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Special Bulletin
A Japanese Perspective on the International Energy Landscape (584)

May 13, 2022

New Notable Developments on Russian Energy Supply Insecurity
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
Various developments that could exert influence on future Russian energy supply have comerecently. They include Western countries’ expansion of their energy embargo on Russian energy
sources, troubles at infrastructure for Russian energy supply to Europe and Russia’s suspension ofenergy supply to Europe. These various developments attract much attention when we consider futureinternational energy market stability and price trends.
In “A Japanese Perspective on the International Energy Landscape (574)” on March 3, 2022,
I pointed out the following three patterns of disruptions to energy supply from Russia that commands
major shares of international energy markets:(1) Supply will decrease as Western economic sanctions restrict Russian energytransactions.
(2) Supply will decrease or stop as military attacks on major Ukrainian energy infrastructure
facilities including pipelines damage them or render them inoperable.
(3) Russia will cut or stop energy exports to counter Western sanctions.
In the abovementioned report, I commented that it was impossible to predict how eachpattern would emerge. However, recent developments indicate these patterns.
The first pattern that represents constraints on Russian energy transactions has been realized
most dominantly among the three patterns. The first action of this pattern was a U.S. embargo on
Russian energy imports that was implemented under an executive order on March 8. Canada and theUnited Kingdom followed suit. The first energy embargo under the Ukraine crisis exerted great
impacts on markets initially. Before the official decision on the U.S. embargo, news reports
anticipating the U.S. energy embargo pushed European natural gas, Asian LNG spot and coals prices
up to record highs on March 7. Crude oil prices soared to the highest levels since the global financial
crisis.
As market participants later recognized that effective impacts of the energy embargo by theUnited States, Canada and the United Kingdom that depend only a little on Russian energy sources
would be limited unless Europe that imports massive Russian energy sources would join the energy
embargo, however, these energy prices fell back from record levels. Nevertheless, they are still high.
The next development of the first pattern was a Russian coal embargo decided on by theGroup of Seven industrial democracies and the European Union. The coal embargo came as masscivilian killings by Russian forces in Bucha and other suburbs of Kyiv were found after theirwithdrawal from the Ukrainian capital and prompted Western countries to enhance anti-Russia
condemnation and sanctions. The coal embargo led coal prices to shoot up again and indicated a trend
in which Russia sanctions regarding energy would be enhanced and expanded.
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Following Russian coal, Russian oil became an embargo target. In Europe where many
countries depend on Russian oil, an oil embargo had been viewed as difficult to implement. However,calls for an oil embargo gained momentum in Europe. On May 4, the EU proposed to stop Russian oil
imports within 2022. Moratoriums and support for EU members that depend heavily on Russian oil
are being considered among all EU members. The EU is also reportedly considering rejecting
insurance for ships that transport Russian oil. On May 8, the G7 leaders at their online meeting decided
on a Russian oil embargo. In this way, Japan, as well as other G7 members, decided to ban Russian oil
imports in principle.
As for the second pattern, Russian forces have attacked nuclear power plants, took control
of hydroelectric and thermal power plants and destroyed the Kremenchuk oil refinery in Ukraine since
their invasion into the country. On May 10, Ukrainian gas transportation system operator GTSOU said
that part of Russian natural gas supply to Europe would be suspended from May 11 as Russia made itdifficult to operate a gas pumping facility in the easternmost Ukrainian province of Luhansk undercontrol by Russian forces. The suspension was expected to affect one-third of Russian gas supply toEurope via Ukraine, pushing up European gas prices some 20% temporarily. Energy supply suspension
or decreases originating from infrastructure problems, if prolonged or expanded, would work to boost
market tensions.
Regarding energy supply disruptions or falls of the third pattern, specific developments havecome. On April 27, Russia halted gas exports to Poland and Bulgaria for the reason that the twocountries rejected Russia’s request for payments in rubles for gas. The EU has attempted toaccommodate gas to the two countries among member states as well as to supply gas by dipping into
underground gas inventories. In this way, any serious gas supply insecurity has been avoided for themoment. However, the development represented Russia’s first action to halt gas supply during theUkraine crisis, attracting much attention amid concern that if Russia halts more gas supply, the wholeof Europe would be affected.
On May 12, Russia’s Gazprom announced to halt gas exports via Poland through the YamalEurope gas pipeline to Europe including Germany. The state-run company in charge of Russian
pipeline gas exports decided on the gas export halt as a Polish company participating in the ownershipof the pipeline was among Russian sanction targets announced on May 11. After Western countries
took the initiative to restrict Russian energy transactions, the abovementioned developments
represented Russian measures to shake Western countries by affecting Russian gas exports to Europe.
As reiterated in my reports, Europe’s heavy dependence on Russian gas is the most critical issue
regarding Europe-Russia energy relations. It is extremely difficult for Europe to promptly reduce
dependence on Russian gas. Gas is a sector in which Europe is highly vulnerable. Depending onwhether Russia expands or prolongs the suspension of gas exports to Europe, European and global
energy markets could be destabilized. We should be alert to relevant future developments.

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