Global energy markets have continued suffering from the war in Ukraine and the subsequent energy crisis this year, with energy security and supply fears the main issues, particularly since the escalation in geopolitical tension with the Israel-Palestine war.
The year 2023 has seen the rise of liquefied natural gas (LNG), as many European Union (EU) countries placed their hopes in imported LNG after severely cutting ties with Russian pipeline gas. This is in line with the EU’s struggle to diversify energy resources in the sanction-plagued bloc, which has suffered from skyrocketing energy costs since last year.
Various alternative energy resource options were on the table, including pipeline expansions into Europe from the Caspian, Middle East, or East Mediterranean. However, these options faced several commercial, technical and political barriers including the continent’s unwillingness to promote new fossil fuel infrastructure.
LNG resources came to the rescue when Europe unexpectedly and urgently sought alternatives as the bloc used every means possible, including forced gas demand destruction, to ensure stock-filling ahead of the northern hemisphere winter.
European countries have made significant investments in the development and expansion of LNG import terminals along their coastlines and have also entered into long-term and spot contracts with LNG suppliers. These initiatives provide a means of obtaining gas from a range of global markets, including the US, Qatar, and Australia, among others.
-Oil markets suffer from demand, supply uncertainties amid weak economic indicators
Oil prices settled below $100 a barrel after last year’s highs of around $139 a barrel over sluggish global economic activity in China, US interest rate hikes and the turmoil in the banking industry in the US and European countries, resulting in slower GDP growth expectations for most major economies.
The turmoil in the banking industry came at a time when central banks, especially in advanced economies, have been raising interest rates to lower persistent inflation as countries across the world are dealing with cost of living crises.
On March 12, US regulators shut down New York-based Signature Bank just two days after the failure of Silicon Valley Bank (SVB).
Fears of a spillover effect in the US banking sector crisis and its impact on oil demand outlook further put downside pressure on oil prices despite OPEC+ production cuts and US efforts to balance supply shortages by selling oil from its emergency stockpiles.
On Feb. 5, sanctions on Russian oil products supported price increases while contributing to supply concerns during the first months of the year.
The ban on refined petroleum products like diesel came two months after the G7 decision to cap the price of Russian oil at $60 per barrel and the EU ban on Russian seaborne crude exports on Dec. 5, 2022.
Rising demand as China removed the majority of virus-related restrictions also lent some support in easing investor demand concerns. However, the country’s economy has not fully recovered and has struggled throughout the year.
The Chinese government tried to prevent a deepening economic slowdown after almost two years of pandemic restrictions by ramping up stimulus in various sectors, including the property sector.
The most recent slew of economic data from the Chinese statistics bureau signals stubbornly poor domestic demand in China. In November, consumer prices in the country plummeted at the quickest rate in three years, while producer price deflation continued for the 14th month.
-OPEC+ unity in danger as group loses Angola
The year 2023 was a tough period for OPEC+ countries as the group suffered from problems with compliance, production targets and price management under its targeted levels. The dissatisfaction of some group members over production quotas was evident throughout the year, resulting in Angola’s decision to leave the group, a decision that is set to have a knock-on effect on other countries that are unhappy with the group’s plans.
Nonetheless, Angola’s decision was followed by Brazil’s announcement that it would join the OPEC+ group as of Jan. 1.
The group’s efforts to balance markets have been broadly successful, although prices have remained mostly below the minimum price target of $80 a barrel. This has led the group to further deepen its production cuts, with Saudi Arabia shouldering most of the burden.
Since October 2022, Saudi Arabia has been contributing to the group’s joint cut of 2 million barrels per day (bpd) that will run until the end of 2024. Additionally, Saudi Arabia has led the way with cuts of 500,000 bpd starting in May as part of the collective cuts of around 1.6 million bpd.
Furthermore, the country announced in July another voluntary cut of 1 million bpd, which is set to expire this December.
On Nov. 30, several members of the OPEC+ group announced additional voluntary cuts of around 2.2 million barrels per day (bpd) for the first quarter of 2024.
The voluntary cuts, which will be in place from January and March next year, will gradually end, subject to market conditions “to support market stability.”
The production cuts of the OPEC+ group failed to impact bullish market sentiment but rather supported price declines, as investors expected larger output cuts based on the predictions of the International Energy Agency, which signaled a supply surplus of almost 1.3 million bpd during the first quarter of next year.
-Renewables gain ground as major economies tend to shift away from fossil fuels
A surge in renewable energy adoption was also among the developments reshaping the global energy landscape in 2023.
The rift between hydrocarbon producers and countries calling for a “transition away from fossil fuels’ was more salient during the COP28 climate summit held in the United Arab Emirates (UAE) in November.
