15 Apr 2022 16:38

Novak: Russian oil, gas won't be replaced for 5-10 years, significant restrictions on supplies could lead to record prices

MOSCOW. April 15 (Interfax) - Russian oil and gas will not be successfully replaced on the global market for about five to ten years, even announcements of ending supplies of energy resources from Russia are leading to price surges on global markets, and real-world restrictions could lead to new record price highs, Russian Deputy Prime Minister Alexander Novak said in an article published in the Energy Policy journal.

An unprecedented surge in prices for energy resources and high volatility were recorded in March almost immediately after the imposition of sanctions against Russia, Novak said.

"At its height, the cost of gas reached almost $4,000 per thousand cubic meters, oil was nearing $140 per barrel, and coal was trading at $460 per tonne. And experts are certain that this isn't the limit. Global energy markets continue to be in an uncertain state today," Novak said.

Commenting on Europe's plans to introduce new sanctions on the import of Russian energy resources, Novak said that oil supplies from Russia to countries of the European Union make up 30% of overall supplies, gas makes up 40%, and Russian coal in Europe's overall imports is approximately a third of all purchases.

"In the European Parliament's resolution prohibiting the import of Russian energy resources, it notes that the decision should be accompanied by a plan of action aimed at guaranteeing the security of energy supplies to the EU. However, key players in the sector agree that fully replacing Russian oil and gas in the coming five to ten years will hardly be possible," Novak said.

Europe has tried to decrease its dependence on Russian gas by using coal, the price of which has also risen, Novak said. "A blistering return to coal generation is happening amid statements from EU countries on de-carbonization of the economy and carbon neutrality by 2050. According to the International Energy Agency, the global volume of carbon dioxide emissions in 2021 increased 6% on average and reached a record 36.3 billion tonnes. The U.S. and the EU were among the leaders with figures of approximately 7%. The main reason for this growth in emissions was, in fact, the use of coal," Novak said, adding that residents of Germany have begun stocking up on firewood en masse.

Renewable energy sources meant to replace gas are unstable, Novak said. "Notably, a drop in the production of electricity was registered in Europe in March on account of wind generation. For example, the week of March 14-20, windfarms supplied an average of 17% of electricity production in the EU, and this figure had already fallen to 7.5% on March 29, the lowest figure since the end of December," he said.

Novak also noted that OPEC has said that it cannot compensate for reduced supplies of Russian oil on the global market.

"If we talk about possible coal supplies to Europe, then bets can be placed on countries of South America and South Africa, but in the opinion of experts, it will be difficult for them to guarantee an agreeable price due to significant logistics delays and high demand," Novak said.

"A reasonable alternative to sources of energy from Russia hardly exists today," he said.

"I will emphasize that in the situation that has developed, not even actions, but statements alone on ending supplies of energy resources from Russia are leading to price surges on global markets. If the world encounters not hypothetical, but real significant restrictions, prices on the main types of fuel could substantially exceed the record highs that have already been reached," Novak said.