Prospects for replacing Russian fuel with Latin American fuel in the European market

Bochkova Angelina Aleksandrovna Postgraduate student, Lomonosov Moscow State University 119234, Russia, Moscow region, Moscow, Leninskie Gory str., 1 angelinabochkova@mail.ru

Introduction. The European Union is one of the largest economic actors in the world and one of the most successful. The situation in the EU markets has a direct impact on global trade. A lot of help in the prosperity of the European economy         We provided energy resources from Russia. However, with the beginning of a special military operation on the territory of Ukraine on February 24, 2022, the leaders of the European union set a course to abandon the consumption of Russian fuel, primarily Russian gas, and replace it. These actions were not dictated by pragmatism and rationality, the Europeans were primarily guided by the "anti-Russian hysteria" that arose in their ruling elites in connection with the current geopolitical situation. The situation that has arisen has opened up new opportunities for a number of countries to develop a large energy market, in which Russia has maintained a significant share for a long time. These circumstances give special relevance to the study of the possibilities of Latin American countries to replace Russian fuel in the European energy market.

Based on the relevance, the object, the subject is selected, the purpose of the study is formulated. The object of the study is the energy resources market of the European Union, Latin America, and Russia. The subject of the study is the potential of the Latin American energy market in the context of the EU market's need to replace Russian energy resources. The aim of the study is to identify the possibilities of Latin American countries in replacing Russian energy resources in the EU energy market.

To achieve this goal, the following tasks must be solved within the framework of the study:

1. Consider the structure of natural gas imports by the European Union in 2021-2023.

2. To determine the trend of Russian gas imports by the European Union in 2021-2023.

3. To study the dynamics of energy imports from the Latin American region to the European Union since the 2010s.

4. To assess the potential of replacing Russian fuel with Latin American fuel in the energy market of the European Union.

Methodology and conditions of the study. The theoretical and methodological basis of the research is determined by its purpose and objectives. The theoretical basis of the work consists of the works of foreign and domestic specialists studying the energy complex in the world and in Latin American countries, including. An important role for this work is played by the study of E.A. Shvets ^[1], devoted to energy in Latin America, and the works of A.D.Ursula and A.L. Romanovich, devoted to the concept of sustainable development and security problems ^[2]. The works of D. Kapoor ^[3], J. Bordoff and T. Hauser ^[4], which investigated the possibility of replacing Russian gas with American gas for the EU market, were also considered. When writing the article, various definitions of the concept of “energy security" were also considered. Thus, domestic researchers Fedorov M.P. and Okorokov V.R. understand it as the state of protection of society and the economy from threats of energy shortage, as well as providing them with “affordable energy resources of acceptable quality” 5^[5]. Foreign researchers A. Cherp and J. Jewell defines “energy security” as “a low level of vulnerability of vital energy systems” ^[6]. B. Kruit, D.P. van Vuuren, H. Groenenberg and H. de Vries define the term as the possibility of “providing affordable and acceptable energy to consumers” ^[7].  In this paper, in a broad sense, we understand by “energy security” the state of availability of the necessary amount of energy resources for the market.

The empirical base of the study consists of the following groups of sources: statistical data from Eurostat, the multinational oil and gas company British Petroleum; materials from foreign media posted on the Internet; speeches and interviews of political and well-known figures.

In order to achieve this goal, such general scientific methods as methods of systematic and comparative analysis, the method of generalization, methods of grouping and classifying quantitative and qualitative data, methods of quantitative data analysis were used.

The scientific novelty of the research is as follows:

The dependence of the EU economy on Russian energy resources was demonstrated by figures up to February 2022. Thus, in 2021, Europe consumed 578.0 billion cubic meters of gas, of which 348.7 billion cubic meters were imported ^[8]. They cost the EU 121 billion euros ^[9]. The share of natural gas imports from the Russian Federation was 43% ^[10]. At the same time, according to the Bruegel European analytical center, almost $26 billion was spent on paying for Russian gas from the EU in 2021 (Fig. 1; at the same time, about $120 billion was spent on Russian fuel, in particular oil and coal) ^[11]. That is, when importing almost half of the gas from Russia, the EU spent only about a fifth of the 121 billion euros. Obviously, Russian gas was cheap for European importers, which helped the EU economy maintain its competitiveness. In addition to low prices, the EU's dependence on Russian fuel, primarily gas, was dictated by a well-built and convenient infrastructure for providing energy resources to the European market.   The existing Nord Stream, Yamal-Europe, Blue Stream, and Turkish Stream gas pipelines, which supply gas to European countries, have a combined capacity of 135.5 billion cubic meters ^[12]. In addition, until February 24, 2022. The EU and Russia continued to develop joint energy projects. An example of this to serve the construction of the pipeline "Nord stream – 2", which was to expand the gas pipeline "Nord stream", which runs under the Baltic sea will link Russia and Germany in the bypass other Eastern European countries. The capacity of Nord Stream – 2 would amount to 55 billion cubic meters, which would increase the possibilities of gas supplies to Europe by almost a third. However, the United States was unhappy with the construction of Nord Stream 2, believing that Europe was becoming dependent on Russia for gas. Subsequently, after the start of a special military operation of the Armed Forces of the Russian Federation in Ukraine, an explosion occurred on the strings of the Nord Stream – 2 gas pipeline, the Stream itself was not put into operation due to the suspension of its certification by the German government.

