Ending Russia's Hydrocarbon Windfall

2022 March 2 Twitter Substack See all posts

What is the correct goal and what can be done quickly?

Demand Doesn't Have to Decrease That Much

Europe can stop buying Russian gas. Russia might have trouble selling it because you can't build new pipelines overnight. Russian oil will find a home somewhere else by boat, rail, or truck.

It turns out a ban isn't necessary anyway. Oil and natural gas supply and demand curves are inelastic. Small changes in supply or demand move prices dramatically. It costs money to produce oil and gas. Reducing the price by 40% might reduce profits by 80%-90%. And a 2%-3% demand decrease might be enough to do the trick.

Why get into the Octagon with an MMA fighter when you can make him slip on a banana peel in the parking lot?

Local vs. Global Markets

Oil is inexpensive to transport. Producing or saving an extra barrel anywhere in the world can help the cause.

Natural gas is more difficult to transport. It has to go in pipelines or via liquid natural gas (LNG) carriers. LNG complexes take years to build under the best circumstances. It isn't practical to put a gas pipeline under the Atlantic. Europe has to handle reducing gas demand or increasing production within its borders.


Reducing Demand

There are more options for demand reduction and substitution than supply increases.

Oil Demand

European Gas Demand

Increasing Supply

Natural gas and oil from fracking is the only source that can respond quickly. How do you juice it?

Beating Russia

Focus on lowering the profits. Oil is a global market in a way natural gas is not. Europe has to do the heavy lifting for natural gas. There are many economical options available, especially for substitution. Increasing oil and gas supply requires massive changes in the law for European countries.

Europe has to keep investing in new gas supply and reducing demand to prevent future price spikes. Eventually, new technologies that create synthetic gas or shift industrial processes to electricity will pick up the slack. Maybe even a few nuclear power plants will get built.