The event saw discussions on whether fossil fuels should have a seat at the negotiating table during COP28 or if they have a future at all amid calls from OPEC countries that renewables and oil should coexist without posing a mortal threat to each other.
Nonetheless, negotiators at the COP28 climate summit in the UAE on Dec. 13 agreed on a final draft agreement, urging nations to move away from fossil fuels to avert the worst impacts of climate change.
Some other important energy developments this year are as follows:
On Jan. 10, Belgium extended the life of two nuclear reactors by 10 years, overturning an earlier decision to halt nuclear power in 2025.
On Feb. 1, Russia’s embargo on oil supplies to countries and businesses adhering to a Western-imposed price restriction took effect. The decree, signed by Russian President Vladimir Putin on Dec. 27, prohibits the supply of Russian crude oil and oil products ‘at all stages’ if contracts directly or indirectly abide by the price cap.
On Feb. 5, the EU embargo on Russian refined products took effect as the eight-month transition period ended.
On Feb. 9, Norwegian multinational Equinor announced an oil and gas discovery in the North Sea, with estimates of recoverable oil equivalent of between 17 and 47 million barrels.
On Feb. 17, Abu Dhabi National Oil Company (ADNOC) delivered its first-ever Middle East cargo of around 137,000 cubic meters of LNG ffrom Abu Dhabi to Germany.
On March 10, Türkiye’s Energy Market Regulatory Authority (EMRA) awarded US-based electric carmaker Tesla a license to operate a charging network in Türkiye.
On March 27, Saudi Arabia’s energy giant Aramco signed an 83.7 billion yuan ($12.2 billion) deal with two Chinese partners for the construction of an integrated refinery and petrochemical complex in northeast China.
On March 28, EU negotiators agreed to expand the deployment of electric and hydrogen recharging stations for cars, trucks, and even stationary planes to enable the transport sector to reduce its carbon footprint.
On April 10, Tesla agreed to build a new megafactory in China’s financial hub, Shanghai, to manufacture the company’s energy storage product, Megapack.
On April 13, Ukraine’s state energy company Naftogaz won an arbitration case against Russia, requiring the payment of $5 billion to Ukraine for losses caused by the seizure of Naftogaz Group’s assets in Crimea in 2014.
On April 25, the Council of the EU announced that EU member states had approved five new laws that “will enable the EU to cut greenhouse gas emissions within the main sectors of the economy,” including the maritime transport and aviation industries.
The legislation is part of the EU’s main climate action package called “Fit for 55,” which aims to reduce the bloc’s greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels.
On April 26, EU institutions agreed on a new law obliging the aviation industry to use more sustainable fuels from 2025 on.
On April 27, the Netherlands announced that it would spend €28 billion ($31 billion) in the next few years to meet its 2030 climate goals.
On May 4, France and Japan inked a nuclear cooperation deal to strengthen collaboration in the advancement and exploration of next-generation nuclear technology.
On May 31, Japanese lawmakers passed a bill to grant a mandate for the country’s nuclear reactors to run beyond the 60 years of their typical lifetime operations.
On June 7, the US decided to shut down its largest coal-fired power plant in the US state of Pennsylvania to replace it with cleaner and more efficient power plants.
On June 20, Uzbekistan signed a deal with Russia to import 9 million cubic meters of gas a day for two years, starting on Oct. 1, 2023.
On Aug. 24, Japan began releasing treated nuclear waste from the crippled Fukushima power plant into the sea, ignoring opposition from fishing communities and China.
On Oct. 5, Germany approved the resumption of lignite-fired power plants in the event of winter energy shortages. The plants will be brought online, if necessary, between October and the end of March 2024.
On Oct. 11, Exxon Mobil said it would acquire Pioneer Natural Resources for $59.5 billion.
On Oct 13, QatarEnergy and Italian firm Eni signed a 27-year deal for the supply of up to 1 million tons per year of liquefied natural gas from Qatar to Italy.
On Nov. 17, Jordan announced that it would not sign a deal with Israel to exchange solar energy for desalinated water in light of Israel’s war against Hamas.
On Dec. 11, Occidental Petroleum agreed to purchase a US private shale oil company, CrownRock, in a deal estimated to be worth around $12 billion, including debt.
On Dec. 13, the COP28 climate summit approved the ‘UAE Consensus’ for the new draft final agreement on climate change.
On Dec. 18, the UK said it would impose a carbon levy on imported goods by 2027 as part of a regulation to support the country’s decarbonization drive.
On Dec. 19, Bulgaria banned the processing of Russian oil from March 1, 2024.
