Prof. ST Hsieh
Director, US-China Energy Industry Forum
December 30, 2022
The root cause of this shifting global energy flow is the ongoing war in Ukraine and the west-imposed sanctions on Russian energy flow to Europe. The war is devasting for Ukrainians in this winter. Europeans are also suffering unprecedent energy shortages.
The politically driven shift of global energy, or more specifically oil, flow may not accomplish the intended goal of crashing Russian economy, thus ending the war in Ukraine, anytime soon.
The single most significant impact of the war in Ukraine and the west-imposed sanctions on Russian energy to Europe is an energy crisis and prolonged loss of competitiveness in geopolitics for Europeans. The shift of energy flow simply means that the Europeans will have to pay more but still insufficient energy supply.
OPEC+ as the primary global oil exporters may have to shift their commodity to different markets, but the status of oil as an essential energy source will not change. The US is ready to export crude oil by 2023, it may target the European market, but it will demand competitive prices. Because, Europe will have to depend on the US to counter Russia. Europeans will not have any free lunch.
China and India will enjoy the discounted Russian oil supplies. These major oil importers and global economy engines will also, by and large, determine global commodity prices. Overall, if the war in Ukraine does not end soon, Europeans will be left out as major players in global economy.
Shifting oil flow from Russia to China and India has major geopolitical impacts because the US will have less and less influence in the Indo-Pacific region. Of course, Europeans will be outsiders too.
Russia’s Oil Ban Accelerates Shift in Global Energy Flows
Russian crude is increasingly heading to China and India, while Middle East producers are trying to sell more oil to Europe
Western sanctions on Russian fossil fuels are accelerating the shift in global energy flows, with China and India increasingly taking advantage of Russian oil discounts and Middle Eastern suppliers redirecting their crude to Europe.
Russia is offering deep discounts to Asia’s biggest oil buyers as it tries to retain market share after banning the sale of its crude and petroleum products to countries imposing a price cap. The cap bars the shipping, financing or insuring of Russia’s seaborne crude unless it is sold for $60 a barrel or less—a sanction leveled in response to the invasion of Ukraine.
Meanwhile, Saudi Arabia, the United Arab Emirates and other major Middle East energy exporters are shifting focus from their traditional markets in Asia to sell at a higher price to European nations seeking to secure their energy requirements.
Longstanding energy-trade ties face disruption as nations around the globe try to lock up enough fossil fuels to ensure that they can heat homes, power factories and maintain economic stability over the next few years. A redrawing of the global energy map would also likely impact geopolitical alliances as governments try to strengthen ties that would underpin their energy security.
Moscow is seeking to mitigate the impact of sanctions by slashing prices and scooping more market share in China and India, which haven’t joined the West in instituting a price cap. Since late November, Russia has been selling its flagship Urals crude for as much as $17 less than the cap, according to the International Energy Agency.
“Even if prices were to rise to $100 a barrel, China and India can continue buying Russian oil if they have access to their own insurance,” said Amrita Sen, director of research at London-based oil consulting firm Energy Aspects.
Russian exports to China, the world’s biggest oil importer, bypassed Saudi Arabia’s last month. Russia exported 1.9 million barrels a day to China in November, up 16.5% from a year ago, according to data from Beijing’s General Administration of Customs. Chinese imports from Saudi Arabia amounted to 1.61 million barrels a day, down 11% from a year earlier.
Russia and Saudi Arabia are allies in the OPEC+ group of oil producers, but say they haven’t coordinated their response to the West’s price cap.
Moscow’s shipments to India grew to 1.4 million barrels a day in November, compared with just 36,000 barrels a day a year earlier, according to commodity-data provider Kpler. Meantime, Indian refiners are exporting oil products that contain processed Russian crude to the European Union—an exemption allowed by the bloc’s sanctions program.
Western nations are trying to reduce the revenue Russia gets from its oil to dent Moscow’s war chest, while still keeping Russian oil flowing to markets—and therefore stabilizing global prices.
Not all buyers in Asia are queuing up for discounted Russian oil. U.S. allies Japan, South Korea and Thailand have virtually stopped importing from Russia.
Russia’s Deputy Prime Minister Alexander Novak on Dec. 23 said that some of Moscow’s oil products had also been rerouted to Africa and Latin America.
“As a result of unfriendly actions, our energy resources are being redirected to other markets, the markets of friendly countries,” he was quoted as saying by Russian news agency Interfax.
Oman, the U.A.E., Morocco, Nigeria, Senegal and Brazil have scooped up cheap Russian diesel and gasoline in recent months, despite being crude producers themselves in some cases.
Brent, the international crude benchmark, is slightly down since Russia threatened Tuesday to cut off buyers who adhere to the oil price cap amid worries about growth due to a resurgence of Covid-19 in China. It traded at around $84 a barrel early Friday.
As Russian exports squeeze energy prices in Asia’s biggest markets, Saudi Arabia and other major Middle East crude producers are rerouting some of their oil from China and India to Europe.
The move is a sharp reversal from years of focus on expanding in China and India, once seen as the only growth markets. Saudi Arabia was the fastest-growing of any major oil supplier to the EU in the third quarter, with a 9.1% market share of imports of the commodity, compared with 5.1% on average last year, according to Eurostat.
Saudi shipments to Egypt, most of which are re-exported to Europe through the Suez Canal, neared 1 million barrels a day in November, up from 600,000 barrels a day in October and 866,000 barrels a day a year earlier, Kpler says.
In Poland, Saudi state oil giant Aramco has agreed to increase its supplies to the country’s top energy firm PKN Orlen by up to 337,000 barrels a day next year. That will more than make up the 220,000 barrels a day Russia exported by pipeline to Poland last year.
Aramco has also committed over 100,000 barrels a day to TotalEnergies for supplies to France, which will replace lost Russian barrels, according to French and Saudi energy officials. In July, TotalEnergies also signed a deal with the U.A.E’s Abu Dhabi National Oil Co. guaranteeing 300,000 tons a month of diesel, or 75,000 barrels a day, to France in case of shortage, two French officials and an Emirati official said.
In recent months, Saudi Energy Minister Abdulaziz bin Salman has signaled that the kingdom is aiming to supply more crude to Europe.
“We are engaged with so many governments,” Prince Abdulaziz said at an industry event in October. “Just to give you an example, Germany, Poland, the Czech Republic, Croatia, Romania and others.”
Germany, which says it won’t buy oil from Russia starting in January, has also announced it will get crude from Kazakhstan to replace supplies.
With the oil markets seemingly still adjusting to the price cap and Russia’s threat of retaliation, members of the Saudi-led Organization of the Petroleum Exporting Countries say they see no need to reverse a 2 million-barrels-a-day production cut extended earlier this month.
Russia’s seaborne oil exports were down in December by 22% from the average for the first 11 months of the year, according to Kpler. “Russia is not able to fully replace its lost European buyers,” said Energy Aspects’ Ms. Sen.
Putin: Russia Is Now One Of China’s Leading Oil & Gas Suppliers
Fri, December 30, 2022 at 7:00 AM PST
Russian President Vladimir Putin has said that Russia has become one of China’s leading suppliers of oil and gas, with 13.8 billion cubic meters of gas shipped to China in the first 11 months of 2022. Russia has now overtaken Saudi Arabia as China’s top crude supplier thanks to the availability of Russian Urals at huge discounts. Russia is China’s second-largest supplier of pipeline gas and fourth-largest of liquefied natural gas (LNG), with December shipments 18% above daily contractual obligations.