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The Russia-Ukraine War and The Emerging New Gas Order

I am a holder of a Bachelor of Laws Degree from the Catholic University of Malawi. I write mostly on politics, history and philosophy.

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The Russia-Ukraine war has forced some Western powers to unleash an unprecedented avalanche of economic sanctions. Russia is limping hard – some sort of soft power at work. Being the World's largest gas producer, Russia has reacted by demanding that all its oil be bought in rubles – in fact, Russia has threatened to halt gas deliveries altogether. And in fear of being accused of helping Russia fund the war, western powers have suggested boycotting Russian gas. That is easily said than done. But as the events slowly unravel, a 'new gas order' is in the offing.

A few statistics will avail much in understanding the current energy order. For starters, Russia is the third biggest producer of oil in the world, behind the US and Saudi Arabia. Russia is the EU's main supplier of crude oil, natural gas, and solid fossil fuels. It is estimated that in 2019, almost two-thirds of extra EU crude oil came from Russia. Another study estimated that Russia contributed three-quarters of the EU's imports of natural gas. While the UK and the US are not much dependent on Russian gas, it is apparent that the EU is heavily dependent on Russian gas.

With those statistics, it does not seem realistic for European countries especially Germany to boycott Russian gas. A serious attempt to do so may cripple the economic operations of many western countries. The west with its rivalry against Russia should have envisaged this situation and planned for a way out beforehand. But lack of foresight has put western countries between a rock and a hard. It is estimated that during the war, Russia has made gas sales with European countries to the tune of a whopping $30 Billion. Well, the irony is that those sales are used to fund the very war western countries are trying to stop.

The only way out of this conundrum is to set forth a new gas order so that Russia is reduced to an insignificant EU supplier of gas. It has been speculated that Africa has huge gas reserves that can supplant Russian gas. Some Middle Eastern big gas producers like the United Arab Emirates have also shown interest in supplanting Russian gas. But how realistic is this? Can this war lead to a new gas order?

Africa's Potential to Supply EU with Gas

It is estimated that Africa has more than 7% of the global gas reserves – which is about 148.6 trillion cubic metres. In 2020, Algeria recorded the highest natural gas production in Africa reaching up to 85 billion standard cubic metres. Countries like Egypt and Nigeria followed behind with an estimated output of 62 billion and 50 billion cubic metres, respectively. In 2021, Algeria ranked as one of the top five Liquefied Natural Gas (LNG) exporters to Europe. Apart from the aforementioned countries Angola and Sudan have large proven crude oil reserves amounting to 7.8 billion cubic metres and 5.0 billion cubic metres, respectively.

The above figures show an obvious potential that Africa can be a key gas supplier to the EU – however, several factors make this possibility unrealistic. First of all, Africa's production capacity is very low. Even the biggest African oil producers fail to meet their daily quotas – for example, Nigeria managed to pump 94% of its 1.7 million –barrel-per-day quota and Angola only managed to pump in 78% of its 1.4 million barrel-per-day quota.

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In terms of Algeria, it was observed by Alice Gower, director of geopolitics and security at Azure Strategy, a think tank, that Algeria's gas reserves are not well developed. Moreover, poor infrastructure and lack of investment render Africa's potential to produce gas at a massive rate impossible. However, with this new attempt to wean Europe off Russian gas dependence, several developments have been commenced. Sonatrach, an Algerian state-owned oil company, has announced a $40 billion investment package for five years. Moreover, Algeria, Niger, and Nigeria have agreed on the construction of a Trans-Sub-Saharan Gas Pipeline known as NIGAL. This pipeline will transport an estimated 30 billion cubic metres of gas per year to Algeria and connect to the existing networks to Europe.

Middle Eastern Region

The Middle East region holds half of the world's crude oil reserves and has large amounts of natural gas reserves. In 2018, it was estimated that 38.4% of the world's proven natural gas reserves were in the Middle East – this is equivalent to 6 951.8 trillion cubic metres. Iran, Qatar, United Arab Emirates (UAE), Saudi Arabia, and Iraq hold the largest natural gas reserves in the Middle Eastern region – Iran and Qatar have the largest natural gas reserves to the tune of 31.9 trillion cubic metres and 24.7 trillion cubic metres, respectively.

So, can the Middle East region replace the Russian gas supply to the EU? According to Qatar, it is almost impossible. Firstly, most of Qatari's gas volumes are linked to long-term contracts with most Asian buyers like China, South Korea, and Japan. However, Qatar intends to raise its LNG production capacity from 77 to 126 million tomes by 2027. On the other hand, Iran has been operating under heavy economic sanctions from the US which have crippled its gas production capacity – from an average of 4.1% in 2016-2018 to 0.02% in 2020 crude oil exports to the EU. Iran's relations with Western countries do not put it in a favourable place as a potential key gas supplier to the EU. Saudi Arabia, on the other hand, has resisted Western calls to increase oil production in a bid to remain steadfast in upholding its OPEC Plus agreement.

The US

The US promised to rapidly increase its exports of LNG to the EU by an additional 15 billion cubic metres by the end of 2022. This is in comparison with the 22 billion cubic metres exported last year. In a G-7 meeting, president Biden pledged to help support the countries as they phase out their reliance on the Russian gas supply.

However, there are several drawbacks – if the US is to significantly increase its gas supply to the EU, it means that it will involve reallocation of cargoes headed for other locations. Furthermore, constructing the infrastructure needed to increase supply like building enough terminals could take a couple of years. America has plenty of natural gas but much of it is in shale fields – but the problem is that, unlike crude oil, the process of shipping and exporting natural gas is rather complicated. And building import and export terminals can be very expensive and time-consuming. All in all, for the time being, the US does not have enough capacity to increase its gas supply to Europe in place of Russia.

What's Next?

On the table, the options are varied and vast. It is up to the western countries to gauge and agree on what is the best alternative. Unleashing economic sanctions on Russia and cringing to Russian gas is a contradiction the west cannot continue to live with. It's either one or the other. The Russia-Ukraine war has taught the west a few lessons about the drawbacks of soft power. Whatever lessons that have been learnt, a decision has to be made. Russia can no longer maintain its position as the EU's largest gas supplier. A new gas order has to emerge and Russia will not be part of it.

© 2022 Elenimo Chembe

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