Weaning ourselves off Russian oil – implications – and opportunities for gas flaring

As Europe – and the world – looks to wean itself off Russian oil. We explore the options, and consider the implications and opportunities created by additional gas flaring likely in Venezuela and Iran and others.

Russia’s war in Ukraine is a wake-up call for Europe to reduce its dependence on Russian oil, gas and coal – and more generally, on fossil fuels.

The scale of Europe’s dependency on Russia is vast: 900 million barrels of oil, 170 BCM of gas and 31 million tonnes of coal per year.  At current prices (over $100 per barrel, $15 per mmbtu and $300 per tonne), this is over $500 million per day.  

Arguably, reducing Europe’s dependence on Russian oil is the place to start.  And compared to gas oil is more substitutable (even despite the fact that each refinery has a limited diet of crude it processes) and would have a bigger financial impact on Russia.  

Russia exports some 2.5 million barrels per day to Europe.  It’s conceivable that alternative supplies of this level could be found – but a global embargo of all Russian exports (some 8 million barrels per day) would be impossible to replace.  But make no mistake, a dramatic reduction in Russian oil output would have very severe consequences for oil prices and the global economy.  Prices of $200-300 per barrel have been mooted.  Biden’s intentions to ban Russian oil imports to the US earlier today immediately led to a crude spike of $132 per barrel.

So what are the options, and what are the implications for flaring gas?  The oil market has seen structural underinvestment for the last few years – and that’s key to a surge in prices following a post-COVID recovery.

We see 3 options:

• First, there is the possibility of new supply sources, examples are Brazil, Guyana and Canada, but these will take some time.  Then there is US shale.  Having been through a period of fiscal restraint the proponents of “drill, baby, drill” are back with a vengeance.  But all these will take time to ramp up.

• Second, there is the question of additional supplies from OPEC and others, and that’s driving much discussion and diplomacy.  OPEC might be able, at a big stretch, to add 2 million per day from Saudi, also Iraq, Kuwait and UAE.  
  
• Third there are other sources such Iran and Venezuela – they could possibly bring 0.5 million barrels per day – if sanctions waivers were to be granted.

But beggars can’t be choosers, and much of this extra crude comes at a price.  Outside of the Middle East, these supplies are likely to accelerate gas flaring.  Venezuela has gas flaring rates close to 40 m3 per barrel – eight times higher than the global average, and 50 times higher than Saudi Arabia.  We need to be acutely aware of the implications of the choices we make, and the world better know what it wishes for.

But there is upside too. At today’s prices – $30, 40, 50+ per MMBtu, gas flare projects are increasingly in the money. The magic could be that by solving the Russian oil problem we might also play a role in solving the Russian gas problem.

For more information about gas flaring, Capterio and our real-time flaring analytics, please see www.flareintel.com.