News from the Financial Associated Press on December 29 (edited by Xia Junxiong)2022 is a milestone year for the global oil and gas industry. Affected by the conflict between Russia and Ukraine, the prices of natural gas and crude oil have soared sharply. Although the end of the year has basically wiped out all the gains for the year, the pattern of the global oil and gas industry has been rewritten. And far-reaching.
Trend review
The conflict between Russia and Ukraine is undoubtedly the biggest factor affecting the oil and gas industry this year. This conflict began in February this year and has not yet ended. One of its direct consequences is that Western countries led by the United States have launched the most severe international sanctions against Russia in history. sanctions.
Russia is the world‘s second largest exporter of crude oil and the largest exporter of natural gas. The oil and gas industry is an important pillar of its economy, so it has naturally become a key target of sanctions.
As markets worried about Russian supply disruptions,Brent crude oil futures once rose to nearly $140 per barrel in March this year.It was the highest level since 2008. Since then, as the market has intensified concerns about the global economy falling into recession, coupled with the Federal Reserve’s aggressive interest rate hikes, international oil prices fluctuated and fell.
(Brent crude oil price trend this year, source: TradingEconomics) In order to stabilize oil prices, OPEC+, composed of the Organization of the Petroleum Exporting Countries (OPEC) and Russia and other non-joint major oil-producing countries, decided to significantly reduce production by 2 million barrels per day starting in November .
In terms of natural gas, Russia has more say because the EU relies heavily on Russian natural gas. In June, Russia slashed supplies from the Nord Stream 1 pipeline. The northern hemisphere generally encountered extreme high temperatures this summer, and electricity demand in Europe rose.Dutch front-month gas futures hit a record high of €339.2 MWh in late August.
(The trend of natural gas prices in Europe this year, source: TradingEconomics) However, thanks to the warm weather in autumn, the natural gas reserves in Europe exceeded expectations, and natural gas prices continued to decline, and in late December gave up all the gains since the outbreak of the Russia-Ukraine conflict .
EU: Decided to completely get rid of Russian fuels to accelerate transition to clean energy
Europe has been the biggest victim of the energy crisis caused by the conflict between Russia and Ukraine. Skyrocketing energy prices are not only burdening ordinary households, but also threatening industries core to the continent’s manufacturing system, such as chemicals and metals production. Some European companies are reducing production and are beginning to shift investment to overseas markets such as the United States.
According to relevant estimates, euro zone countries have compiled a budget of about 600 billion euros to help households pay energy bills.
Europe is at the center of the crisis because of the vulnerability of its own energy supplies. Continental Europe has very low domestic fossil energy reserves and relies heavily on imports. Data show that in 2020 the EU’s dependence on oil, natural gas and coal imports will be 97%, 84% and 35% respectively. in,In 2020, Russia’s imports accounted for 37% (oil), 41% (natural gas) and 19% (coal).
After the sharp deterioration of Russian-European relations, the European Union established the goal of getting rid of Russian fossil fuels by 2027. There is a view that the EU’s energy transition may be hindered because Europe has to increase the use of coal for a period of time to replace the shortage of natural gas, which is more polluting than natural gas.
It turns out that Europe has indeed increased its use of coal to some extent. In its annual coal market report, the International Energy Agency (IEA) said,Increased coal power generation in the EU as a whole has pushed coal consumption to a record high of more than 8 billion tons this year,Among them, Germany is one of the countries with the highest consumption.
Nevertheless, at the official policy level, the EU even intends to increase its emission reduction targets. At the COP27 climate conference in November, the EU announced plans to boost its targets ahead of next November’s U.N. climate summit.
As the world‘s third largest carbon emitter, the EU’s current official goal is: by 2030, the EU’s net greenhouse gas emissions will be reduced by 55% compared with 1990 levels, and carbon neutrality will be completely achieved by 2050.
The EU’s current thinking is that by 2030,The net greenhouse gas emissions of EU countries will be reduced by 57%,instead of 55%.
Russia: The West is not bright, but the East is bright?
According to data from the Central Bank of Russia,The country’s oil and gas exports will reach about $244 billion in 2021.In order to limit Russia’s income from the energy industry, Europe and the United States not only banned the import of crude oil and coal from the country, but also introduced price caps on oil and natural gas.
