The flow of fossil fuels from Russia to Europe has almost dried up. Moscow loses a lot of money - actually. Because the Kremlin has the perfect solution: it wants to sell oil and gas to Asia. However, there is a lack of European know-how and the necessary infrastructure.
On December 5, after more than nine months of war, the European oil embargo comes into force. Then no more Russian oil can be shipped to Europe by sea. In this way, by far the most - 90 percent - has been transported. The decoupling can also be seen in natural gas, even without an embargo: EU countries are currently only getting a fifth of the gas volumes they used a year ago via Russian pipelines.
This is a huge problem for the Russian state finances, because you lose the largest customer. Since the start of the war, Russia has sold about €234 billion worth of oil and gas, the Center for Research on Energy and Clean Air (CREA) estimates. Around half of the money came from Europe.
In the Russian budget for 2023, there should be a three-digit billion gap. However, the Ministry of Finance in Moscow assumes that revenues from the oil and gas business will only fall by 6 percent. Because the Kremlin has a simple solution to its problem: Asia will replace Europe as a major customer. But economists and Russia experts can't explain exactly how this is supposed to work.
So far, however, the substitution seems to have been a complete success. By mid-November, Russian oil supplies to Western Europe were already 90 percent lower than before the war. Recently, 95,000 barrels of crude oil per day arrived in Rotterdam, the finance portal Bloomberg reported. At the beginning of February it was still more than 1.2 million barrels a day. China, India and Turkey in particular have more than made up for this shortfall: They fill their depots with heavily discounted Russian oil, which at the same time is still expensive enough to fill the Kremlin's coffers.
However, together with the embargo, the EU and the USA will also introduce a price cap for Russian oil in December. It is not yet clear where that is. Recently, $60 per barrel was discussed as the upper limit. Economists predict that the sale for the Russian household will only be profitable above this price.
The new buyers should actually be happy about that, because in theory they are guaranteed to get cheap prices. However, like the EU, China, India and Turkey obtain the oil mainly by sea, where the EU has two other levers in its hand: Russian oil has so far been transported primarily by Greek, Maltese and Cypriot tankers based in Great Britain, Norway and Sweden are insured - and have to stick to the price limit, otherwise there is no insurance. They are a must for shipowners because they cover not only damage to the ship and cargo, but also oil spills. New deliveries are therefore only possible from December if Russia can find enough tankers of its own, possibly even a shadow fleet with other insurers.
The situation for Moscow is even more complicated when it comes to natural gas, although this is rarely delivered by ship. Here, too, Europe is or was by far the largest customer: in 2021, almost 70 percent of Russian gas exports were sent through pipelines towards the EU, as was half of Russian LNG exports. For the Kremlin, the solution is clear: In the future, natural gas, like oil, should primarily be routed to China. But the necessary infrastructure is missing.
"What can Asian countries really lose?" Asks political scientist Alexander Libman from Freie Universität Berlin in the ntv podcast "Learned again". "Europe will import less, but is buying up the international market. So Asian countries need alternatives. If Russia is ready, that's great, but how is Russia supposed to deliver the gas without pipelines?"
In its west, Russia has built up an extensive pipe network over more than 50 years and with a lot of European know-how. In Germany alone, with Nord Stream 1 and 2, Jamal and Transgas, four strands end - in China only one so far: In 2019, the pipeline Power of Siberia, which cost around 55 billion euros, went into operation.
The power of Siberia is supposed to flow 61 billion cubic meters of gas a year. It therefore has a larger capacity than Nord Stream 1 or Nord Stream 2. It is questionable whether this amount will ever be reached. Because Gazprom is said to have stated that the reserves in the gas field from which the pipe is fed are larger than they actually are. As a result, only 15 billion cubic meters of gas are expected to flow through the pipeline this year - a quarter of the planned amount.
A second strand is already being planned. The Power of Siberia 2 will also have approximately the capacity of Nord Stream 1 and will completely replace this part of the Russian deliveries to Germany. However, construction will not start until 2024 and also with a significantly longer route to China than originally planned. In the future, it will lead through Mongolia. An emergency solution, reports the independent Russian investigative medium "The Insider", based in Latvia. Gazprom subsequently added a diversion to the first line in order to be able to compensate for the missing delivery volume there.
A problem that shouldn't really exist, because Moscow and Beijing had already agreed in 2015 to build a third pipeline in Russia's Far East. The tube, working title Power of Siberia 3, would carry gas from the rich deposits of Russia's Sakhalin Island through the Sea of Japan and land in the extreme north-east of China. However, as "The Insider" reports, Gazprom has delayed the project and preferred to use the special ships acquired for this purpose in the Baltic Sea to build the more lucrative Nord Stream 2 pipeline - which is no longer needed.
According to unconfirmed reports, the Far East pipeline will be ready soon and will be able to transport gas to China from 2026. Western experts think that's optimistic: They assume that Russia will only have built the necessary infrastructure for new customers in Asia in 10 to 20 years - more like 20, because there is a lack of expertise and components from the West.
Complications that occur in a similar form when transporting liquid gas by sea. Although Russia already has three complete LNG terminals, only one of them is strategically located on the Russian Sakhalin Island and has so far mainly served to supply Japan. The second terminal is near the Finnish border in the Baltic Sea, far away from Asia. The third terminal was built in the far north of Russia on the Yamal Peninsula - and also suffers from the lack of European know-how.
According to "The Insider", the operating company Novatek had complained a year ago about inferior LNG technology, which for the first time came entirely from Russian production. After the start of the war and further sanctions, Novatek made it clear in the summer that the Russian LNG industry will need state support in order to catch up with western oil and gas companies in terms of research. The company from Moscow wanted $560 million, but it got $5 million.
The nail in the coffin may not only be for the Yamal terminal, but also for three others that Russia wants to build in the Arctic. According to "The Insider", however, their operation would be questionable because navigating through the dangerous sea at the North Pole in winter is almost impossible without western satellite images. And Russia hasn't received that since February either.
Many question marks surround Russia's future as an oil and gas supplier. It doesn't seem to be noticed in Moscow, but in Beijing it is: a few days ago, China signed a 27-year contract for LNG supplies - with Qatar.
