions, which will be a fatal blow to its economic base, which is heavily dependent on energy. Although the President of the United States announced that he would release crude oil reserves to alleviate the shortage of supply, the United States is undoubtedly the biggest winner in the process of international sanctions and rising energy prices.

Regardless of the depth and breadth of international sanctions, the EU, China and Russia will all suffer, albeit to varying degrees. There is no doubt that the United States will be the only winner in this Russia-Ukraine conflict.