IEF urges energy producers to maintain supplies as Ukraine crisis escalates

The head of the International Energy Forum Feb. 23 called on energy producing countries to not withhold supplies in an already tight market, as the Ukraine crisis pushes crude prices to $100/b.

IEF Secretary General Joseph McMonigle said in a statement his organization had begun consultations with its member countries in response to rising prices and growing risks to energy security.

The Riyadh-based IEF is aimed at fostering dialogue between producing and consuming countries.

"Security of supply is going to be even more essential for market stability going forward than in the past due to the heightened uncertainty and underinvestment," McMonigle said. "Sustained high energy prices are detrimental to consumers, the global economy and, particularly, developing countries."

His comments came a day after the International Energy Agency -- representing oil consuming countries -- said its members stood ready to tap strategic petroleum reserves to address a potential supply squeeze from disruptions related to Russia's deployment of troops into two breakaway regions of Ukraine.

Western countries have imposed a raft of sanctions on Russian entities and officials, and have threatened more, including measures that could effectively block its energy exports, if it launches a full-scale invasion. Germany canceled its approval of the Nord Stream 2 pipeline that would deliver Russian gas to Europe.

S&P Global Platts assessed Dated Brent at $100.34/b Feb. 22, the second time in a week the global crude benchmark surpassed the $100/b threshold.

Platts assessed JKM at $27.84/MMBtu Feb. 23, up 9% from the previous close.

Russian warnings, reassurances

Russia is one of the top three crude producers in the world, with an output of 10.08 million b/d in January, according to the latest Platts survey of OPEC+ output. It is also supplies some 40% of the EU's natural gas.

Russian President Vladimir Putin said Feb. 22 his country intends to continue uninterrupted supplies of gas and LNG to global markets, though Europe has heavily criticized Russia for holding gas exports below historic levels this year.

Dmitri Medvedev, deputy chair of Russia's Security Council, tweeted that the cancelation of Nord Stream 2 would cause Europe's gas prices to skyrocket.

OPEC, which has teamed up with Russia and several other allies since 2017 on a series of crude oil production cuts to prop up the market, is still pumping at volumes far below pre-pandemic levels. Its ministers have so far shown no inclination to pump beyond their quotas, attributing the recent rise in prices to geopolitics and a lack of investment in the industry, partly due to environmental pressures.

The group is scheduled to meet March 2 to decide April output levels.

Vulnerable market

McMonigle, who recently hosted a symposium with the IEA and OPEC that was attended by several energy ministers, including from Saudi Arabia and the US, acknowledged the role that underinvestment in the oil and gas industry was playing in the current price squeeze but said short-term market indicators showed that more immediate production was necessary.

He cited data from the IEF's Joint Organizations Data Initiative that showed Organization for Economic Cooperation and Development oil inventories already at their lowest level since 2014 and 255 million barrels below the five-year average.

Global spare oil production capacity had narrowed to about 4 million b/d, while natural gas spare supply capacity was "practically non-existent," he said.

Western officials and experts say Russia still maintains considerable gas production capacity that it could use to export more volumes if it chose to.

The JODI data "show the market is already vulnerable to volatility given tight supply/demand balances, reduced inventories, and low spare production capacity," McMonigle said. "A shortfall in investment in upstream oil and gas projects and supply chain bottlenecks further expose the global energy system to risks."

He said producer and consumer countries should "have a sensitive focus on energy market stability and prevent any disruption to energy supplies that will lead to further increased prices and heightened volatility."