To say the economic ramifications and diplomacy around Russian force’s apparent violation of the Ukraine border/sovereignty is complicated may be the understatement of this decade. The behavior of Russia has become a sanction-worthy concern, at least in the minds of European leaders, there are reasons much of the EU is in such a precarious position. It all spells bad news for Ukraine and could impact the confidence of adjacent states.
A Fitch Ratings Report, “Living
Without Russian Gas - Part 2: Replacing Russian Supplies in the Long Term,” argues Europe likely will be unable to significantly reduce its reliance on Russian natural gas for at least the next decade. Just as unlikely is a major reduction in demand because of a (hoped) European economic recovery will require more energy resources, not less.
As far as energy alternatives go, Fitch paints a bleak picture. Russia supplies more than one-quarter of all coal used in the EU and is the sole supplier of fuel rods used in nuclear-power generation, according to Fitch. Fitch analysts believe that green energy options, while held in high theoretical regard in many EU nations, are not near-sufficient enough to pull away from Russian gas. And, unlike the recent boom in the United States that is making it more independent and even a destination for manufacturing for the first time in decades as a result of cheaper energy, shale isn’t in line to be a saving grace for the EU either.
“European shale gas remains in its infancy, and we believe it will take at least a decade for production to reach meaningful volumes,” Fitch noted. “By that point, it would probably only offset the decline in production form Europe’s conventional gas well.”
In short, Russia will continue to be the power broker of energy in that part of the world. EU countries, notably Germany, taking a hard-line stance against Russian separatists or even Putin-led aggression in Ukraine face the real possibility of retaliation or worse, significant restrictions on the supply Russia releases to Europe. This obviously will play on the minds of European leaders should Russia continue to push its weight around in Eastern Europe.
- Brian Shappell, CBA, CICP, NACM staff writer