How Russia is profiting from climate change

By | July 12, 2022

Courtney Dobson writes:

On Feb. 24, the Yakov Gakkel, a 3-year-old, ice-class tanker, departed from Montoir Port, France, for Sabetta Port within the Arctic Circle in Russia. For as long as the war in Ukraine has raged on, the Yakov Gakkel has made four return trips to Montoir Port and has since moved on to ports in Spain and Belgium, delivering one of Russia’s principal revenue generators: liquefied natural gas, or LNG.

Russian President Vladimir Putin’s former chief economic adviser, Andrei Illarionov, suggested in April that the war in Ukraine could be stopped “within a month or two” if there were a full embargo on Russian oil and gas.

If only things were that simple. Unlike Western consensus on cutting off Russian oil supplies, five months into the war, there is no full embargo on Russian gas — and there is unlikely to be one. Not only is Europe too dependent on Russian gas, but in recent weeks, Russia has also turned the tables by cutting off its gas supplies to Europe. And this has come without a decline in enthusiasm for the war in Ukraine, obvious from the recent strikes on Kyiv. Even efforts to transition to “green” energy may not stymie Russia’s resolve — a stark reminder of what’s at stake for a world dependent on LNG.

Russia is the world’s largest exporter of natural gas, and Russian natural gas accounted for almost 40% of European gas demand in 2021. This has locked Europe and Russia into a symbiotic relationship of supply and demand such that a full embargo on LNG is not possible, and where there are sanctions on the industry, they do little to dissuade Russia from stopping the war in Ukraine.

In fact, Russia may just hold the geopolitical upper hand. For the past several years Russia has committed to its gas industry through investment and infrastructure development, reaping the benefit of the $1 billion a day that Europe pays Russia for its gas. This development has come in the form of massive projects in Russia’s Arctic region, with on- and offshore drilling, ports, airports and rail service transforming near ghost towns into modern urban centers. Exploitation of the Northern Sea Route (NSR) has been critical to this. Although it attracts far less attention than other global shipping routes, it would be folly to underestimate the potential of the NSR. As a route that connects Asia to Europe, the NSR is strategically significant. And because travel time between these two continents is 13 days shorter compared with the route via the Suez Canal, the NSR is also lucrative, saving between 30% and 40% in time and fuel costs. And thanks to climate change, year-round shipping on the NSR has become possible. With 90% of Russia’s gas reserves located in Yamalo-Nenets Autonomous Region in the far north of the country and the Arctic coast on its doorstep, Russia’s control over the NSR could prove consequential against sanctions and the West’s efforts to stop the war in Ukraine. That Russia regards its Arctic region as a national security priority and has been “future-proofing” its gas industry ahead of the so-called energy transition should give Western governments pause. [Continue reading…]

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