The Russia-Ukraine War and Energy Security

Heo Yoonji

(yjher@keei.re.kr)

Associate Research Fellow,

Korea Energy Economics Institute

English Abstract

The Current Global Energy Market

Demand for energy increased rapidly at the end of 2020 due to an unprecedented cold snap in the Northern Hemisphere.

In 2021, energy demand exceeded supply resulting in energy inflation, which was aggravated in the first half of 2022 by Russia’s invasion of Ukraine.

With increased demand for coal, the price of Australian coal more than doubled from $138.1/ton in 2021 to $400/ton after the invasion.

Uncertainty in the international energy market is growing as competition for energy resources is intensifying with winter approaching and a prolonged war.

EU Policy for Stable Supply of Natural Gas

The European Commission immediately condemned Russia’s invasion of Ukraine and announced multiple sanctions on Russia. The EU concurrently implemented a series of policies to decrease its dependence on Russian gas.

The EU’s gas policies designed to reduce use of Russian gas were outlined in REPowerEU, a legislative document announced on March 8. As per the document, the EU plans to reduce its import of Russian gas to one-third of the current level of 155bcm by the end of 2022 and to completely stop the imports before 2030.

Prospects for Security-oriented Energy Supply Chain and Market

The EU’s ‘Policy to Reduce Energy Dependence on Russia’ is both its sanction on Russia for the invasion of Ukraine and a response to Russia’s weaponization of resources.

The security-oriented energy supply chain is likely to continue after the end of the Russia-Ukraine War having experienced resource weaponization of a resource-abundant country.

A security-oriented energy supply chain is highly likely to disrupt an efficient distribution of resources in the global energy market instead of supplying energy at an economically low cost.

Foreign energy organizations also predict that energy prices will remain high for the time being.

As for natural gas, prices will remain high until production of LNG, a major component of EU’s gas policy, is increased.

Measures for Enhanced Energy Security

The EU has already announced that it will expand solar and wind power generation and manufacture and import of green hydrogen in REPowerEU.

While such measures may lead to energy autarky in the long run, each country must also deal with the immediate energy crisis.

Korea should take into considerations a flexible operation of coal power plants temporarily from a energy security standpoint while maintaining the goal of reducing coal-based electricity in the long run.

Korea should also prepare its own gas supply policy for the upcoming winter as uncertainty of the global gas market is at its greatest this winter.