Rystad Energy - Energy Knowledge House
Rystad Energy - Energy Knowledge House

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Note from the CEO: Russia invades Ukraine - What’s at stake for global energy markets? March Edition

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Rystad Energy is closely following the situation and we are offering a detailed complimentary report – Rystad Energy Impact Report: Russia’s Invasion of Ukraine. In the report, which you can access here, you will find data-driven analyses of the energy implications of the war, including its impact on oil, gas and power markets, as well as global sanctions and the future of energy security.

It’s been four weeks since Russia shocked the world with its brutal invasion of Ukraine. After occupying rural areas inhabited by around 20% of the population of Ukraine, including the densely populated areas already controlled by Russia-supported forces in the east, the invading forces have not made much more progress despite massive attempts to take over cites and territories. Russian troops are increasingly using massive bombardments with heavy and less precise weapons to take cities like Mariupol, and the humanitarian consequences are immense.

While Russia has stepped up its internal propaganda, the country stood no chance in the global war for understanding and sympathy. The voting in the United Nations’ general assembly was the clearest signal ever that the world gives no credence to Russia’s narratives – narratives that are refuted every minute by evidence from millions of refugees and other eyewitnesses through social media and other channels.

The impact on the energy markets is massive but has not escalated since our last report on 2 March. Covid-19-related lockdowns in China, resumed nuclear talks with Iran, and observed industry lockdowns in Europe are some of the elements that have softened the tightness somewhat.

Oil market players are struggling to find out how much Russian oil exports and supply will be impacted, who will buy the last barrels, how to replace the lost barrels, and what the impact will be on crude diets and regional product yields. We use real-time data for sea, air and road traffic, combined with dynamic price simulations, to find the most likely direction for the oil market.

We believe oil prices should balance at around $100-130 per barrel through the third quarter this year, with higher spikes, based on assumptions of at least 2 million barrels per day less crude oil exports from Russia and the Caspian region, a 1 million bpd direct impact on oil demand in the former Soviet Union region, and core OPEC countries being unable and unwilling to fully fill the gap.

The oil-product market will likely appear even tighter than crude markets, due to the reshuffling of refineries’ crude diets. At this price level we also see US shale activity accelerating, with very significant production upsides by the end of this year and in 2023.

On the gas market side, we are describing several measures Europe can apply to become independent of Russian gas. We still lack about 25 billion cubic meters of gas in the balance, which corresponds to the expected gas deliveries from Russia in April and May. This means that by June, Europe could be in a position to say “no thank you” to all Russian natural gas.

In this report we will also show how major oil companies might refocus from Russia to Africa to deliver on their LNG ambitions. Moreover, we will look at inflation in the supply chains and how the green shift will be accelerated as EU has increased its target for green power in 2030 from 40% to 45%. This means that European renewable energy installations could increase by an extra 222 GW of wind and 426 GW of solar over the next eight years, on top of what is already planned.

For more updates, you can follow our CEO Jarand Rystad's LinkedIn profile here.