In the spirit of every other columnist in the world, here are some predictions about the world of energy in 2023. I should warn Reaction subscribers that my track record of predicting anything – from the winner of the 2.40 at Towcester to the sex of my children pre-birth – is absolutely lamentable, but this time I have done some research rather than listening to old wives’ tales about the shape of my wife’s bump.
Gas prices have gone low as the winter has gone mild and they’re going to stay that way. Current forecasts suggest that the rest of January is going to remain relatively warm so Germany and other central European countries won’t be tapping their storage as they thought they might. This should also make us feel a lot happier about winter 2023-24. LNG supply is going up and the Germans have built an LNG terminal at Wilmshaven in record time. French nuclear power is fully back on stream and the UK’s wind generation is regularly passing 20GWs. We’re going to have a lot of fossil-fuel-free days in the UK in the spring and summer this year.
So it’s all rosy except that it’s all relative: as with electricity prices, gas prices are much lower than they were during 2022 but they’re still a long way above the long-term average. It’s possible that gas prices fall back towards normality in 2024 and 2025 as supply increases – tight supply is always followed by a glut in oil and gas markets – but predicting commodity prices over a year ahead is a mug’s game.
Brent is trading today at $80 a barrel and is likely to trade up to $90 (and possibly beyond) through the year as economic headwinds lessen. OPEC will also be keen to make sure that the oil price stays at current levels at the very least. They make a lot of money at $75+ so $90 and rising demand suits them very well. 2024 may be a more interesting year as supply growth continues to outstrip demand growth with plenty of oil available, especially in North and South America. On the whole, though, this feels like it will be steady as she goes with the bonus that rising oil prices will presage economic recovery.
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Unfortunately, this means we won’t see a lot of relief at the pump. Average unleaded prices are hovering around 150p a litre which is very high – the 2021 average pump price was 133p a litre. It’s possible that GBP-USD (currently $1.185 to the Pound) moves in the UK’s favour. On the whole, the contradictions of foreign exchange baffle me but if we are going to get relief on petrol prices that’s where it is going to come from. The Exchequer currently gets around 75p of your £1.50 and they won’t be handing that back any time soon. Supermarkets used to drive fuel prices down by using their forecourts as loss-leaders but it seems to me that the big supermarkets are now using fuel to subsidise food prices at the big chains rather than the other way around.
With all of my price predictions, the biggest unpredictability is geopolitics. I have based my views on things remaining roughly as they are but events in Ukraine or Taiwan or Korea – good or bad – will have their own effects on commodity prices as I will be sure to reflect on when the Editor asks me in December where it all went wrong.
If you’re tired of Net Zero, prepare to get more tired. Here in the Global North, we have had three major weather events in the past 18 months that should seriously spook us all: Summer 2021 (floods in Germany, record temperatures smashed in the Pacific NorthWest); Summer 2022 (European drought & record temperatures in the UK) and Winter 2022/23 (winter temperature records smashed across Europe). And all this is before we get to 5 year droughts in East Africa and record sea temperatures. Our world is changing right in front of us and US and European politicians are going to act. Remember Cato’s “Guilty Men” in June 1940 which savaged the architects of appeasement? You can be sure that today’s politicians have no desire to be remembered similarly.
This is why I wonder whether, despite previous cynicism, whether COP28 in Dubai might be a game-changer. The winter temperature record in Warsaw was beaten by 5 degrees; it was almost 25 degrees in Bilbao on New Year’s Day. These are facts and, following two humdrum COPs in Glasgow and Cairo, this may be the year that we see greater agreement between East and West on how to tackle climate change beyond the action we have taken so far. It’s not as if the action that is required is unknown or a mystery: it simply requires agreement and coordination. It seems almost inevitable that Summer 2023 will break new records in the Northern Hemisphere – I’d be surprised if that didn’t focus minds. We shall see.
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