After record energy market volatility around the globe in 2022, World Kinect hosted the Get Kinected Energy Market Outlook. This week of geography-specific, one-hour webinars gave customers a deeper understanding of the current market and a look forward at what to expect this summer and for the rest of 2023.
For World Kinect customers who missed the event or organizations that could benefit from the insights of our energy experts, this article offers a high-level summary of our in-depth discussion on energy supply, demand, and pricing for this summer and beyond.
Geography: EMEA
A series of geopolitical conflicts are influencing energy markets in Europe, the Middle East, and Africa (EMEA). The good news is that after a rocky 2022, 2023 looks less volatile for now.
High on the list of destabilizing factors is the Russian war in Ukraine, but much of the upheaval caused last year by the EU’s pivot away from Russian gas has been resolved with gas imported via shipping. Other concerns include continued unrest in Iran, which will likely prevent increases in oil exports, and growing tensions between China and the United States.
A mild winter has meant that gas usage has been lower than anticipated. Supply is strong across Europe apart from Spain and Portugal, which were allowed by the European Commission to set a low gas price for electricity generation. Significantly below market prices, the heavily subsidized rates kept their gas demand quite buoyant compared to the rest of Europe.
Crystal balls aside, there are some underlying factors that impacted the market in 2022 and have not yet been resolved. European production remains flat as producers continue to pump at capacity. A healthy storage situation will likely push gas prices downward, but the situation in China, the outlook for nuclear facilities in France, and the progress of wind and solar developments all could impact that calculus.
Geography: North America
By several measures, 2022 was the most volatile year on record since natural gas started trading at NYMEX in the early 1990s, and gas reached its highest price since 2008. The good news is that the outlook for 2023 is much better for some regions, with the notable exceptions of the western U.S. and Texas.
Another sector to watch is renewable energy. The Inflation Reduction Act of 2022 and other initiatives are increasing incentives for electric vehicles as well as wind, solar, and other clean energy infrastructure. But even as the U.S. continues to move toward clean energy sources, gas remains a critical part of the energy equation.
With less volatility than 2022, North America can take a moment to breathe, but many underlying challenges have not yet been addressed. From lagging investments in shale that will impact gas prices to gaps in renewable solutions caused by weather, the factors that drove difficulties in 2022 are likely to haunt us for the foreseeable future.
Geography: APAC
Record energy market volatility impacted the Asia-Pacific region in 2022. Several pressures remain and geopolitical complications still loom.
Australia
After a record-setting year for natural gas and electricity that ended up suspending markets, Australian electricity prices have held steady all summer at more manageable levels. Factors easing pricing pressures include the expectation that La Niña will continue for a third year and the announcement of price caps on gas and coal, which led to big step-downs in future energy prices.
Last year, renewables generated around 20% of the grid’s energy. The introduction of the Capacity Investment Scheme for 2023 will supercharge growth in clean energy, providing the national framework to drive new renewable dispatchable capacity. This new revenue underwriting mechanism will unlock around $10 billion of investment in clean power in the NEM.
Overall, 2023 is likely to be less tumultuous, but risks that deserve attention do still exist. There may be extreme tightness and price runs as daily capacity is constrained, particularly on peak winter demand days. The retirement of coal fire power stations will also mean a decline in capacity.
Asia
Across Asia, there have been extremely high commodity prices over the last year and a half. This began before the Russian war in Ukraine when China faced coal supply challenges, including safety issues, unfortunate mine disasters, and complications from weather limiting the ability to mine in some areas. For some regions, there has been a reduction in demand and prices, but the outlook for the next year and a half is still quite bullish.
There is also a significant push toward renewable energy, especially in countries like Japan, which imports nearly 100% of its non-renewable energy sources. And although China’s coal capacity continues at an aggressive pace, last year they generated about 26% more wind power than Europe and about twice as much solar electricity as the U.S. or EU. Globally, about 50% of all renewables this year will be built in China.
Asia is an extremely diverse continent in terms of the political system, natural resources, energy needs, development, and general access to resources. If you are doing business in Asia, a partnership with World Kinect could make a critical difference, since customers have access to our global energy experts who can contextualize specific market activity.
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