[Finance and Business World]From the battlefield to the table oil and food crisis | Ukraine | Russia | Energy

[Epoch Times March 03, 2022]Russia has entered the seventh day of its invasion of Ukraine. Ukraine’s stubborn resistance has also brought unprecedented unity among Western countries. The United States and Europe have also announced a number of sanctions, including kicking Russia out of the SWIFT system. However, these sanctions are also double-edged swords. For example, Europe is highly dependent on Russia’s oil and natural gas. Therefore, while the relevant sanctions hit Russia hard, they may also hurt the global economy, especially the increase in energy and food consumption. prices, increasing global inflationary pressures.

Let’s discuss today, how long can Europe last if Russia cuts off oil and natural gas supplies? Does the EU have a response plan? Will the U.S. Open Up for Oil Drilling? In addition, Ukraine is the granary of Europe. Will the Russian-Ukrainian war cause a food crisis?

Let’s start with oil and gas.

Europe imports about a quarter of its oil, and more than a third of its natural gas, from Russia. According to statistics from BP, Russia’s natural gas exports in 2020 accounted for 19% of global trade, about half of which was exported to Europe through Ukraine. After the situation in Ukraine worsened, the German government announced on February 22 that it would suspend the certification of the “Nord Stream 2” natural gas pipeline project, which exacerbated the uncertainty of energy supply in Europe.

Although the Western sanctions against Russia this time are mainly in the fields of finance and technology, and do not involve energy, some analysts believe that Russia may retaliate to the United States and Europe by controlling the supply of natural gas to Europe. The European Central Bank has estimated that a 10% shock to natural gas supply could reduce euro zone GDP by 0.7%. Once the confrontation between Europe, the United States and Russia escalates, in the context of high inflation, the insufficient supply of natural gas will hit the European economy.

It is the concern over energy supply that has led to the current price of natural gas in Europe, which has soared by nearly 70%, and the price of crude oil futures, which has exceeded $105 a barrel for the first time since 2014.

The United States and its allies are considering releasing oil reserves amid soaring oil prices and supply concerns over Russia’s invasion of Ukraine, Reuters quoted sources as saying.

In fact, the United States is also an oil-producing country, and it is also the largest oil-producing country in the world. The United States, which holds huge shale oil resources, once became a net exporter of crude oil in 2019. However, after Biden took office, the United States carried out a series of anti-oil policies. On his first day in office, Biden pulled the plug on the Keystone rapid oil pipeline linking Canada, which was originally planned to run from the oil sands in Alberta to Nebraska in the United States every day. ) delivered 830,000 barrels of oil. In addition, the Biden administration has imposed oil and gas drilling restrictions on federal lands.

As we all know, Putin has said before that he does not like American shale oil drilling technology, because Russia can get enough oil only from the Arctic continental shelf, and there is no need to develop shale oil. For the Biden administration to cancel the fast oil pipeline between the United States and Canada for environmental reasons, it is estimated that Putin was also secretly happy at the time, because the United States‘ supply capacity in oil energy has not been further strengthened.

However, the Russian invasion of Ukraine launched by Putin this time may become a booster. The higher oil prices caused by the conflict between Russia and Ukraine are strengthening U.S. oil and gas production. It may also force the United States to open up restrictions on oil extraction and help the United States restore the energy industry, which has also become a possibility.

According to IHS Markit, a market data provider, the U.S. exported liquefied natural gas (LNG) to Europe with an annual increase of 80%, surpassing Russia for the first time. 7.5 billion cubic meters. This is an unprecedented record for U.S. LNG exports to Europe.

The vice president of IHS Markit predicts that U.S. crude oil production will increase by 900,000 barrels per day this year, currently at 11.6 million barrels per day, and will reach an average of 13 million barrels per day in 2023, returning to pre-pandemic highs.

In addition, the number of drilling wells also reflects signs of expansion of U.S. shale oil. Data from U.S. oilfield services company Baker Hughes shows that the total number of U.S. rigs is 516, an increase of 19 from last week. the largest increase in four years.

But U.S. crude companies don’t seem to want to pump at full speed because of the high cost of shale oil and limited reserves. According to the “Wall Street Journal”, if the large-scale shale oil practitioners in the United States maintain the practice of the past two years during the epidemic and maintain their annual production capacity at a near-zero growth rate, they can continue to drill and maintain profits in the next 10 to 20 years. . But if they return to their pre-pandemic annual growth rate of 30%, it is estimated that in a few years, oilfield stocks will be depleted.

Therefore, U.S. crude oil production is expected to grow by only 2% to 3% this year. Even if oil prices rise from $70 to $100, U.S. oil companies will not accelerate the expansion of production capacity as before.

So, can the US save Europe’s energy crisis if US oil companies go all out?

Judging from the data in 2020 and 2021, Europe’s average annual import of natural gas from Russia is about 170 billion cubic meters, accounting for about 35% of the entire European annual natural gas consumption. Can the United States and its gas-producing allies make up for the 170 billion cubic meters gap? Should be hard.

why? We see that although the shale gas revolution has achieved great success, the export volume of LNG in the United States has been rising in recent years. However, what is the export volume of liquefied natural gas in the United States in 2022? It is expected to reach 83 million tons. That is 117 billion cubic meters. Even if all of it is supplied to Europe, it can only account for about 68% of Russia’s supply to Europe. What’s more, more than half of the more than 100 billion cubic meters need to be supplied to the Asian market in accordance with long-term agreements.

So how long can Europe survive without Russian gas?

