The Impact of Geopolitical Reordering on Energy Procurement in 2024
Summary
- Natural gas prices are expected to rise due to lower production and increased demand from Europe replacing Russian supplies.
- Geopolitical conflicts like the war in Israel-Palestine could disrupt oil shipments through the Strait of Hormuz, further impacting global energy prices.
- Expect a push towards renewable energy sources as countries seek to reduce reliance on volatile fossil fuel markets.
Although renewable energy is taking the world by storm, many individuals and companies still heavily rely on natural gas for anything from cooking and heating a space to transportation. However, market analysts have noticed a trend that indicates geopolitical reordering will impact energy procurement as gas becomes more difficult and expensive to obtain in the coming years.
What Is the Long-Term Gas Trend and What’s Affecting It?
In 2000, gas prices hit one of their all-time lows of under $2.55, preceding a 36-month spike that eventually proved about 96% higher than its low cost. Afterward, the average price dropped thrice, returning to the original low 2000 cost in 2012, 2016, and 2020.
By observing these trends, specialists find these market lows comparable to the present-day cost of natural gas. This, alongside a 200-day moving average, indicates higher costs in the near future. But what is causing the price to rise and fall?
When the low price of natural gas is unsustainable for exploration and manufacturing companies, such as during these dips, the production cost surpasses the selling price. That means these suppliers don’t profit from their products and may not even break even in some cases. Therefore, they increase public demand by decreasing production and levels rising prices to compensate for lost revenue.
We also see this prediction of the effects of geopolitical reordering on energy procurement coming to fruition with Baker Hughes. This top American energy company in Texas claims gas rigs are currently 25% below the rig rate we saw last year. That means fewer drilling systems are extracting natural gas and petroleum.
How Do Geopolitics Cause a Lower Energy Procurement Rate?
Russia’s Attack Jeopardizes the Energy Commodity Market
Lower natural gas production means America’s Liquefied Natural Gas is becoming more sought after.
In 2022, Russia invaded Ukraine, breaching geopolitical order and disrupting trades that affected energy commodity markets. Europe, which heavily relies on imports of Russian pipeline gas, was caught in the crossfire, leaving them with very little natural gas, especially due to their green energy policies.
To make up for the loss, they must start importing LNG to keep residents safe and businesses running. The Energy Information Administration realized during a recent Short-Term Energy Outlook that the US might see its highest LNG export rate. Analysts expect a 22.9% higher rate in 2024 than we saw in 2022.
The Potential Israel-Palestine War Creating a Global Energy Shift
Another example of the impact of geopolitical reordering on energy procurement stems from the Israel-Palestine war. Just weeks after Israel declared war on Hamas, Gaza conflicts emerged, causing people across the world to wonder whether tension would spread across more Middle Eastern regions.
If that occurs, the Strait of Hormuz between the Gulf of Oman and the Persian Gulf could be in jeopardy. As the only sea passage from the latter, it’s not only a crucial oil transit choke point but one of the largest in the world, bringing in about 21 million barrels daily. Their shipment includes crude oil, condensate, and petroleum products, making their oil tankers responsible for 25% of worldwide consumption.
If war were to halt traffic along this narrow waterway or even delay shipments, this could quickly increase the demand for natural energy. In turn, that affects the energy procurement dynamics and causes shipment and product prices to skyrocket. Therefore, according to CNBC LLC, market observers are eyeing the happenings in this area.
The World Bank predicts crude oil prices will eventually reach $150 a barrel if developments continue within the rising conflict.
Shutting Down Tamar Field Could Further Affect Europe
Europe is especially feeling the effects, with spot prices for liquefied natural gas increasing over 40% since Israel declared war, but it’s not because of the threat to the Straight of Hormuz. The Tamar Field in Israel holds over 300 billion cubic meters of gas, which Israel supplies to neighboring Egypt. Egypt exports 7.5 million tons through energy supply redistribution, mostly to Turkey and Europe.
However, with talk of shutting down the field, natural gas has not only transcended in these receiving countries. Still, it is also creating an unstable market, making it no longer a strategic energy acquisition.
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As international energy governance continues to observe and address the negative impacts on the energy market, and fluctuations in product and shipping costs, they’ll likely also keep pushing for geopolitical energy realignment. With this, they’ll turn more toward renewable resources, creating less dependency on oil and other natural gases.
At Navigate Power, we’re the leaders in energy procurement, so whether you want to learn more about the effects of geopolitical reordering on energy procurement or require energy services, call 1-800-541-1137. With over 40 years of combined experience, we’re the ones to trust!
