Part 1-Europe. The Russia-Ukraine war. Exploring energy markets in a destabilizing world.

Energy powers the modern world, yet supplies and prices have grown increasingly precarious amid mounting global tensions. With prices for oil, natural gas and coal having surged upwards in recent years, energy security has become a pressing concern. Several factors are colliding to roil energy markets – the Russia-Ukraine war, strained OPEC+ relations, Middle East instability, rising demand, and underinvestment in new supply. As countries sanction Russian energy exports, disruptions spill over, amplifying volatility. Cost-of-living crises driven by inflationary energy prices now grip consumers worldwide. Europe's dependence on precarious Russian energy sources has been exposed as untenable. Tough decisions loom between energy affordability, energy transition goals, and energy sovereignty. While the world is destabilizing, energy markets remain central to economic and geopolitical power. Securing stable long-term supplies presents challenges that cut across economies, politics and international relations.

Europe's dependence on Russian energy has been exposed as a critical vulnerability since Russia's invasion of Ukraine.

Prior to the conflict, Europe depended heavily on Russia for energy: In 2021, Russia supplied over 40% of Europe's imported natural gas and 27% of its crude oil imports. Major economies like Germany and Italy relied on Russia for over 50% and 40% of natural gas needs respectively.

But Russia's unprovoked attack on Ukraine severely disrupted Europe's energy flows from Russia. Natural gas flows from Gazprom to Europe have declined over 60% since the invasion began. The EU banned seaborne Russian oil shipments and will phase out pipeline imports by year's end.

Overall, the EU aims to cut its Russian gas dependence by two-thirds through conservation, new suppliers, and deploying wind and solar. Yet the war has created immense uncertainty around Europe's energy security. Tough decisions loom between affordability, energy transition goals, and independence.

Let’s take a deeper dive into the impacts of the war on the energy picture in the five largest economies in Europe.

-Germany-

Germany relied heavily on Russia for over 50% of its natural gas and 35% of oil imports prior to the invasion of Ukraine. A combination of the destruction of the Nord Stream 2 pipeline and reduced gas flows from Russia as a result of Western sanctions following the invasion of Ukraine, has left Germany scrambling to replace supplies. Utility giant Uniper, Germany's largest Russian gas importer, has been losing €60 million daily as it is forced to procure expensive replacement gas on spot markets. This has pushed Uniper to the brink of bankruptcy, requiring a €13 billion government bailout. Germany is racing to setup new LNG import terminals, but these will take years to adequately replace Russian pipeline supplies. Germany has restarted coal power plants .... continue reading and subscribe on my Substack here.