Oil and gas castling: who and to what extent replaced Russia as a supplier of raw materials to Europe

– Despite the decline in supplies of Russian energy resources to Europe, our producers continue to occupy a prominent place among the world’s commodity players. How much has our country’s position as a fuel exporter overall changed over the past year?

– Europe until recently remained the main buyer of Russian energy resources on the international market. According to the Central Bank, in 2021 – before the start of the CBO and sanctions – Russia exported about 232 million tons of oil, almost 115 million tons of petroleum products, more than 204 billion cubic meters of natural gas and 66 million tons of liquefied gas. The total revenue from the export of these energy products brought the national budget approximately $244 billion, and their share in the country’s total exports was 49%. According to Deputy Prime Minister Alexander Novak, the forecast for oil exports from Russia in 2023 will be below 247 million tons (due to voluntary cuts within OPEC+).

– The growth of our fuel supplies to Asian regions continues to grow and there are prerequisites that this trend will continue. Will Eastern consumers be able to adequately replace European buyers in the international energy market sector?

– After Western energy sanctions were imposed on our country, domestic exporters had to reorient their sales markets, replacing the lion’s share of supply volumes with the Asian sector. Here are the clear facts. According to Bloomberg estimates, since the beginning of last year, the volume of Russian oil supplied to Asia has exceeded the historical record of 3.6 million barrels per day, and total domestic exports have reached a peak of almost 4 million barrels per day.

It is not yet worth asserting that Russian hydrocarbons have begun to occupy eastern raw material trading platforms: international exchange traders who previously entered into contracts with Russian companies are systematically organizing the sale of raw materials to other importers not connected with our country by long-term contractual terms. At the same time, Russia is establishing ways to supply raw materials to states that are not concerned about Western energy attacks. In other words, foreign hydrocarbon traders, who are not subject to sanctions, are happy to increase their purchases of Russian energy resources, and domestic mining companies are trying to take a place in other retail outlets on the planet.

– Which sales markets are closest to us now?

– Our energy competitors are Saudi Arabia, the United Arab Emirates and Iraq. Oddly enough, these states can at the same time be called our closest energy partners, since we cooperate within the framework of the OPEC+ alliance, making decisions that satisfy each other regarding reducing the production of “black gold.” Their global supplies have moved to Europe, and we are expanding exports in the Asian direction. India has become one of the main centers for sales of Russian hydrocarbons. Back in 2021, Russia was not even among the top ten suppliers of “black gold” to the consumers of this South Asian power, but now we have become a leader in providing oil to the Indian market. Deliveries are carried out primarily by sea. The total volumes of pipeline exports to China, of course, exceed deliveries to India, but tankers with Russian energy resources still often head to Indian ports.

– Has India seriously increased fuel consumption?

– India prefers to refine Russian oil and transport the finished fuel to the European and American markets. Consumers in both directions continue to use raw materials from our country, while the processing of liquid hydrocarbons in Western countries has decreased. It is more profitable for Europeans to purchase finished petroleum products than to be bothered with the purchase, transportation and processing of raw materials, which increases costs, in particular for logistics. Obviously, Indian refiners have to be a little cunning: mix different types of Russian oil in order to bring hydrocarbons to the required condition, since a significant number of European refineries are “tailored” specifically to Urals. These plants try not to remove the use of our brand of oil from their technological processes.

– Apparently, it was quite difficult to promptly redirect energy exports from Europe. Is such a change in sales routes possible for domestic producers?

– It is worth considering all segments of Russia’s fuel cooperation with European counterparties. The first product that the EU abandoned was coal. From August 10, 2022, supplies of Russian “combustible stone” to Europe by sea were prohibited (rail exports are also carried out in small volumes). Then, from December 5, 2022, Russia was prohibited from supplying oil via the same routes, and from February 5, 2023, a moratorium was imposed on similar supplies of petroleum products.

– Is it possible to compare oil and coal?

– The fact is that oil and coal are inseparably linked on the world’s energy platforms. The logic of EU representatives in adapting to anti-Russian sanctions was as follows: Europe is changing with our country as suppliers and buyers of hydrocarbons (gas, oil, coal and finished motor fuel) – consumers on the continent are beginning to focus on Middle Eastern and American companies, and Russia is focusing on the Asian region . Russian supplies to the EU have already replaced the listed states – Saudi Arabia, the UAE and Iraq.