In the current geopolitical situation after February 2022 The EU has decided, to the detriment of the established stable ties with Russia, to significantly reduce the supply of Russian fuel. At the same time, in 2022 The EU spent over $155 billion on imports of Russian energy resources (see Figure 1). However, by the end of 2023, sanctions adopted by the EU and other Western countries against the Russian Federation and its energy industry, in particular, the establishment of a ceiling on Russian oil prices at around $ 60 per barrel ^[13], led to the fact that The EU's dependence on Russian energy resources has decreased. By the end of 2023, the EU countries were able to reduce the cost of buying energy resources from Russia from about $ 16 billion in early 2022 to $ 1-2 billion.

 Fig. 1. Exports of Russian energy resources to the EU in $, January 2021 – December 2023

According to the EU Council (Fig.2), the share of Russian gas in EU imports fell from over 40% in 2021 to about 15% in 2023, from 150 billion cubic meters to 43 billion cubic meters ^[10]. Russian gas was offset by a significant increase in the share of gas supplies from the United States, from almost 19 billion cubic meters. in 2021 , to more than 56 billion cubic meters in 2023 . Supplies from other countries of the world also increased by 50% - from 41.6 billion cubic meters. In 2021 , up to 62 billion cubic meters. in 2023, Norway became the main supplier of gas to the EU from 87.7 billion cubic meters in 2023 (in 2021 – 79.5 billion cubic meters. m), providing almost 30% of EU gas imports.

Fig. 2. The structure of gas imports to the EU in billion cubic meters, 2021-2023.

         The EU has tried to offset the rejection of Russian gas not only by diversifying the supply of natural gas, but also by reducing energy consumption. Thus, the actual consumption of gas fell from 578 billion cubic meters. m in 2021 to 504.7 billion cubic meters . m in 2022 ^[8]. According to the statistical service of the European Union (Eurostat), gas consumption in the EU in August 2022- March 2023 decreased by 17.7% compared to the figures in the same period (August-March) in the period 2017-2022.

This state of affairs undoubtedly could not affect the European industry, which accounts for 24.1% of gas consumption ^[10]. Due to high energy prices, a number of European industrial companies began to move production to the United States ^[15]. In addition, high energy prices, problems in the industrial sector, and inflation have all pushed the EU into a recession zone in 2023, which is still shallow ^[16].

In the context of changing conditions in the fuel and energy sector of the EU, the question arises for the countries of the Latin American region about the possibility of developing the European energy market. Industrially and technologically developed Europe may be of interest to the Latin American region not only as an investor in the development of high-tech production, but also as a market for its own natural resources. After the announced intentions of the EU to abandon Russian energy resources, a number of Latin American countries hastened to declare their readiness to replace Russia in fuel supplies to Europe ^[17]. For the European Union, which is in search of new profitable energy supplies, it seems logical that the energy-rich countries of Latin America can act as potential partners. Let's take a general look at the opportunities available to Latin American countries and their share in energy trade with the EU.

 According to the statistical report of the multinational energy company BP from 2021, Latin American countries, including Mexico, own 4.3% of the world's proven natural gas reserves, these countries account for 4.8% of world gas production (compared only to Russia – 19.9% of proven reserves and 16.6% of world production) ^[13]. Despite the fact that these values are not comparable to those of the Russian Federation or the countries of the Middle East, however, in comparison with other regions they look quite competitive. Thus, Africa collectively has 6.9% of world gas reserves (6% of world production), the Asia–Pacific countries - 8.8% (16.9%), Europe itself occupies 5.7% of world natural gas production with reserves of 1.7% of the world ^[18]. In terms of reserves and production of another common mineral, coal, Latin American countries occupy a small share of the global market. The Latin American region, including Mexico, accounts for 1.4% of the world's coal reserves and 1.1% of production. In this industry, Europe itself has 12.8% of the world's reserves, and the share of production is 3.5% of the world's. But the main energy resource of the Latin American region is oil. According to BP, Latin American countries, including Mexico, account for 19.1% of global oil reserves and 8.8% of global oil production (measured in thousand barrels. per day) ^[18]. Latin America ranks second in terms of proven oil reserves, second only to the Middle East region (48.3%). Europe's indicators are at the level of 0.8% in oil reserves and 4% in production ^[18].

