RUSSIA AND CIS OIL AND GAS QUARTERLY REVIEW, October 2022

B1 Moscow Energy Center
We’re glad to present you our new issue of the quarterly review of the oil and gas market in Russia and the CIS countries, prepared by the specialists of the B1 Moscow Energy Center. In this issue:

  • The global economy has been under unprecedented pressure over the past months as geopolitical tensions have plunged the world into a deeper energy crisis and inflation.
  • Business activity has declined, with the composite PMI falling below 50 in August and September, compared with 50.8 in July.
  • Inflation is now firmly in the regulatory spotlight. Central banks globally are tightening their monetary policy in a bid to rein in inflation. The Fed, for example, hiked its benchmark rate in late September for the third consecutive time by 75 b.p., bringing it to the target range of 3%-3.25%.
  • While in October the IMF’s global economic growth forecast for this year has remained unchanged since June, at 3.2% YoY, it has lowered its outlook for 2023 from 2.9% to 2.7%.
  • The market outlook remains uncertain against a weakening economic backdrop and more so due to upcoming EU restrictions on seaborne oil imports from Russia and a cap on Russian oil.
  • The Brent price is expected at $94 in 2023, according to the median forecast as of mid-October. Russia’s Ministry for Economic Development expects a barrel of Urals to cost $80 in 2022, $70 in 2023 and $65 in 2025.
  • In the first ten days of October, natural gas prices across key sales markets pulled back from the peak levels seen in August.
  • EU gas storage facilities are filling up more quickly than planned (90% of capacity in early October versus the 80% target set for 1 November). This offers a glimmer of hope that the region’s gas market will balance itself out, but it’s yet to be seen what the withdrawal rate will be during the winter months.
  • Europe’s LNG imports, though rising 92% YoY in September, are trending down. In the same month, US LNG supplies to Europe were 60% higher than a year ago, but continued to decline month on month. As a result, the US share of the region’s imports decreased from 52% to 31% between May and September, while Europe’s share of US LNG exports shrank from 77% to 48% in the same period.
  • Natural gas prices in Europe are now worryingly close to those in Asia, with Europe-destined LNG cargoes likely to be diverted to Asia. This may lead to a supply shortage, which could trigger a price spike, resulting in some of the lost supplies being shifted from Asia back to Europe.
  • Growing global competition for supplies could herald tectonic shifts on the gas market. Suppliers are now snapping up all available vessels. According to Bloomberg, Shell has booked the LNG carrier Yiannis for as much as $400,000 per day, likely the most expensive ever for the Atlantic basin, while the Indian firm GAIL has also secured the LNG Schneeweisschen vessel for about $360,000 per day.
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