When Russian President Vladimir Putin ordered his army into Ukraine on Feb 24, Russia contested not just a nation’s sovereignty but a world order that had lasted eight decades.
This is the first time that a European country has invaded another democratically elected sovereign state since Nazi Germany invaded its neighbours in 1939.
The invasion represents a rupture in the system that once governed global stability, says senior minister Tharman Shanmugaratnam. “It’s a broader set of rules; never perfect, never totally comfortable to all players, but things were held in place. We now have a rupture with many ramifications.”
Speaking at the IMAS-Bloomberg Investment Conference 2022 on March 9, Tharman calls this a “perfect long storm”.
“They’re not cyclical; they’re not random shocks. They’re structural shifts, they’re going to be with us and they are interacting. They make for a new era of fragility,” says Tharman, who is also chairman of the Monetary Authority of Singapore (MAS).
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The unpalatable fact is that in the short term, Europe and the world are going to require more suppliers of oil and gas to substitute for Russian supply.
As a major exporter of energy, Russia accounts for 17% of global natural gas, 16% of global coal and 11% of global oil exports.
The effects of the invasion are felt worldwide. Oil prices surged more than 30% since the invasion, touching US$139 ($189.92) per barrel at one point before crashing some 11% on March 9, prompting Jeffrey Hadley, analyst from Oanda, to describe the market as being brutalised by the “Texas whipsaw massacre”.
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Even coal, widely derided as the dirtiest kind of fossil fuel, has surged to record levels too.
Oil’s March 9 drop came after the UAE’s ambassador to Washington announced that they “favour production increases and will be encouraging Opec to consider higher production levels”.
Opening the tap further, however, would be a violation of the Opec agreement, which fixes how much crude is produced by member countries.
Hence, in an expected about-face, UAE energy minister Suhail Al Mazrouei later said the state remains committed to the existing Opec monthly output agreement, arguing that the price surge is driven by geopolitical tensions rather than an oil shortage. Oil prices recovered on the news to around US$114 on March 10.
Europe’s cold shoulder
But the long storm brewing in Tharman’s tea leaves is far from over. Certainly, as dark clouds gather, Russia’s incursion threatens to rain on noteworthy gains made on the renewable energy front.
In 2021, the EU imported around 45% of its gas and almost a quarter of its oil from Russia.
To condemn Russia is one thing, but giving Putin the cold shoulder may hinder countries’ plans to slow global warming. The climate crisis is becoming increasingly entwined with energy security, and it is no longer possible to solve one without the other, says Tharman.
“The Ukraine war has forced that thinking,” he adds. “The unpalatable fact is that in the short term, Europe and the world are going to require more suppliers of oil and gas to substitute for Russian supply.”
Even Elon Musk, the outspoken chief of electric carmaker Tesla and commercial solar company Tesla Solar, urged greater oil and gas output.
“Hate to say it, but we need to increase oil & gas output immediately. Extraordinary times demand extraordinary measures,” tweeted Musk on March 5.
“Obviously, this would negatively affect Tesla, but sustainable energy solutions simply cannot react instantaneously to make up for Russian oil & gas exports,” he adds.
So far, fossil fuel companies are winning the war on priorities. “Since the consequences of climate are going to be 30 or 40 years down the road, people are going to focus a lot more on what is happening now — as they should,” says Charif Souki, chairman of Tellurian Inc, an American developer of liquefied natural gas (LNG) projects, to The New York Times.
“We can come back to climate,” adds Souki.
The atomic solution
Spring may be breaking in Europe, but Europeans are bracing for a cold snap. The continent’s decline in domestic energy production had outstripped renewable energy transition, forcing greater reliance on Russian imports leading up to the invasion.
The EU is overturning decades of energy policies, notes Stéphane Monier, chief investment officer at Lombard Odier’s private banking division. “The war is increasing political determination in Europe to be less dependent on, or even independent of Russian energy sources by accelerating the switch to renewable energy and away from fossil fuels.”
Add net-zero goals to the energy mix, however, and even the most powerful European nations are caught between a rock and a hard place.
Germany, which currently imports around a third of its oil and half of its natural gas from Russia, has announced plans to accelerate its renewable energy transition.
“The West will turn away from Russia … We will diversify our energy system,” says vice-chancellor Robert Habeck. “We will not buy Russian coal and gas in such an amount in the future.”
But it may be too late for Germany to walk back from its current energy dilemma, the outcome of a complicated history with nuclear power.
Renewable energy sources delivered almost 46% of the electricity generated in Germany last year. Coal, natural gas and other fossil fuels accounted for nearly 41%, while nuclear power provided over 13%, nearly half of what it was a decade ago.
Until March 2011, Germany operated 17 nuclear power reactors, which had provided a quarter of the nation’s electricity.
When German chancellor Olaf Scholz came to power in December, the dismantling of nuclear power was already in motion.
His predecessor, Angela Merkel, had championed the nuclear industry in her first six years as chancellor. But the Fukushima nuclear disaster of 2011 sufficiently spooked the former German leader, who herself has a doctorate in quantum chemistry.
As a colourful 2011 report by The New York Times reveals: “She reached the momentous decision to phase out nuclear power by 2022 after discussing it one night over red wine with her husband, Joachim Sauer, a physicist and university professor, at their apartment in central Berlin.”
Even as recently as last July, Merkel insisted that she has no regrets over her decision, but conceded that Germany would need to rely on gas for some time. “We cannot — as some have demanded — get out of nuclear power and coal and then withdraw from natural gas as fast as possible. That’s not going to be possible.”
Germany shut down three nuclear power plants in February, and its last three are scheduled to close at the end of the year. Ed Crooks, vicechair of Americas at Wood Mackenzie, notes “widespread agreement” that it is too late to try to keep the remaining nuclear plants open.
We must change course to overcome our dependence on imports from individual energy suppliers.
Apart from nuclear power, Scholz’s government wants to close Germany’s coal-fired power plants by 2030. To plug the gap, Germany will accelerate the construction of two new LNG import terminals and add to Germany’s gas reserves.
“We will do more to ensure secure energy supply for our country,” says Scholz. “We must change course to overcome our dependence on imports from individual energy suppliers.”
Meanwhile, France is pursuing the opposite route. President Emmanuel Macron is betting on nuclear power to enhance energy security while cutting emissions.
Nuclear power is already the largest source of electricity in France, making up 70.6% of the country’s energy mix.
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Just two weeks before the Ukraine crisis broke, Macron announced a “renaissance” for the French nuclear industry, with plans to build up to 14 new reactors. This is in line with France’s plans to reach carbon neutrality by 2050.
In a speech on Feb 10, Macron announced the construction of at least six new reactors by state-controlled energy provider EDF by 2050, with an option for another eight.
Russia has been a reliable supplier of energy to Western Europe and the world for many decades, writes WoodMac’s Crooks. This has endured through the Cold War, the collapse of the Soviet Union and the presidency of Vladimir Putin.
“That record of reliability, plus its abundant hydrocarbon resources, are the reasons that Russia plays such an important role in international energy markets,” says Crooks. “Finding alternatives will be neither quick nor easy. But Western governments are at least thinking seriously about how it could be done.”
Photos: Bloomberg