On February 28, the Bruegel Institute, Europe’s top think tank in the field of international economics, released a new report on whether the EU can completely get rid of Russian gas next winter.

It concluded that if Russia cut off gas flows to Europe completely, the EU would need to reduce demand by at least 10%-15% to cope.

If the EU can afford to roll out power outages, or limit industrial gas use, it will be able to get through next winter without importing Russian gas, while avoiding serious damage to the European economy, the report said.

However, Reuters’ senior market analysts are not optimistic, arguing that from a global perspective, there is almost no spare capacity in any link of the LNG supply chain, so the increase in European supply can only be reduced by reducing supply in other regions. cost.

Although some European countries can import unused gas from Qatar and the United States, and Japan and South Korea can also divert some of the surplus offshore gas to Europe, the global gas market, as well as other European pipeline luck suppliers such as Algeria and Norway, are already in full swing. The long-term contracts signed to produce and export at load also limit the amount of gas redirected to Europe from the rest of the world.

So, in the next 12 months, if Russian gas is absent, there is little that can be done to meet EU gas demand in a “normal” year.

Commodity analysts at Goldman Sachs believe that the price of natural gas in Europe may briefly return to year-end highs, or even higher.

Food crisis?

In addition to energy supplies, the worsening situation in Ukraine will threaten food prices. Among them, the price of wheat has risen to the highest level in 10 years, and the price of wheat futures traded on the Chicago Board of Trade has surged 8.7% to $9.34 per bushel. Corn and soybean futures also climbed 5% and 3.9%, respectively.

Now the two countries in the Russian-Ukrainian war, Russia is the world‘s largest exporter of wheat, and Ukraine is the fourth largest exporter of wheat. The output of the two countries accounts for 29% of the world‘s total. In addition, the two countries’ corn supply accounts for 19% of the world‘s total, and the export of sunflower oil accounts for 80% of the world‘s total.

Ukraine has been known for centuries as the breadbasket of Europe and a major supplier of grains to countries in North Africa, the Middle East and Southeast Asia.

In total, 14 countries are more than 10% dependent on Ukrainian wheat. Among them, Lebanon is 50%, Libya is 43%, and Tunisia is 32%. Egypt and Indonesia have more than 15% dependence on Ukrainian wheat. Egypt is the world‘s largest wheat importer. For Egypt, which is extremely politically turbulent, soaring food prices will undoubtedly only worsen the situation.

During the epidemic, global food prices have already risen, and the current Russian-Ukrainian war will only make the soaring global food prices worse. We know that in 2014, when Russia annexed Crimea, global food prices soared because of the war, and the price of wheat alone rose by about 20%.

Another affected person is China, because China is a big buyer of Ukrainian corn. In 2021, Ukraine has replaced the United States as China’s largest supplier of corn. According to CCP customs data, in December 2021, 70% of China’s corn imports came from Ukraine. In addition, 64% of China’s sunflower oil imports in 2021 will also come from Ukraine.

In terms of barley, Ukraine is China’s main source of imports. According to information from China Feed Industry Information Network on February 24, from 2020 to 2021, about 54% of Ukraine’s barley exports were sent to China, with a volume of more than 2.57 million tons, accounting for 28% of China’s barley imports.

However, the CCP seems to have already found a substitute country for food imports before the war between Russia and Ukraine. During the Winter Olympics, Russia and China have signed an agreement to allow Russian wheat and barley to be imported into China. On the day Russia invaded Ukraine, the General Administration of Customs of the People’s Republic of China also issued an announcement allowing the import of wheat from all over Russia. However, before that, because of the discovery of dwarf smut in Russian wheat, the Chinese Ministry of Agriculture, starting in 1997, only allowed the import of wheat from 7 regions of Russia. The data also show that in recent years, China’s imports of wheat from Russia have been very small.

According to official information, wheat dwarf smut is one of the most harmful and extremely difficult to control quarantine diseases among wheat smut. Wheat infected with the disease can lose 75% to 90% in severe cases, or even lose production.

However, now the CCP seems to suddenly not care about the smut of wheat. This also reminds people of the fact that during the Sino-US trade war, the CCP switched to importing pork from Russia, but as a result, foot-and-mouth disease and African swine fever broke out in Chinese pork. epidemic. However, it is understandable, because the senior officials of the CCP do not need to worry about smut, they eat special food.

Two days ago, mainland media published a commentary titled “Opening up the import of Russian wheat, is it a line or a business? “The article analyzed that wheat is not the main type of grain imported by China, and the absolute majority are soybeans and corn. Moreover, China’s grain imports obviously do not depend on Russia. According to past data, Canada, Australia, the United States, and France are the main wheat importers. Therefore, the article concludes that the sudden full opening of the import of Russian wheat is a political consideration. It seems that the CCP is using wheat imports to choose sides.

We know that the war launched by Russia has undoubtedly brought about a lot of changes in the global economy, and it will also have an impact on the lives of people around the world. A few days ago, the managing director of the International Monetary Fund (IMF), Kristalina Georgieva, said the war would be transmitted through energy and food prices, exacerbating already rising inflation. She believes that peace is the only way to relieve these pressures, and a way to bring it must be found.

As you can see, the negotiations between Russia and Ukraine did not reach any agreement, the two sides agreed to meet again in the next few days, and at the same time, Russia is still increasing its offensive. So, will Western sanctions deter Putin’s offensive? We will wait and see.

Institute of Financial and Commercial Economics
Planning: Yu Wenming
Written by: Chen Siyu
Consultant: Li Tingqian
Editor: Wei Ran, Yu Wenming
Edit: Song
Producer: Wen Jing
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