Page 5 - FSUOGM Week 10 2023

FSUOGM COMMENTARY FSUOGM

As importers look
to bolster their
energy security,

they will strive
in the future to

produce more
domestic supply.

Maybe, but it will be a long time, require regime electricity prices to soar. While some generators
change and, even then, in our view no more than earned windfall profits, consumer bills reached
15% of its needs.” record highs. Governments responded with
Russian oil and coal exports have remained subsidies, and regulators with wholesale market
close to the pre-war level despite sanctions, help- reforms. A balance will need to be reached, so
ing maintain production at the same level as a that prices are sufficiently “fair” but also incen-
year ago. But the impact of sanctions will become tivise investment.
greater over time, WoodMac says, pointing to “Power markets around the world will follow
the recent drop in oil prices. with interest. Expanding grid infrastructure,
“Global refining, in contrast, has been signifi- cross-border and domestically, is also impera-
cantly disrupted. Discounted Russian oil exports tive,” according to WoodMac.
were forced away from Europe, mainly to China Major buyers of Russian oil that have flouted
and India; and products are now undertaking Western sanctions have fared better, expanding
the same re-shuffling but to different markets,” purchases of heavily discounted crude oil and oil
the consultancy says. products. Crude and oil product shippers have
As importers look to bolster their energy also gained from increased seaborne deliveries,
security, they will strive in the future to produce while gas-producing countries outside Russia
more domestic supply – and this will mean more have enjoyed higher prices and, in the case of
low-carbon energy, accelerating efforts to tackle Europe, expanded market share. Oil and gas pro-
emissions. ducers, power producers that use a lot of renewa-
“Many countries are nowhere near that today, bles and nuclear power have also gained, as have
and dependency on China for critical transition US LNG exporters and Qatar.
metals and hardware is a widespread concern,” Hardest hit, unsurprisingly, are gas and power
WoodMac says. “But most countries already consumers, as well as gas importers, WoodMac
planned to make the journey over the longer notes. Lastly there is Russia, which lost 130bn
term as they progress towards net zero; the war cubic metres of gas exports to Europe worth
has just made it happen quicker.” $30bn in annual pre-war revenues. WoodMac
Extreme market conditions have also does not expect those exports to ever be replaced
exposed the limitations of Europe’s marginal with alternative options.
price-based power markets. Rising input fuel “It’s also blown its credibility as a reliable trad-
costs and power supply constraints have caused ing partner,” the consultancy said. ™

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