The energy market was turned on its head; 2023 could bring further turmoil

By Charles Ellinas

What a year it was. 2022 was seismic in terms of global energy. Everything was turned on its head. Everything we knew was upended, replaced by a new, vastly different, order and global energy flows. The energy crisis started after the summer of 2021. With the world coming out of the pandemic, the global economy experienced rapid recovery and with it so did energy demand. But after years of under-investments, driven by a dogmatic belief that renewables would soon replace fossil fuels, oil and gas supply could not match demand and inevitably prices sky-rocketed.

By September 2021 the price of natural gas at Europe’s TTF gas-trading hub exceeded €95/MWh, a price never seen before and about six-times higher than pre-pandemic prices. Having dropped to very low levels in March 2020 as a result of lockdowns, it almost doubled by December 2021 and by March 2022, following the invasion of Ukraine by Russia, it reached €227/MWh. But these fade into insignificance in comparison to the astronomic €346/MWh reached in August 2022. To put this in context, it is over 20-times higher than pre-pandemic prices and equivalent to about $620/barrel of oil.

It has now declined to about €95/MWh as a result of ample supplies of gas in Europe, but still impacting European industry hard. However, this is the lull before the storm. With a harsh winter in progress in Europe and the US, gas storages will be depleted. Refilling them in 2023 will be that much harder as supply of Russian gas is now over 80 per cent less than it was pre-Ukraine invasion. This will send prices up again and the €180/MWh natural gas price cap agreed by EU energy ministers this week will not save Europe. With Asian LNG buyers prepared to pay the market asking-price, LNG will be diverted to Asia, exacerbating EU’s gas supply problems. That’s why the EU also adopted a get-out clause: the cap will be suspended if the EU faces a gas supply shortage, or if it causes a drop in TTF trading.

The Brent oil price has gone through similar gyrations, but not as dramatic as for natural gas, probably as a result of the balancing role provided by OPEC. It was about $60/barrel pre-pandemic. Having dropped to less than $20/barrel during lockdowns, it experienced steady recovery exceeding $90/barrel by February 2022. It peaked in March and August 2022 at around $125/barrel, dropping to less than $100/barrel during the second half of 2022. It is now about $83/barrel, as a result of concerns that reduced economic activity, and likely recession, will impact demand. But, as for natural gas, it is expected to rise in 2023 to over $100/barrel, driven by China’s exit from Covid-19 and economic recovery, the 2million barrels/day cut in oil production agreed by OPEC+ in October and the likely impact of the Russian oil price cap imposed by the G7 and the embargo on Russian oil imports imposed by the EU – all to take effect during the first-quarter on 2023.

It is worth understanding these extraordinary oil and gas price fluctuations, that underlie the energy crises of 2021 and 2022, because of their unprecedented impact on the global economy, electricity and gas prices, global energy shortages, food prices, inflation, interest rates and possibly global recession.

With sanctions on Russia, an embargo on its coal and crude oil supplies to Europe, reduction of Russian gas supplies to Europe to less than 20 per cent pre-war levels, global energy flows are in a state of flux. Russian fossil fuel supplies are now being re-directed to China, India and Asia in general, with gas to Europe being replaced largely by US LNG.

Geopolitical developments in 2022 have upended global energy market dynamics, ushering in long-lasting changes.

With tight supplies of both oil and gas continuing to be a problem globally, prices continue to remain high. OPEC countries are increasing their investments into new oil and gas exploration and production, but western oil companies continue to be cautious, constrained by US and EU policies that call for replacement of fossil fuels by renewables and green-hydrogen as we approach 2030 and beyond.

The 2022 global energy crisis has given new momentum to renewables, but, equally, has made energy security top priority. Affordability is also becoming a major issue and it is expected to drive developments in 2023. With global energy demand continuing to increase – by over 20 per cent by 2050 – all fuels, renewables as well as oil and gas, will be needed for a long time to ensure secure and reliable energy supplies.

The global energy crunch has led to a shift in sentiment to energy security. What is needed is the right balance using natural gas as a transition fuel, while investing in renewables. The more diversified the global energy system becomes the more reliable, secure and affordable it will be.

Key events in 2022:

Energy markets and transition

Energy markets and policies have changed as a result of Russia’s invasion of Ukraine, not just for the time being, but permanently. It has become evident in 2022 that energy transition is not an ‘overnight’ process. It will take time. And while it is happening, the energy needs of the world carry on increasing, along with the need for secure and reliable energy supplies. Intermittent renewables are not yet in a position to deliver that. They need to be supported by natural gas. In addition, infrastructure challenges and grid reliability are becoming dominant issues.

US IRA pivotal

The US Inflation Reduction Act approved $370billion in energy security and climate change spending over the next decade. This will spur innovation in clean energy and transportation. The EU is still to define how to respond, but has adopted CBAM (Carbon Border Adjustment Mechanism) that will place additional costs on goods from countries with more-relaxed climate policies to protect EU producers.


The outcome of COP27, even though disappointing for not increasing targets for carbon emission cuts, showed that the majority of countries see oil and gas continuing to be important for years to come. Driven by energy security concerns, not only did phase-down of oil and gas not get the required support, but the COP27 deal now includes a provision to boost “low-emissions energy”, interpreted to include natural gas. In effect, COP27 signalled a shift from mitigation to adaptation.

Nuclear fusion
The announcement of the US Lawrence Livermore National Laboratory in California on December 5 that it managed to produce 50 per cent more energy output than the energy input required to cause nuclear fusion, constitutes a breakthrough in the search for limitless clean energy. This is a fitting way to end a very turbulent 2022, bringing hope for the future.

Dr Charles Ellinas is a senior fellow at the Global Energy Centre the Atlantic Council @CharlesEllinas