When you work in the energy markets, you wish you had a crystal ball to foresee the future.
Certainly, our clients ask us for our views on what’s likely to happen over the coming days, weeks and months. That’s why each January and at the start of key seasons, we put together an outlook for the time period ahead.
But while we’re putting the finishing touches to our 2023 Outlook, we thought it would be interesting to look back at our forecast for 2022. How much of what turned out did we see coming?
The impact of the Russian invasion of Ukraine
I think it’s safe to say that almost no-one believed that Russia would invade Ukraine, or that the ensuing war would be as fierce and still be ongoing as we ended the year.
However, we did predict the “immediate political risk is an escalation of tensions between Russia and Ukraine, which could have wider implications for Russian gas flows into Europe and the completion of the Nord Stream 2 pipeline.”
Indeed, all sadly came to fruition. And, as noted, this had a “significant impact on both UK and European gas prices”.
Gas crisis in Europe
Europe, and particularly Germany, had hoped that Nord Stream 2 would bring some gas security and stability to the region.
But as we noted last January: “It is of course still possible that Nord Stream 2 never begins to operate commercially, and market participants should be aware of this.”
Plugging the gap through 2022 have been imports of liquified natural gas (LNG). And we did identify that “LNG could be a key supply driver that leads Europe away from this period of extreme pricing”. Only we didn’t foresee just how extreme that pricing would become.
Coal bounces back
At a time when many hoped coal use would decrease, as countries prioritised climate change targets, we noted that “the immediate future is likely to continue to see coal firmly in the power stack.”
And indeed, it has been case, with the International Energy Agency reporting: “global coal use is set to rise by 1.2% in 2022, surpassing 8 billion tonnes in a single year for the first time and eclipsing the previous record set in 2013.”
Oil instability
When it comes to oil, we didn’t predict sanctions against Russia reducing oil flow to Europe.
But we did note: “A market driver that has been seemingly overlooked at times over the last few months is crude oil production by Iran, and the potential lifting of sanctions reimposed by the US’s Trump administration.”
Unsurprisingly, with Iran’s support of Russia and ongoing human rights abuses, those sanctions remain in place.
Although Iran is still estimated to be exporting around 1.2 barrels a day (bpd), mostly to China, Syria and the UAE. But this is way below the 2.7bpd it was exporting back in 2018.
Ongoing Covid-19 impact
In January 2022, we said: “Once again, Covid-19 will be a key factor to shape the landscape of commodities for the coming year.”
And for China, with a year of ongoing lockdowns, it has reduced pressure on energy commodities, as demand from the region hasn’t been at levels expected.
But while the perceived threat of Covid-19 has retreated for most other regions, the post-pandemic economic bounce back hoped for in 2022 didn’t pan out either.
This has been largely due to the Russia/Ukraine conflict spurring price rises in energy and food that have had wider economic impacts.
Inflation causing problems
As we noted back in January 2022: “Inflation risk is likely to be a prevalent theme in 2022” with “governments around the world likely to be concerned about how the rising cost of goods and services will impact their economies.”
In June 2022, the United Nations estimated that more than 1.6 billion people will be impacted by at least one aspect of the cost-of-living crisis. That figure is likely far larger now.
And with many countries either entered or soon to be entering a period of slow down, 2023 is now being billed as the year of global recession. Not something we foresaw – or even dared to think.
What does 2023 have in store?
We're putting the finishing touches to our 2023 Outlook Paper, and we'll be outlining the highlights in the coming weeks. However, if you have any questions in the meantime please do get in touch.
For existing customers, your Client Lead for Account Manager is the best place to start. Or get in touch here.
/Author%20Profile%20Ward_Louise_G.png)
