Key Themes for the Global Energy Economy in 2022

oxfordenergy.org

We start with a review of short-term issues in the oil, gas and electricity markets. Bassam Fattouh and
Andreas Economou consider the outlook for oil demand over the next 12 months and discuss the ability
of OPEC+ producers to manage a gradual increase in production to balance the market, even as
demand growth is expected to soften. Their conclusion is that the oil price will remain within a $70-90
per barrel range, while refilling depleted storage will be a key issue. Price volatility, in light of
considerable uncertainty about both supply and demand, as well as political responses to high prices
will remain dominant issues in 2022. Anupama Sen, David Robinson and Rahmat Poudineh then
discuss government responses to current electricity price volatility, using the UK and Spain as examples
of different responses to providing protection for low-income consumers. They see the issue becoming
increasingly relevant as the energy transition progresses and suggest that government intervention
could become less and less effective unless energy policy is well designed.
In a somewhat similar vein, Mike Fulwood and Jack Sharples consider the outlook for gas prices and
supply to Europe and the implications for the global LNG market. Replenishing European storage will
be a critical issue in 2022, with LNG supply, Asian demand and pipeline exports from Russia being key
drivers to watch.

In this context, Mike Fulwood then considers the prospects for LNG supply in 2022. He highlights the
number of projects that are set to come onstream in the next 12 months, reversing the trend of supply
shortage seen over the past year, and speculates on the level of final investment decisions that will be
taken for new projects. His estimate is a range between 10-50mt of new capacity, which could be
onstream by mid-decade and would keep the world well supplied with LNG through 2030. However, this
could be the last chance for a significant number of FIDs to be taken before the push towards
decarbonisation takes hold.

Jack Sharples then examines Gazprom’s export strategy, highlighting in particular the company’s use,
or lack of it, of its Electronic Sales Platform during 2021. He suggests that increased use of the ESP in
2022, if it occurs, could be a leading indicator of a change in Russian strategy and would suggest a
loosening of the gas market in Europe. On a linked topic, Katja Yafimava discusses the prospects for
the Nord Stream 2 pipeline, outlining the current state of negotiations and suggesting that we will almost
certainly have to wait until the second half of the year before we see any significant gas volumes flowing
to Europe via this route.

Decarbonisation and the energy transition have become major research themes at OIES over the past
three years and many of the subsequent key themes in this paper reflect this increased focus. James
Henderson discusses the outlook for COP27, which is set to be held in Egypt in November and where
the focus will be ensuring that the promises made in Glasgow at COP26 are being implemented. Aside
from the regular UNFCCC negotiations many side agreements were reached on issues such as
methane emissions, zero emission vehicles, deforestation and reducing coal use in power generation
and it will be vital to see whether action has been taken in the subsequent 12 months. In a separate
article the same author highlights the particular importance of monitoring the review and update of
countries’ nationally determined contributions that was agreed should take place in 2022. This

exceptional step was taken because the current agreements are inadequate to meet climate targets,
and so it will be essential for governments to increase their ambitions, and be seen to do so, this year.
On the specific topic of the Global Methane Pledge, Jonathan Stern points to two crucial issues for 2022

