War in Ukraine sparks global energy havoc
Five weeks have passed since Russia shocked the world with its brutal invasion of Ukraine.
The knock-on effects on global energy markets have been significant and multifaceted. Prices of oil, gas and coal have all risen to near record highs and energy metals have also seen considerable price volatility. Food and fertilizer prices are also soaring. Russia and Belarus produce 37% of the global supply of potash, one of three components of NPK fertilizer, while Russia and Ukraine represented 23% of global wheat export prior to the invasion. Efficient commodity markets and substitution could dampen the shock, but the risk of a food crisis looms large for low-income nations.
Oil market players are struggling to determine the extent to which Russian oil exports and supply will be impacted by sanctions and disruptions caused by the war. We believe oil prices will stay elevated and balance at around $100 to $130 per barrel through the third quarter this year, with some higher spikes likely. The oil product market is likely to become even tighter than crude markets. We also see US shale activity accelerating, with very significant production upside by the end of this year and in 2023.
The gas market is a particularly intriguing story. Europe has long been heavily dependent on Russian gas, but actually has options available – albeit at a significant price – that could allow the continent to become independent of Russian gas within just a few months. LNG imports are poised to make the biggest difference, contributing an additional 50 Bcm per year under the EU Commission’s proposal.
We believe that the expansion of Europe’s renewable energy installations could be accelerated and see generating capacity grow by an additional 650 GW by 2030, above and beyond what is already planned. Renewable energy appears to be winning on all dimensions of the energy trilemma; not only is it the most sustainable and affordable energy, it also provides energy security through independence from Russia.
To help guide decision-making through this crisis and provide explanations of the many implications for energy markets worldwide, we have issued a detailed, complimentary update to our Impact Report, titled – Rystad Energy Impact Report: Russia’s Invasion of Ukraine. The report, which you can access here, includes data-driven analyses of the energy implications of the war, including its effect on oil, gas, and power markets, as well as global sanctions and the future of energy security.
To discuss the status of the energy transition and the evolution of energy towards a sustainable future, we will be hosting a Rystad Talks Energy on 31 March. We hope to see you there.