Energy Prices Enter the Putin Zone

The full-scale Russian invasion of Ukraine has significant consequences for the global energy markets, even in a “no export disruption” scenario. In the immediate term, the energy price implications of a full or partial shut-off of Russian oil and natural flows has focussed attention. But on a longer-term basis , E uropean involvement with Russia’s energy economy will step back (with the Nord Stream 2 pipeline currently dead in the water), with significant implications for global energy markets. The most extre me commodity market risk centers on natural gas, for several reasons. First, in a worst-case scenario where by Russia weaponi z es exports, natural gas is a cheaper tool than oil from a Russian budgetary perspective . In the Jan-Nov 21 period, production and export taxes on oil and condensate provided ~30% of Russia’s federal budget revenues, compared to ~6% for natural gas. Second, from a broader market perspective, natural gas is a highly “localised” market with A to B pipelines delivering gas from producer to consumer, meaning precise economic damage could be delivered to Western Europe. This compares to a globally traded oil market, where higher oil prices would impact all consuming nations, including China. Finally, Russia’s natural gas exports to Europe cannot readily be replaced, making weaponization more potent. We have upped our base case TTF forecast to €78.8/MWh and Brent to $89.8/bbl for 2022. In our high case scenario with transit via Ukraine disrupted, TTF is expected to average €100/MWh with Brent at $106/bbl. This publication is part of broader Cross Expertise Research report on the ongoing Ukraine crisis, which can be found here: