All the causes (and remedies) of the energy crisis in Italy
Europe, and Italy in particular, can respond to the reduction in imports from Russia in several ways. Here are which ones. The in-depth study by economists Marzio Galeotti and Alessandro Lanza for Lavoce.info
The theme of expensive energy returns cyclically in the political debate and especially in the European one.
The issue is among the most felt at the moment, when economies are struggling to emerge from a two-year period characterized by a difficult pandemic and what follows. G.
iova to begin with, whether this price situation should be considered truly extraordinarily high or whether, as often happens, the fact that what we are experiencing is more vivid than in the past, perhaps not so far away.
The price of oil (Brent, for convenience) can be used as an example. Without the need to reconstruct history and considering only the last 20 years, it is possible to state that we certainly do not live in a period in which the price of oil (and of all related commodities) is particularly high. If the price of Brent has fluctuated around 70 dollars / barrel in recent months, we must remember that, in real terms, it has largely exceeded 100 dollars / barrel in 2011-2013.
It therefore remains to ask ourselves what is different about this crisis and why it appears so profound compared to the many we have experienced.
A distinctive – and probably market-troubling – element is complexity.
In past crises, the motivations – even if opaque – have strictly concerned the demand / supply dynamics of oil. Nothing that could not be understood in the light of the not always very clear communiqués of OPEC. This time, on the other hand, different, interconnected but at the same time autonomous plans intersect, which put the market in serious ambiguity.
First of all, there is a political problem concerning the imperial will of Putin's Russia, a will exercised first with the annexation of Crimea and now with the pressure exerted on Ukraine and Belarus.
The weakness, certainly more political than military of the United States, does not help to put a stop to Russian expansionism and a certain acquiescence in the management of the Nord Stream gas pipeline does not seem to help the policy of those who want to build a wall against Russian expansionism.
On the other hand, NATO was not watching. Former USSR countries (like all Baltic countries), once they regained independence, joined NATO, joining countries (Poland, Czech Republic, Romania, Slovenia, Slovakia) that were part of the so-called Soviet bloc. For honesty of analysis it is therefore right to remember how the virus of expansionism has hit Putin's Russia, but also NATO in an anti-Russian key.
Finally, we must not forget all those considerations that come from Macron's France (but which belong to an ancient French tradition that dates back to over 50 years) and which sees with due caution a neo-imperial Russia as the last bastion between Europe, now clearly under siege, and China.
Europeans, however, suffer from myopia and tend to forget that Russia and China have a common border, a border that has been discussed for the last 200 years, and it is no coincidence that the grandfather of the current North Korean dictator was raised in the party schools of the USSR and promoted dictator in Korea or a Soviet and then Russian wedge in China.
With regard to the natural gas issue, it should also be noted that Russia recently signed a 30-year contract for the supply of gas to China through a new pipeline and – a distinctive and interesting element – will regulate new gas sales in euros.
With this contract, Russia strengthens an energy alliance with Beijing. Gazprom, which has a monopoly on Russian gas exports via a specific pipeline, has agreed to supply 10 billion cubic meters of gas per year to the main Chinese state-owned energy company CNPC. The program foresees the completion of the plan foreseen years ago with the construction of a gas pipeline that will connect the Russian Far East region with north-eastern China, whose works should begin in two or three years.
Moreover, Russia is already sending gas to China via the Power of Siberia pipeline which started operating in 2019. Putin's country also supplies 16.5 billion cubic meters of gas in the form of liquefied natural gas (LNG).
It is also interesting to note that the Power of Siberia network is not connected to the gas pipelines that send gas to Europe and this has made it possible to avoid the controversy associated with the discussions on the increase in gas prices due to the shortage of supplies.
According to previously drawn up plans, Russia aimed to supply China with 38 billion cubic meters of gas via pipeline by 2025. The new agreement, which coincided with a visit by Russian President Vladimir Putin to the Beijing Winter Olympics, would add another 10. billions of cubic meters, thus increasing gas sales to China on long-term contracts.
In January, Russian gas supplies to Europe fell by 40 percent compared to expectations, recovering slightly (-20 percent) in recent days.
It is not wrong to argue that Russia takes some advantage of its power as an oligopolist when we consider that 50 per cent of extra-European imports to the EU come from Putin's nation.
It is also true, however, that the countries that buy gas from Russia, Germany for example, have revised it to third countries in the last six months, making significant profits.
Also, ironically, even if you export less gas, the sharp rise in prices this winter will likely be enough not to reduce Moscow's revenues. Which, final paradox, could even gain from the crisis.
Europe, and Italy in particular, can respond to the reduction in imports from Russia in several ways.
Increase imports from countries already connected by gas pipelines (Algeria, Libya, Holland, Qatar such as LNG).
Do not forget the Tap, which carries 10 billion cubic meters a year and which we have avoided blocking by a whisker. Italy could then increase domestic production, which is currently worth 10 percent of consumption.
Independent analyzes suggest that these 7 billion cubic meters produced could become 10 without too much effort and reach 20 with appropriate investments.
According to Assorisorse, under the Italian seas there are reserves of over 90 billion cubic meters of low-cost methane: extraction would cost 5 cents per cubic meter, while importing costs between 50 and 70.
Another issue to keep in mind regarding the cost of the transition is linked to the dynamics of the market for CO2 negotiable permits. Their price has reached $ 100 per ton, reaching an unprecedented level.
Ultimately: this is a different crisis from the others, with many aspects, some of which are still in progress, which always needs greater coordination at least at the European level.
(Extract from an article published on lavoce.info ; here the full version)
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/energia/crisi-energetica-italia-russia-cina/ on Sun, 13 Feb 2022 07:00:34 +0000.