The Group of Seven (G7), the European Union and Australia agreed this month that from December 5,The price of Russian seaborne oil is capped at $60 a barrel.Also effective is the EU’s ban on Russian oil. The EU officially banned the import of Russian crude oil on December 5, and will ban the import of Russian oil products from February 5 next year.
As a countermeasure, Russian President Vladimir Putin signed a presidential decree this week banning the supply of crude oil and refined products to countries that impose price limits on Russian oil for five months from February 1 next year.
Also in December, EU countries reached an agreement at a meeting of EU energy ministers in Brussels,Cap gas prices at €180 per MWh.The price limit mechanism will start on February 15, 2023.
Some analysts said that the price ceiling of US$60 per barrel is even higher than the current price of crude oil sold in Russia, so it will hardly affect the country’s current oil revenue. Russia has turned to selling large volumes of discounted oil to Asian customers such as China, India and Turkey after Western markets faltered.
However, Russian Deputy Prime Minister Novak predicts that Russia’s oil production may fall by 500,000 to 700,000 barrels per day early next year, roughly equivalent to 5% to 6% of the country’s current production capacity. Novak also said,Russian natural gas production will drop by 12% this year, and exports will drop by a quarter.
Russian Finance Minister Siluanov also said that Russia’s budget deficit in 2023 may exceed 2% of GDP as the oil price cap squeezes export revenue.
Alexei Miller, head of Gazprom, admitted at the year-end meeting that they have had a very difficult year and are looking for alternatives, especially in Asia, after losing the European market. Miller pointed to Western sanctions imposed on Russia as a catalyst for sweeping changes in energy markets.
The United States: the biggest winner of the Russia-Ukraine conflict
Unlike Europe, the United States has little dependence on Russian fossil fuels. Therefore, it not only announced sanctions on Russia’s energy industry early on, but also proposed to set a price ceiling on Russian oil.
Some analysts say that the conflict between Russia and Ukraine has stimulated new demand for energy in the United States. If the growth of shale oil production capacity accelerates, it should push crude oil exports to exceed imports later next year, which will make the United States likely to become a net crude oil exporter for the first time since World War II .
The oil production capacity of the United States has already ranked first in the world, surpassing major crude oil suppliers such as Saudi Arabia and Russia. Still, U.S. shale fields are aging and production growth has been lackluster this year. While total U.S. production capacity is on track to hit a record 12.34 million bpd next year, that is only if oil prices are profitable enough to entice drillers to pump more oil.
With the European Union banning imports of Russian crude, European refiners have been snapping up U.S. crude to offset the void left by Russian crude, data analytics firm Kpler said.
The United States is also among the world‘s three largest liquefied natural gas (LNG) exporters along with Australia and Qatar. During the energy crisis, the United States exported a large amount of LNG to Europe to help its allies tide over the difficulties.
The U.S. overtook Qatar and Australia in the first half of 2022 to become the world‘s largest LNG exporter, driven by soaring demand and prices in Europe.Some analysts say U.S. LNG exports may continue to grow until 2023 as Europe scrambles to replenish inventories that have been depleted this winter.
Looking ahead to 2023
While Europe looks set to avoid severe energy shortages this winter, a lack of natural gas supplies could haunt it for years to come.
Gas purchases for European countries are widely expected to become more difficult in the coming years as Russia essentially cuts off gas supplies and global competition for LNG intensifies. Take Japan, for example, one of the world‘s largest LNG importers. Several Japanese companies said this week that they had reached mid- to long-term gas supply deals with producers in Oman and the United States.
The IEA has previously released estimates that if Russian gas supplies are completely stopped and Asian customers participate in the competition for LNG,Europe could face a gas shortfall of as much as 30 billion cubic meters next summer.
In terms of crude oil, the IEA predicts that the supply surplus of 800,000 barrels per day in the fourth quarter of this year will turn into a significant shortage in the third quarter of next year, and the gap will expand to 2.1 million barrels per day in the fourth quarter of next year.Analysts expect Brent crude prices to approach $100 a barrel by then.
The possibility of further production cuts by OPEC+ will also support oil prices, with JPMorgan Chase & Co expecting the alliance to announce production cuts of 400,000 bpd as soon as next February at its meeting.