Japan, Europe should rework energy strategy to move away from Russia

The price of crude oil has been soaring due to the belief that economic sanctions against Russia will disrupt supply. Japan and Europe should rework their strategies so as to break away from their dependence on Russia for energy.

On the New York crude oil futures market on Thursday, the benchmark futures price temporarily exceeded $116 per barrel. This is the highest price in about 13½ years, since September 2008, when resource prices were soaring.

The price rose by more than $20 a barrel in about a week from the start of Russia’s aggression against Ukraine. Since the beginning of the year, the price has risen about $40.

The International Energy Agency (IEA), which comprises major oil-consuming nations, announced on Tuesday that member counties had agreed to a coordinated release of a total of 60 million barrels from oil reserves. However, the amount is less than one day’s worth of global consumption and will have only a limited effect on pushing down prices.

Consuming countries must take all possible measures to stabilize prices.

OPEC+, consisting of the members of the Organization of Petroleum Exporting Countries and non-OPEC oil-producing countries such as Russia, decided on Wednesday not to increase oil output further.

Even though there are circumstances that make it difficult to reach a consensus on increasing output, major oil-producing countries such as Saudi Arabia voted in favor of a resolution calling for the immediate withdrawal of Russian troops at a special emergency session of the U.N. General Assembly.

It will negatively affect the oil-producing countries if Russia’s aggression deals a serious blow to the global economy through a sharp rise in oil prices. Japan and other oil-consuming countries need to strongly urge producing countries to increase their output.

There is a growing movement away from Russia among private energy companies.

Among the development projects in the Russian far east region of Sakhalin, in which the Japanese government and companies are participating, Exxon Mobil Corp. of the United States has decided to withdraw from Sakhalin-1, whose main operations involve crude oil, and Britain’s Shell PLC has decided to pull out of Sakhalin-2, whose main operations involve liquefied natural gas.

These are important sites for Japan, accounting for about 1% of Japan’s crude oil imports and 7% of its LNG imports. If Russia continues its aggression, the government as well as trading and other companies that have invested in the projects will have to consider withdrawing from them.

There is an urgent need for advanced nations to join forces to establish a system for flexible LNG supply in response to fluctuations in demand in each country, and then increase the number of alternative suppliers, such as Australia and the Middle East.

The rush to decarbonization, mainly in Europe, initially led to excessive emphasis being placed on renewable energy, which hindered investment in crude oil and natural gas development and caused prices to soar. During the transitional period to decarbonization, it is important to continue making investments in gas fields.

The role of nuclear power, which can provide a stable supply of electricity, will also become important. It is essential for the government to thoroughly implement safety measures and give full-scale support to the restart of nuclear reactors.

— The original Japanese article appeared in The Yomiuri Shimbun on March 6, 2022.