As the unprovoked Russian war on Ukraine approaches its third week, the European Union is being forced to reevaluate its current dependence on Russian oil and gas. What does this mean for oil and gas prices and energy alternatives in the short term?
Even before Russia decided to unleash the power of its substantial military force on its unsuspecting democratic neighbour, the EU had already been exploring ways to reduce its energy reliance on Russian energy.
Now that the invasion of Ukraine is closing on its second week, calls for EU energy diversification are sounding louder and more fervently.
While oil and gas were explicitly left out of increasingly tough Russian sanctions, that hasn’t prevented prices from soaring. Crude oil has topped $130 a barrel; drivers in Canada and the UK face record-high prices at the pump, while US gas prices edge past $4 a gallon.
Russia is a major oil and gas producer; globally, it was responsible for more than 17% of gas output and 13% of oil production. The EU is particularly dependent on Russian energy resources, with 40% of the block’s gas coming from Russia.
In an interview with NewScientist, Sony Kapoor, a professor at the European University Institute in Italy, said “the biggest leverage [Russian president Vladimir] Putin has over Europe’s head is the ability to turn off the gas,” adding that while plans are underway to reduce this reliance, Russia deciding to simply tun the taps off now would be “a complete disaster for the European economy.”
Decreasing dependence on Russian oil and gas will not be as simple as increasing imports from other supplies. In 2021 the EU imported 155 billion cubic meters of natural gas resources from Russia, which amounts to close to 45% of total EU gas imports and 40% of consumption.
To reduce reliance on Russian energy resources, the EU will need to accelerate its diversification to other alternative energy sources.
On March 3, 2022, the International Energy Agency released a 10-point plan outlining how the EU might shift away from Russian natural gas resources. Implementing these measures could substantially decrease EU reliance on Russian oil and gas, with significant reductions achievable within a year.
“Nobody is under any illusions anymore. Russia’s use of its natural gas resources as an economic and political weapon show Europe needs to act quickly to be ready to face considerable uncertainty over Russian gas supplies next winter,” said IEA Executive Director Fatih Birol.
“The IEA’s 10-Point Plan provides practical steps to cut Europe’s reliance on Russian gas imports by over a third within a year while supporting the shift to clean energy in a secure and affordable way. Europe needs to rapidly reduce the dominant role of Russia in its energy markets and ramp up the alternatives as quickly as possible.”
Key actions put forth by the IEA recommend not signing any new gas contracts with Russia; diversifying gas supplies from other sources; accelerating the deployment of new alternative energy projects; encouraging more efficient energy use from businesses and consumers; and a concentrated effort to diversify and decarbonize sources of energy flexibility.
Germany is already taking steps to diversify its gas imports, announcing a 1.5-billion-euro order for non-Russian liquified natural gas last week. Meanwhile, nations like the UK are looking to speed up the transition to alternative and renewable energy sources and accelerate action on electric vehicles and electrified heating.
Oil and natural gas are not the only commodities that have seen prices soar since the invasion of Ukraine began on February 24; spot uranium has climbed 13%, palladium hit record highs, and gold briefly broke above $2,000 an ounce.
While Russia is one of the world’s largest producers of palladium and gold, there has been some speculation that another mineral resource could have played a part in Putin’s decision to invade Ukraine: the possibility of rich lithium deposits.
Before the invasion, Ukraine President Volodymyr Zelenskyy was making moves to position Ukraine as a major player in the global transition to cleaner alternative energy sources. Researchers speculate that Eastern Ukraine could be sitting on as much as 500,000 tons of lithium oxide, a critical component of the batteries that power EVs, among other things.
Lithium isn’t particularly rare; there are deposits located throughout each corner of the globe, and experts predict there is more than enough to meet rising demand. However, as the market for EVs skyrockets, auto manufacturers have been left scrambling to secure sufficient supply, causing lithium prices to soar. Over the past year, lithium prices have surged over 500% and appear primed to continue marching upwards.
Investors would be wise to keep an eye on lithium mining companies such as United Lithium Corp. (CSE: ULTH; OTC: ULTHF; FWB: 0ULA) during this commodities chaos.
United Lithium is an exploration and development company focused on meeting the increasing demand for renewable energy alternatives by tapping into global lithium deposits. The company is currently operating projects in Sweden, Finland, and Canada.
On February 17, 2022, United Lithium announced a second drill had been added to drill the Bergby Project, aimed at accelerating production rates and enabling new targets to be tested sooner. The company now wishes to add a third drill to the project, one able to maneuver rough terrain with minimal disruption to the environment.
February also saw United Lithium close on its acquisition of 83.6% of the Kietyönmäki Lithium Project.
Disclaimer: The company described in this article is a customer of NAI Interactive Ltd. This material is for informational purposes only and is not intended as a recommendation or offer or solicitation for the purchase or sale of any securities or financial instruments, or for transactions involving any financial instrument or trading strategy.