Could Russian sanctions hobble U.S. clean energy push?
Russia’s oil and gas industries have gotten a lot of attention in the ongoing conflict in Ukraine, but some experts say Russia's mining interests could also complicate the U.S. response to the nation's invasion of its neighbor.
Russia is a leading producer of copper, nickel, platinum group metals and other minerals considered crucial for building a lower-carbon future. As tensions surrounding Ukraine have ratcheted up, the metals markets Russia plays in were driven into a frenzy, with the price of nickel currently sitting at an 11-year high.
Some observers are arguing that Russia's invasion of Ukraine underscores a national security rationale for weaning off of fossil fuels, perhaps particularly for European countries that look east for a large share of their natural gas. But experts caution that a shift away from fossil fuels carries its own strategic implications, given Russia's standing as a major metal miner, which could complicate broad sanctions as the country continues its assault on a U.S. ally.
Bill McKibben, an environmentalist and co-founder of 350.org, tweeted yesterday that Russia’s “main weapon against Europe is its threat to cut off oil and gas,” so it “might be wise to stop using oil and gas now that we have workable alternatives.”
“Continued dependence on fossil fuels is the greatest single gift we could give to Vladimir Putin — it’s the gift that keeps on giving. Overcoming that dependence would free us to confront him much more directly,” McKibben said in an email today to E&E News.
However, existing plans to transition away from fossil fuels largely rely on siting new energy generation sources and producing consumer electric vehicles — activities that will require lots of metal that Russia produces.
At a time when metal supply is tight, some watching the chaos unfold in Europe are wondering whether the violence could result in retaliatory measures that wind up shifting the supply of metals away from Western manufacturers.
The focus in the “energy world regarding the Russian invasion” has been “around the implications for oil and natural gas, which will likely be significant in various ways,” said Morgan Bazilian, director of the Payne Institute for Public Policy at the Colorado School of Mines.
“Less highlighted are the implications for other commodities including nickel, aluminum, steel, cobalt and copper,” Bazilian said, noting that all of those materials are ones “Russia has in significant quantities.”
The White House declined to comment on whether Russian mining companies or executives of those companies would be targeted in future sanctions.
Nornickel in Europe
One of the largest companies in the nickel business is Norilsk Nickel, or Nornickel. The company primarily produces nickel largely for industrial purposes, but has sought to promote itself as a future provider of pivotal metals for the energy transition through dealmaking with Western countries.
Nickel is a crucial commodity for making lithium-ion batteries for electric vehicles.
German battery maker BASF has partnered with Nornickel to develop a fully integrated nickel refinery and battery manufacturing complex in Finland, which it hopes to start operating this year. British chemicals firm Johnson Matthey also has a supply deal with Nornickel for supply from the Finland refinery.
BASF is far from the only Nornickel customer in the green economy. Nornickel is the world’s largest producer of palladium, a valuable material used to make catalytic converters. Even if manufacturers one day replace palladium in new catalytic converters with platinum, Russian miners are the second-largest producer of that metal, too.
As a testament to how integral its products are to the economy, these business relationships have persisted in spite of frustrations from environmentalists and Russian Indigenous activists around Nornickel’s handling of a massive oil spill in the Arctic.
Through the conflicts that have brewed between Russia and the West over sovereignty of former Soviet states and democratic integrity, Nornickel has suggested its products are so vital to the economy that they could be seen as impossible to sanction (Climatewire, June 5, 2020).
A Bloomberg reporter in 2019 asked Nornickel President Vladimir Potanin: “Are you potentially unsanctionable, given the fact the U.S. imports a lot of your palladium and you can’t drive an automobile without palladium?”
“We produce many products which are really needed by companies all over the world — palladium, nickel, etc. If there is any kind of war, any kind of sanctions, it will not benefit anyone in the world,” Potanin replied. “We do something people need us to do, and we will continue.”
Nornickel did not respond to a request for comment.
Before fighting broke out in Ukraine, Chinese price reporting firm Shanghai Metals Market published a note yesterday sounding off that as market worries worsen around sanctions on Russian industries, “more Nornickel nickel is likely to be exported to China” or delivered to warehouse stockpiles from which it would eventually be shipped “to Chinese market.”
“As more refined nickel flows into China, Europe and [the] US will need to look for the substitutes in the global market,” the note stated. It continued that while the supply gap may be supplemented by goods from Japan, Canada, Australia and Norway, the “premium” of refined nickel in European and U.S. markets will rise.
Reed Blakemore, deputy director at the Atlantic Council Global Energy Center, said Nornickel poses an important question to the United States and its allies: Could sanctioning a Russian critical mineral, like nickel, backfire?
“Does taking Russian nickel off-market via sanctions just tighten that nickel supply chain, where you end up just actually hurting your own domestic manufacturing goals that need significant amounts of nickel?” Blakemore said.
Abigail Wulf, director of critical minerals strategy at resource security nonprofit Securing America’s Future Energy, said there is an outstanding concern as war breaks out in Ukraine that Russia’s strong mining industry could be leveraged in a fashion similar to how China has exerted influence through minerals markets.
The battery supply chain has become so intertwined with Chinese companies, Wulf said, that the United States and its European allies could wind up in a similar situation if China ever attempted to completely take over the self-governed island of Taiwan. In that case, Western nations would also need to act with caution to avoid losing access to crucial mineral supply chains.
“Our concern is that our energy markets are so tied up with nations that do not share our values,” Wulf said.
Asked to respond to the assertion that a low-carbon future could still result in some Western reliance on Russian minerals, McKibben said it is "worth thinking about, say, the development of synthetic rubber" during World War II.
McKibben noted that the supply of raw materials to make rubber at that time was "in Axis hands."
"Think a little more broadly, instead of giving in to servile defeatism," he said.
A version of this report first ran in E&E News’ Greenwire. Get access to more comprehensive and in-depth reporting on the energy transition, natural resources, climate change and more in E&E News.