Firstly, the 111 countries that have signed up need to demonstrate serious commitment to the 30
per cent reduction goal and to the measurement, reporting and verification of their efforts. Secondly,
some big emitters that did not sign up (China, Russia, India and others) need to be included soon if the
pledge is to have any real force as a global agreement. Methane emissions is one of the topics that the
US and China agreed to discuss in 2022 as part of the surprise announce of their bilateral agreement
at COP26. Barbara Finamore and Michal Meidan outline the potential importance, and the challenges,
of this dialogue both as part of global climate negotiations and also as a potential route to soften USChina tensions.
A number of other energy transition themes are then discussed. Martin Lambert highlights the prospects
for hydrogen projects in 2022. He emphasizes the fact that many new projects will need to start taking
FIDs in 2022 if targets for 2024 and 2030 are to be met and reiterates that blue hydrogen projects will
likely be needed to supplement green hydrogen developments, at least during this decade. Related to
the topic of blue hydrogen is the development of carbon capture, utilization and storage projects, and
Alex Barnes picks up this theme in an article about the prospects for CCUS in the UK. After a couple of
false starts he argues that 2022 could be a catalyst for a more positive outcome for investment in CCUS,
with the UK potentially providing an example of how a business model for this technology could be
created.
We then turn back to the global market for three articles on how suppliers of LNG and oil are adapting
to the energy transition and how carbon offset trading is expanding. Jonathan Stern raises the debate
around “carbon neutral LNG” and suggests that 2022 should be the year when definitions around the
greenhouse gas emissions in the LNG value chain should be tightened to allow for accurate
measurement, reporting and verification. Indeed, he argues that the term carbon-neutral LNG should
be abandoned in favour of “GHG verified LNG (with or without offsets).” Jeff Cohen, Bassam Fattouh
and Owain Johnson then describe how the trading of carbon offsets in the voluntary market has grown
rapidly over the past year and suggest that the finalization of the Article 6 rules at COP26 could be the
catalyst for a further dramatic surge in activity in 2022. They also argue that a two-tier market could
emerge for adjusted and non-adjusted credits, depending on whether they have fully accounted for the
corresponding adjustments outlined in the Article 6 rules. From an oil perspective, Adi Imsirovic
discusses the emergence of a new carbon intensity calculation which will allow a carbon intensity
premium to be allocated to different grades of oil and for a new set of benchmarks to emerge. This form
of trading has started to emerge in 2021 and it is expected to grow rapidly in 2022.
The final group of articles is focused on a number of key regions. Firstly, Alex Barnes, Anouk Honoré
and Katja Yafimava address the further development of energy regulation in the EU and highlight the
significant discussions which will take place in 2022 around the Fit for 55 package, the Hydrogen and
Gas Market Decarbonisation Package and the TEN-E Regulation focused on energy transport
infrastructure. They also suggest that 2022 will be an important year for many EU states as they
introduce new domestic legislation or deal with the impact of key elections. Anouk Honoré then
highlights the outlook for nuclear power in Europe, as the debate around its inclusion in the EU
taxonomy continues. She points out that there is a significant division among member states about the
efficacy of nuclear power as an environmentally friendly fuel, but suggests that it may be essential if EU
emissions targets are to be met. David Robinson then continues the discussion on the future of
electricity in the EU by raising the question of optimal market design. He points out that ACER will be
publishing a report in April 2022 which is likely to support the current market model, although he

suggests that a number of countries in the south of the region believe that the prevalent energy-only
model is unsustainable. 2022 will be the year when this debate comes to the fore, with potentially
significant implications for the electricity sector. This suggests that in addition to looking at EU
frameworks in 2022, specific country trajectories and policies matter just as much.
This is also the case outside of the EU. We conclude this section with two articles on major Asian energy
consumers – India and China. Anupama Sen highlights the fact that India is unlikely to fully achieve its
2022 renewable capacity target (set in 2015), but has nevertheless raised ambition on its new targets
for 2030 and beyond. She argues that significant progress has been made but that the achievement of
future goals will require financial stability in the distribution sector and investments in grid modernisation
and flexibility, as well as a strategy to cope with external shocks that does not deflect the Indian
government away from climate and environmental objectives in favour of short-term fiscal stability.
Finally, Michal Meidan discusses the development of Chinese energy and environmental policy in 2022
and argues that during the next 12 months the domestic priority is likely to be economic stability ahead
of the 20th Party Congress in November. As a result, although the environment, and blue skies, will
remain important, they may take something of a back seat for a while until the political situation, and
the future of Xi Jinping, is confirmed towards the end of the year.

Download full report here https://www.oxfordenergy.org/wpcms/wp-content/uploads/2022/01/Key-Energy-Themes-for-the-Global-Energy-Economy-in-2022-SP20.pdf

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