Trey Smoyer
Senior Contracts & Pricing Analyst II
Freedom Energy
Published: December 15, 2023
Globalization and Its Effects
The world seems smaller compared to decades prior. Gone are the days of lengthy journeys and information scarcity. Technology and globalization have woven an interconnected web that continues to shrink distances between people worldwide. As these distances continue to shrink, shockwaves from global events have a much more glaring effect as the global energy landscape has been shaken by two major conflicts: the ongoing war in Ukraine and the recent flare-up between Israel and Hamas. Both have significantly affected energy markets, intensifying volatility and shifting global energy dynamics.
The Ukraine Conflict and European Energy
The ongoing war in Ukraine has had a profound impact on international energy markets, particularly in Europe, which relied heavily on Russian oil and gas. Russia has been a significant supplier of oil and gas to the EU for years, accounting for nearly 40% of the continent’s natural gas imports. Since NATO member sanctions were imposed on Russia and supply disruptions like the explosions on the Nord Stream Pipelines attributed to the war have significantly reduced these flows, Europe has been squeezed by what some call the weaponization of natural gas and oil. Thus, as supplies naturally become depleted, prices have soared.
Earlier this April, the European gas benchmark Dutch Title Transfer Facility (TTF) saw month-ahead prices rise to around 500% vs The United States counterpart, The Henry Hub.
Europe’s Search for Alternatives
In response to the reduced Russian oil and gas supply, European countries have increased their demand for liquefied natural gas (LNG) and other fuels. The United States emerged as a significant source, with exports to Europe increasing dramatically. In 2022, US LNG accounted for over 50% of Europe’s imported LNG, significantly reducing its dependence and reliance on Russia as the rising energy costs and inflation have exacerbated the economic hardship in many European countries.
Europe’s LNG Reserves and Storage Concerns
The current level of European LNG stockpiles is estimated currently around 190 TWh, significantly higher than the previous record of 168 TWh set in October 2023. This has been much higher than the 5-year average, which was around 120 TWh. While Europe has continued to raise its reserves of LNG, current storage facilities for Europe are almost full at about 96%; however, based upon historical depletion rates during the winter, storage is expected to drop to 50% come spring.
Israel-Hamas Conflict and Its Market Impact
The recent conflict between Israel and Hamas, though relatively new, has already impacted the global energy markets. In June, OPEC+ cut 3.66 million barrels per day in production, which equates to about 5% of daily global demand, until the end of 2024. The conflict increased price volatility due to concerns about supply and transportation disruptions, leading to short-term price spikes. Pricing per barrel climbed to $94 a day in mid-October from the low of $68 in June. In addition, Israel has discovered and exploited significant natural gas reserves in recent years, allowing it to become a net exporter of energy-supplying countries like Jordan and Egypt. However, the conflict may also disrupt this, sending net importers to an already strained global Natural Gas market, further sending economic shockwaves worldwide.
Global Reactions and Future Outlook
While the conflict slowed down slightly, and oil prices have recently dropped to $70 dollars, there are still major global concerns. The United States and most European countries are trying to build back oil and natural gas reserves as quickly as possible. In addition, globally, there have been increased investments in energy security and diversification to lessen the impacts of future conflicts. The Ukraine and Israeli-Hamas conflicts have served as a stark reminder of the fragility of global energy markets. The coming months and years will likely see significant changes in the global energy landscape as the world grapples with the consequences of these conflicts.
Stay Informed and Prepared – Contact the team at Freedom Energy
In a rapidly changing global energy landscape, staying informed and proactive is more crucial than ever. Connect with our energy experts today for more insights and guidance on navigating these turbulent energy markets.
Sources:
https://www.spglobal.com/commodityinsights/en/market-insights/blogs/natural-gas/041223-how-the-russia-ukraine-war-is-turning-natural-gas-into-the-new-oil
https://www.reuters.com/business/energy/chevron-says-resumes-supplying-customers-tamar-natgas-gas-field-2023-11-13/
https://www.forbes.com/sites/cme-group/2023/07/13/how-geopolitics-have-reshaped-natural-gas-markets/?sh=53cb883549f2
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