On Tuesday, average oil prices fell below $100 per barrel for the first time since April. Lockdowns in China, rising inflation rates, and troubling signs of a recession weigh heavily on oil markets causing the price decline. Against the backdrop of the Russian war in Ukraine, disruptions in oil and gas distribution exacerbated by sanctions and measures to choke supply by OPEC+ have caused chaos in energy flows across the world.
Europe was immediately exposed because of its heavy reliance on Russian energy. EU nations had collectively imported 27% of total oil and 40% of natural gas sources from Russia prior to the outbreak of conflict in Ukraine. Pressure from the United States and commitments to NATO saw this percentage decrease despite an estimated $68.5 billion worth of energy sales to Russia since February 24th. With current sanctions on the purchase of Russian energy and an impending 90% cut in oil consumption to be completed by the end of 2022, the EU is scrambling to find new sources of supply and counteract inflation. Should they fail, the impact on their economies and global energy markets will be catastrophic. The world is staring into the abyss of a severe economic recession.
Winter’s imminent arrival has already inspired some Eurozone nations to prepare for energy rationing scenarios. Germany, where in 2021 30% of total monthly oil imports were Russian, has begun to implement energy-saving measures by limiting heated water distribution and closing swimming pools. Such measures complement diesel fuel usage reductions, which are becoming commonplace in Europe.
Diesel shortages caused by the Russian oil ban will likely bolster inflation. The already whopping 8.6% inflation rate seen in June 2022 is likely to rise further, with forecasts pointing to higher consumer prices. On Thursday, the European Commission will present projected economic growth for 2023 at just 2.3%, indicating a significant downturn.
Dwindling oil supplies, economic stagnation, and inflation will significantly inhibit the resilience of the energy market. For countries at large, higher commodity prices will result in increased supply chain and logistical costs, thereby increasing import expenses. For commodity trading houses, higher purchasing prices will require capital and credit from financial institutions to bridge gaps in the supply chain.
Opportunities for emerging trading houses to fill niches in the energy market could help combat inflation and generate positive economic growth. Oilmar, for example, is a bespoke energy trader specializing in the petroleum trade. Chartering fuels into Europe through the Mediterranean, Caspian, and Black Seas, plays an important role in filling gaps in both petroleum and maritime fuel supply chains. Trading in more than 60 countries, Oilmar performs an essential role for the maritime shipping industry, firstly by aggregation of volumes and having the last mile reach marine suppliers. Secondly, by bridging credit gaps and helping shipowners and operators finance their marine fuel purchases. This ensures smooth operations for shipping companies so they can deliver their goods in a timely and effective manner. During periods of economic decline, this is vital.
Recognizing global trends aimed at eventually moving away from fossil fuels, Oilmar recently announced its first inroads into carbon offsetting, buying carbon credits to counterbalance emissions from the FMT Bergama on its voyage from Huelva to Naples. This first transaction acts as an important entry into carbon markets.
Company CEO Yusif Mammadov claimed the company is perfectly positioned to fill the gap in the market to fulfill the global supplies for marine fuels while providing a package of carbon-neutral fuels to its customers. These operations, and similar ones from other companies, will help to offset fossil fuel prices and slowly convert to more sustainable alternatives.
Alternative energy carriers and fuels like ammonia, methanol, and biofuels have become of vital importance in recent years, as CO2 emission reduction is paramount. However, there are still considerable obstacles to the mass adoption and development of the logistics and technology associated with these fuels. The infrastructure required to install systems of liquefied natural gas (LNG) bunkering, the practice of providing LNG gas to power a ship, is massive and capital intensive. Governments must take an active role in encouraging public-private partnerships to scale up these projects and assist in their ascensions. Until that time, carbon credit and emissions offset programs might become a go-to option for companies and governments.
Capital spent on carbon credit and emissions offset will increase opportunities for competition in the renewable energy market. World Fuel Services, which largely caters to the aviation community, offers an option for buyers to bundle fuel transactions with carbon offsets, ensuring ease of exposure and disclosure management. Minerva Bunkering, a leading maritime energy provider, offered a similar option and later introduced an option for carbon-neutral marine fueling to its clients. Peninsula Clean Energy, a California-based environmental joint powers agency, will offer the procurement of renewable power 24/7 in service areas by 2025. Such interplay underscores the emerging competition that will positively affect renewable energy opportunities, especially amidst the burgeoning energy crisis in Europe.
While nations struggle to counteract rising fuel prices and secure reliable sources of energy, niche providers of carbon offsetting such as Oilmar provide practical examples of filling gaps in the traditional energy market while working towards more sustainable energy.
As companies struggle with inflation and recession amidst a chaotic energy environment, private sector innovation will be of utmost importance in ensuring market resilience and energy security while empowering the shift to more sustainable energy.