27 Mar The international trade of natural gas was neither dead nor just on vacation
Act One: The European Commission meets in Brussels in February this year and proposes considering natural gas and nuclear energy as energy sources for the energy transition.
Act Two: Because of the conflict between Russia and Ukraine, Europe’s energy dependence is exposed.
What (I think) is the name of this play? ” The international trade of natural gas was neither dead nor just on vacation”
Let me elaborate on this hypothesis.
Act One
In the documents resulting from the Brussels meeting, the European Commission acknowledges that natural gas is a fossil fuel with a certain environmental impact. Nothing new so far. However, they also recognize this fuel as a useful energy source for the “green” transition. In plain terms: it’s bad, but not that bad.
Act Two
In 2020, natural gas exports from Russia to Europe reached 282.5 units (don’t worry too much about the units; the relative comparison matters more than the absolute figure) via pipelines and LNG. That same year, Europe consumed 541 units of natural gas. In other words, 52% of Europe’s consumption came from Russia.
Although these figures raised concerns among some, particularly those always worried about energy autonomy, they didn’t seem to keep the average European consumer—or should I say, the median European voter—up at night. However, this second act concludes with the well-known armed conflict, skyrocketing natural gas prices in Europe, and the undeniable evidence of this region’s energy dependence… on just one country. Yes, just one.
These two acts, in my view, establish a new narrative in Europe’s energy discourse. One in which:
It is necessary to diversify natural gas supply sources.
Natural gas is useful as a transition fuel toward a “green” economy, which essentially boils down to consume natural gas—it’s not that bad.
Alternative energy sources shouldn’t be overlooked since energy autonomy isn’t so bad either.
It seems the old (and complicated) rules of international trade from David Ricardo, passing by the bearded (and amusing) Paul Krugman, and even the eager academic consultant Michael Porter aren’t quite enough here. It appears that international energy trade goes beyond comparative advantages, monopolistic competition, and competitive advantages. Some readers might say, “But this was known years ago.”
Am I saying Europe will stop buying natural gas from Russia next month? Or next year?
No, because such changes take years, many years. There are signed contracts, investments made, debts to repay to international banks, European taxi drivers using natural gas, young people needing to charge their phones to watch the latest TikTok videos—in short, the economy as a whole is comfortably seated on a Russian couch, but one that suddenly started showing some thorns.
What could we expect, then?
What usually happens when your regular market vendor fails: other vendors offer the same product, cheaper, and with less hassle. These other vendors could well come from Asia, America, and even Europe itself… yes, the North Sea. For this last option, all that’s needed is to tone down environmental concerns. And can that be done? I believe so—just remember Act One.
It seems natural gas is not as down and out as once thought. Today, a massive consumer wants to change vendors, and many opportunities are opening—not only for the new vendors of natural gas but also for those producing other energy sources.
Let the bidding begin.
S. Mauricio Medinaceli Monrroy
La Paz
March 27, 2022
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