Energy Security & The Conflict in Ukraine

“Energy security” has become a catchphrase of the Ukraine crisis and we expect it will be a hot button political item in the years ahead.  The International Energy Agency defines energy security as “the uninterrupted availability of energy sources at an affordable price.”  In our next few blog posts we’ll be exploring the role of energy security in the conflict in Ukraine, the options the Eurozone has to ween itself off its dependence on Russian oil and natural gas, and the role renewable energy sources will play in that transition.  With oil and natural gas supply increasingly controlled by autocrats as illustrated in the graphic below, we would argue that the energy crisis being played out in Europe foreshadows the key role that energy security will play in other parts of the world going forward.

 

 

The past few years witnessed a proliferation of technological innovations such as augmented reality, cryptocurrencies, online gaming and the metaverse that were adopted with enthusiasm during the COVID lockdowns of 2020 / 2021.  But it’s hard to envision those energy-intensive technologies which have driven so much growth and attracted billions in investments over the past few years making the next giant leap forward in an environment where Europeans are being encouraged to cap their driving speeds, turn down their thermostats, and shorten their shower times in an effort to preserve energy.

 

Putin has weaponized Russia’s control of Europe’s natural gas market and is using it as a negotiating tactic to stimy the impact of the West’s economic sanctions, the proposed expansion of NATO to Sweden and Finland, and the West’s support, military and otherwise, for Ukraine.  Since the conflict began, Putin has threatened to cut off Europe’s natural gas supplies (they have already cut off supplies to Poland and Bulgaria) and has demanded that payments for natural gas be made in rubles (to shore up the Russian ruble, which has lost ~45% of its value since the conflict began). 

 

Europe is in a tough spot.  Russia supplies ~45% of Europe’s natural gas as pointed out here, and natural gas is a key source of energy for the Eurozone, supplying 22% of Europe’s energy in 2019 according to the European Union here, with combined cycle gas turbines acting as a key stabilizer of energy grids now that environmentally damaging, but stable, energy sources like nuclear and coal are being taken off line. 

 

In our next blog post we’ll explore Europe’s options for transitioning away from their dependence on Russian oil and gas.

 

 

 

 

 

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