By: Harry Altham, Energy Analyst, Market Analysis EMEA & Asia
This morning’s IEA market report brought about some interesting statements regarding the consequences of rising gas prices in Europe, namely that it predicts 300k bbd of crude oil will be used instead of high-priced natural gas in industrial production across the continent until the beginning of Q1 2023. The news has pushed Brent into positive territory basis last night’s settlement, but we are also seeing a relative weakening in 2023 futures against the October 2022 contract on the assumption that the substitution effect will diminish into the new year. Oil and coal are thought to have the capacity to replace 30BCM of natural gas (21% of Germany’s total pre-war imports [and 60% of Russia’s gas] converted to 3.2M bbd oil equivalent) this winter before adversely impacting the E.U.’s climate goals. Coal consumption is expected to rise by 7% in 2022, which means oil would be expected to fill any shortfall.
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