Year of Energy Wars and Supply Conflicts: Predictions and Implications for 2025
By Dieter Kuckelkorn, Frankfurt
Market turbulence in oil and gas sector
Welcome to 2025 - a year that could be marked by global clashes and struggle over energy supply. The curtailed Russian pipeline gas to the EU indicates a horizon riddled with energy-political disputes, posing severe implications for the EU, particularly Germany.
The opening of 2022 has ushered in a significant shift for European energy markets. The Ukrainian government's decision persists, leading to a first-in-decades situation: the EU is devoid of Russian gas via pipeline as an economical energy source. This results in a significant decrease of gas supply to the Union, which accounted for 5% of the total natural gas consumed. Plenty of LNG gas, imported via tanker vessels, becomes the crutch for Europe, as it competes with other buyers, such as Asia.
This transition becomes evident in the price level on the European spot market. While the monthly contract at the Dutch handover point, Title Transfer Facility (TTF), was still priced under 30 euros per megawatt hour in March, the price now surpasses 50 euros, burdening private and industrial consumers with rates exceeding those in other global regions.
Heightened concerns loom over Germany. The loss of cheap domestic Russian pipeline gas, responsible for half of the gas consumption in 2021, according to Bloomberg's estimates, has caused a 5% drop in the country's GDP compared to the energy-optimistic scenario. Gas conservation calls from the Federal Network Agency grow, as gas consumption between October and December increased by 5.8% compared to the previous year. Add to the mix the anticipated cold winter, projecting to be harsher than its predecessor, and one finds a perfect storm that has accelerated the drainage of gas storage facilities below 80% capacity.
Tensions arise in the Baltic Sea as well. The EU consequently grapples with the uncertainty imposed by the "shadow fleet," a term used to describe Russian-insured tankers. Incipient sanctions have already been implemented against the fleet, calls for significant expansion of sanctions, even for a complete Baltic Sea blockade for Russian ships, have already been made.
Global Energy Struggles Rooted in Power Plays
The year 2025 carries the potential for global conflicts over energy supply. Europe's aspirations to sever ties with Russian energy and the ongoing spat over power supplies to Ukraine hint at escalating crises. To the east of the Union, the population in Moldova's independent region of Transnistria faces complete gas supply and heating suspensions at the heart of winter.
Conflicts can also erupt over natural gas in other regions. For instance, Qatar, a substantial gas supplier to Europe, has threatened to terminate its deliveries if the EU extends its environmental regulations and imposes penalties on Qatari gas suppliers.
Trade wars or even open conflicts could even unfold around the oil market. With President Joe Biden entertaining the possibility of imposing wide-ranging sanctions on Russian oil, Europe would face a reshuffling of trade relations, potentially causing oil prices to spike.
Moreover, anti-Iranian tones emanating from the potential Trump administration call for a U.S.-Israeli attack on Iran, threatening to remove around 2.8 million barrels of Iranian oil daily from the market and jeopardizing the transport of oil and LNG through the Strait of Hormuz.
Europe's Energy Vulnerability and the Quest for Independence
In the face of escalating geopolitical challenges, Europe remains the most vulnerable region, grappling with its energy-deficient status while no longer securing long-term contracts necessary to shore up supply. The looming conflicts await everyone, but the predicted consequences hit Europe hardest. The Union must work deftly to balance security, affordability, and sustainability in an environment of market volatility and uncertainty.
- The EU, particularly Germany, faces significant risks in Transnistria, as the region may experience complete gas supply and heating suspensions, posing a challenge in the heart of winter.
- In 2025, the oil-and-gas industry in the region around Transnistria could be a hotspot for global energy struggles, given the potential for conflicts over natural gas.
- The EU industry might face financial repercussions if the pipeline supply from Russia is cut off, as the loss of cheap domestic Russian gas accounted for half of the gas consumption in 2021.
- As the EU strives to sever ties with Russian energy, there are concerns about heightened tensions in the Baltic Sea, particularly with the presence of the "shadow fleet" of Russian-insured tankers.
- Energy market volatility and uncertainty in the EU has made gas storage facilities particularly vulnerable, with the current cold winter further draining storage facilities below 80% capacity.