So, from the point of view of the availability of natural resources, Latin America is able to become, in some part, an alternative supplier of energy resources for the European market. The region has the potential to further increase production capacity for the extraction of natural resources. Until 2022 The EU did not pay enough attention to the Latin American energy market, however, after abandoning Russian energy carriers, a number of countries in the Latin American region increased their share of liquefied natural gas (LNG) supplies to European markets. 3. We see that Peru and Trinidad and Tobago have significantly increased the share of gas supplies to the EU in percentage terms – from 0.6% to 1.8%. Moreover, the main growth occurred in Peru. However, in the total structure of EU gas imports, countries occupy less than 2%, which is certainly not a high indicator. Argentina, in 2012-2022, according to Figure 3, supplied a small share of LNG to the EU only in 2020. In June 2022, under President Albert Fernandez, the Argentine government put forward the idea of supplying gas to the EU instead of Russian. But in 2023, after the presidential elections in Argentina, the head of state was replaced, and it is still unknown what decisions the new government will make.

Fig. 3. LNG imports to the EU from Latin America million cubic meters. m per year and % of the total volume in 2012-2022.

In Figure 4. we consider the export of crude oil by Latin American countries to the EU. This energy resource from Latin American countries, as can be seen from the figure, accounts for a larger share of EU imports than gas. In 2022, the European Union's total imports of oil from Latin American countries increased by 2% - from 3% to 5%. Brazil and Mexico became the main oil suppliers. Guyana has also increased oil supplies to Europe. Brazil was able to increase oil supplies the most, its share reached 3% in 2022, compared with 1.9% in 2021.

Fig. 4. EU crude oil imports from Latin America in thousands of tons and % of the total volume in 2012-2022.

 Based on the above data, we conclude that Latin America currently plays a small role in Europe's energy security. The situation that occurred after the start of the Russian Armed Forces special military operation in Ukraine has slightly changed the picture. For Europe, the energy market of Latin American countries as energy suppliers looks unattractive at this time period.

This state of affairs is dictated not only by the geographical remoteness of Europe from Latin American countries, which leads to more complicated and more expensive logistics, but also by the fact that Latin American states do not have the ability to multiply industrial production of energy resources in the shortest possible time due to the lack of technological capabilities.

 This fact forces the EU to consider energy cooperation with the Latin American region as part of the implementation of long-term projects. Despite the fact that in the near future Latin American countries cannot replace energy carriers from Russia, but for the EU as part of its program to achieve carbon neutrality by 2050. They have great potential for cooperation and development in the renewable energy industry. Due to its geographical features, the Latin American region is a good field for investing in renewable energy sources. Foreign direct investment in green energy exceeds investment in traditional energy resources. Investments by European companies account for 75% of all FDI in this energy sector in Latin countries ^[21]. In addition, despite the situation with Venezuela, the largest country in terms of proven oil reserves, which is under US sanctions, the Latin American region as a whole treats Europe favorably and, unlike the Middle East, is in a relatively stable political situation. For European companies, the Latin American market poses fewer risks than the more energy-rich, but at the same time more dangerous Middle Eastern market.

So, based on the above data, we conclude that at present the role of Latin America in Europe's energy security is small. The situation that occurred after the start of a special military operation in Ukraine also slightly changed the picture. For Europe, the energy market of Latin American countries as energy suppliers looks unattractive at this time period.

This state of affairs is dictated not only by the geographical remoteness of Europe from Latin American countries, which leads to more complicated and more expensive logistics, but also by the fact that Latin American states do not have the ability to multiply industrial production of energy resources in the shortest possible time due to the lack of technological capabilities.  

This fact also forces the EU to consider energy cooperation with the Latin American region as part of the implementation of long-term projects. Despite the fact that in the near future Latin American countries cannot replace energy carriers from Russia, but for the EU as part of its program to achieve carbon neutrality by 2050. They have great potential for cooperation and development in the renewable energy industry. Due to its geographical features, the Latin American region is a good field for investing in renewable energy sources. Foreign direct investment in green energy exceeds investment in traditional energy resources. Investments by European companies account for 75% of all FDI in this energy sector in Latin countries ^[21]. In addition, despite the situation with Venezuela, the largest country in terms of proven oil reserves, which is under US sanctions, the Latin American region as a whole treats Europe favorably and, unlike the Middle East, is in a relatively stable political situation. For European companies, the Latin American market poses fewer risks than the more energy-rich, but at the same time more dangerous Middle Eastern market.

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