The recent energy crisis has highlighted our economies’ dependence on energy resources. With fossil fuels becoming less available, and a necessary transition to more decarbonised alternatives, could tomorrow’s energy not become more expensive and less certain in availability? Selected excerpts from the new episode of Coface’s podcast Trade Talk, with our chief economist Jean-Christophe Caffet and Marc-Antoine Eyl-Mazzega, Director of the Energy & Climate Center at IFRI. The war in Ukraine has affected the energy market, particularly gas supplies. What analysis can we make of the winter we’ve just had?Jean-Christophe Caffet: The risk of a disruption to natural gas supplies in Europe was very real. It didn’t happen, however, for several reasons, not least the abnormally high temperatures in autumn and winter, which enabled us to save around 20 billion m3 of natural gas in Europe.The second reason is the efficiency gains achieved by households and the production cuts observed in energy-intensive manufacturing sectors. Finally, China’s zero covid policy has enabled Europe to secure supplies of liquefied natural gas (LNG). As a result, we now have high stocks of natural gas in Europe, which bodes well for the coming winter. Regarding liquefied natural gas (LNG), have there been any strategic changes in terms of supply and/or infrastructure construction since the crisis?Marc-Antoine Eyl-Mazzega: Historically, gas flows to Europe were mainly by pipeline from Russia, in the East-West axis. Now that these Russian gas pipeline flows have been largely interrupted, we’ve switched to a West-East system in just a few months. This is a major upheaval without precedent! The players in the gas transmission systems have implemented the technical measures needed to reverse the flows, for example to allow gas to pass from France to Germany. Germany, Europe’s largest gas market, had no LNG import infrastructure, due to its privileged relationship with Russia. This has changed dramatically: in an emergency, the German government ordered the leasing of various floating regasification facilities, which were installed in record time, enabling Germany to import large quantities of liquefied natural gas and access the LNG market worldwide.
Do the reopening of the Chinese economy and the geopolitical rapprochement between China and Russia pose a short-term threat to gas supplies?Jean-Christophe Caffet: Russia cannot redirect all its natural gas to China. Russia must therefore send its gas elsewhere. Chinese demand is one of the main questions we have about 2024: it had virtually disappeared but contracted sharply last year. The easing of sanitary constraints in China opens the way to a revival of the Chinese economy. This is the direction Coface forecasts, which suggests an acceleration in Chinese LNG imports, already up 15% year-on-year. That’s a long way from fearing disruptions to supply flows in Europe… and, on the face of it, it shouldn’t be!On the other hand, we have no control over what might happen in terms of supply, since disruptions to liquefaction units can always occur. If there were to be physical disruptions, it would be the emerging countries that would suffer, as in 2022, when they were unable to match the prices on the international natural gas markets. There’s been a lot of talk about gas, but in the energy and financial crises of recent decades, the focus has been on oil. How is this market doing today?Jean-Christophe Caffet: It remains structurally tight, due to under-investment over the past ten years and the absence of any upturn in US shale oil production. Various forecasts point to renewed tension in the second half of 2023, with the market in a situation of undersupply. With a possible rebound in oil prices above current levels (around $75 a barrel for Brent), this could become inflationary again from summer onwards.Marc-Antoine Eyl-Mazzega: We have undoubtedly been troubled by the shutdown of the Chinese economy and tensions in value chains, which have slowed this rise in demand. But it’s going to happen again! Production and investment are going to be in short supply, and the alternatives for reducing oil demand are not being deployed fast enough. So, we’re facing a real challenge! More so as, politically, Saudi Arabia and Russia, allies within OPEC+, have decided that a relatively high oil price would help support…