Europeans began to purchase coal in large quantities from the Republic of South Africa, Australia and Colombia. However, if we consider logistics routes, such an exchange turned out to be not very profitable for European importers. It is noticeably cheaper to supply energy resources from Russia: such exports were driven by economic benefits. Now similar supplies are determined by political priorities. Transporting the same coal from remote regions is more expensive and problematic. From a financial point of view, the result is clearly not in favor of the West: imports of gas, oil and coal across half the planet impose additional transport costs, tightening the economic pressure on European industrial enterprises and the ordinary population.

– But in Russia, transportation costs for delivering fuel to foreign consumers have also increased…

– Our country has slightly different logistics for exporting raw materials. Coal exports were reduced in Kuzbass, but production increased in Yakutia and the Far East in general. In Russia, the resource base is changing, adapting to more liquid and preferable Asian consumer routes.

Yes, coal has somewhat spoiled the picture of Russian energy exports. It is mainly transported by rail. In 2022, the BAM and Transsib highways were simply “clogged” with Russian export coal. Wagons loaded with raw materials went to Asia, and they returned empty (or filled with Chinese imported goods), which created a certain strain on the work of mobile transport. However, we can say with confidence that Europeans had to buy more expensive coal, gas, oil and finished fuel.

– Meanwhile, oil continues to play an important role in filling the Russian federal budget?

– Without a doubt. As I already said, in just a year our country has become the largest supplier of “black gold” to Indian consumers, who, along with China and the United States, are considered one of the world’s largest importers of energy resources at present. But we must take into account that foreign supplies of liquid hydrocarbons are complicated by various logistics conditions: lack of pipeline transportation, ordering of railway cars, problems with chartering sea vessels.

Europeans, of course, pay the rising cost of transportation. True, we should not forget that the consumption of hydrocarbon fuels in Europe has decreased – processing has fallen, since many private refineries produced fuel mainly from Russian raw materials. To restore previous volumes, European chemists have to use hydrocarbons from other producing countries. It is quite difficult to find grades similar to Russian fuel on the international market. You have to purchase raw materials for the subsequent mixture, the characteristics of which are similar to the Urals categories, and even reconfigure your processing terminals. It is more profitable for Europe to buy finished petroleum products rather than incur additional costs for processing hydrocarbons at its own factories. However, the raw material is of Russian origin in any case – despite its own prohibitions and restrictions, the West continues to use “toxic” fuel from our country.

– In other words, the world market should not count on a reduction in the cost of energy resources next year?

– Everything will depend on supply and demand. Supply can increase at any time – the main OPEC+ participants only need to refuse a voluntary reduction in export supplies. The demand for energy resources is a little more complicated: the reorganization of the international fuel market, provoked by Western anti-Russian sanctions, complicates the distribution of raw materials between suppliers and buyers. We will focus on oil prices in the region of $85-90 per barrel. This cost satisfies the Russian federal budget and gives mining companies the opportunity to support their investment programs.

Help “MK”:

Who benefited from anti-Russian energy sanctions?

Gas. According to Eurostat, over the past two years, imports of “blue fuel” have risen in price to an average of 15.2 billion euros per month: from 3.6 billion to 7.5 billion for pipeline raw materials; from 3.6 billion to 7.7 – for liquefied energy resources. In total, prices increased by approximately 305 billion euros (the refusal of Russian raw materials cost the EU 185 billion euros). Exporters from the USA (53 billion euros) and Great Britain (27 billion euros) earned the most.

Oil. According to the Federal Statistical Office of Germany, in January-July 2023, the export of petroleum products from India to Germany alone increased more than 12 times. The Germans buy mainly gas oil, used for the production of diesel and heating oil. In 2023, Berlin spent 451 million euros for these purposes, which is 1,100% more than a year earlier. In general, EU losses from a complete transition to “black gold” from alternative Russian sources from the summer of 2022 threaten to reach 300 billion euros. American (up to 120 billion euros) and Middle Eastern manufacturers (up to 100 billion euros) expect to receive the greatest profits.

Petroleum products. The cost of transporting finished raw materials from Southeast Asia to European trading floors could increase by 20-25%. As The Guardian reported in mid-autumn, wholesale prices for diesel fuel in Europe jumped to $1 thousand per ton. Given the onset of the winter season, European fuel costs could rise to $1 trillion. Europeans will have to pay about a third of the costs to Indian suppliers processing hydrocarbons supplied from Russia.

Coal. In 2021, our country, according to the Federal Customs Service, exported 211 million tons of coal for a total amount of $17.6 billion. The International Energy Agency estimates Russian supplies slightly higher – at 226 million tons (including thermal coal). Depending on the transport component, the cost of “combustible stone” has increased 1.5-2 times over the past two years. The main margin from the rise in coal prices will most likely go to European and Asian stock traders.