Russia vs Ukraine:Will it disrupt energy supplies to Latin America?
The conflict between Russia and Ukraine can be traced to Russia’s refusal to accept the recent cooperation that NATO and the European Union have with the former Soviet Republic; Moscow considers Ukraine as part of its identity and within its sphere of influence, and whose control it believes is vital for its security.
However, this conflict started a long time ago. Around 2013, after the so-called Maidan revolution, a popular revolt broke out at the end of that year in an attempt to postpone the signing of an agreement between Ukraine and the European Union.
On March 21, 2014, Crimea and Sevastopol, considered an independent administrative unit, were annexed to Russia. In response to this, the European Union has imposed sanctions on Russia, which has also been excluded from the G-8 and the G-7.
The conflict with pro-Russian military forces has also continued in the Donbas region, which borders Russia and has become a conflict-ridden and divided area. In 2015, a year of apparent stability, Donetsk and Lugansk were split into two zones, one controlled by rebels and the other by Ukraine. Negotiation mechanisms were created through the Minsk Agreements. The first of them, Minsk-I, was signed in September 2014 but was not fulfilled.
Since then, military clashes have been constant with an occasional ceasefire. In 2019, the election of Ukraine’s new president saw a renewed intention to process Ukraine’s entry into the European Union and North Atlantic Treaty Organization (NATO. But this stood in the way of the interests of Moscow, which is permanently wary of NATO’s movements in this area.
To add to all these open fronts, in November 2021, the Kremlin mobilized almost 90,000 Russian soldiers from the Russian Black Sea Fleet, Air Force, and the Aerospace Forces near the borders of Ukraine and in the occupied territories of Crimea and Donbas.
On February 24, 2022, Vladimir Putin ordered an attack on the Donbas region. Although the Ukrainian and Russian delegations are currently resuming negotiations on Belarusian territory, there is still no clear horizon for a cease-fire in the conflict. In fact, the Russian Executive has threatened the possibility of awakening a “third world war” which would involve nuclear weapons.
How does this conflict affect the Latin American LNG industry?
In 2021, the imbalance observed in the global Liquefied Natural Gas (LNG) market created high competition for LNG cargo due to a substantial increase in post-pandemic demand. The limited supplies couldn’t meet this demand.
Russia ships about 230 million m3 of gas daily to Europe, of which one-third travels westward through Ukraine. In 2021, Russian natural gas accounted for almost 13% of all Russian exports. This was worth about US$62 billion and shows the magnitude of this trade with the other side of the world.
While it has been argued that LNG cannot fully replace the Russian pipeline gas supply, LNG’s share of the gas mix in Europe is expected to increase. More specifically, Europe will likely have to rely on LNG imports from the U.S. in the face of limited possibilities to increase its own gas production.
In 2018, the U.S. moved into first place as the top supplier of LNG to Latin America, a position that Trinidad and Tobago had held for nearly seventeen years (2000-2017). According to monthly figures released by the U.S. Department of Energy (DoE), last year, U.S. LNG exports to Latin America and the Caribbean grew 106% to nearly 13 million tons of LNG.
An increased supply of U.S. LNG to the European market to cover a possible partial or complete disruption of Russian gas supplies to Europe could decrease U.S. LNG supplies to Latin America. It is also most likely that the region must compete for higher-priced LNG cargoes against much larger markets such as Asia and Europe.
What does the future look like?
Regardless of the outcome of the conflict, the war and the sanctions that follow will have a rebound effect on different industries worldwide. This rings especially true in the case of LNG in Brazil and Argentina, which were the countries that purchased the most supplies last year. The conflict must be resolved as soon as possible. We must break free of the idea that conflicts in other continents do not affect us as a region; In the words of Frederic Bastiat, “Let us then accustom ourselves, then, to avoid judging things by what is seen only, but to judge them by that which is not seen.”
Michelle Bernier is an attorney specializing in international law and commercial law. She is currently studying Master of Laws and International Business, with a double degree from the Universidad Internacional Iberoamericana in Mexico and the Universidad Europea del Atlántico. She is also a part of Students for Liberty’s inaugural cohort of Fellowship for Freedom in India.