The global energy industry is bracing for a potential upheaval as the prospect of a peace deal between Ukraine and Russia looms large. The Kremlin’s invasion of Ukraine three years ago,in 2022,triggered a global squeeze on gas markets,unraveling Europe’s reliance on Russian gas imports and unleashing a cost-of-living crisis that continues to impact economies worldwide. Now, the possibility of a peace agreement is raising critical questions about the future of energy markets and the potential resurgence of Russian gas supplies.

Global oil and gas markets are already factoring in the potential impact of a peace deal between Ukraine and Russia,one of the world’s largest energy producers. This anticipation is influencing market dynamics,with analysts closely monitoring price fluctuations and supply chain adjustments. The potential return of Russian gas to the European market is a key consideration for traders and policymakers alike.

Prior to Moscow’s war in Ukraine, Russia supplied just over half, specifically 55%, of all the gas consumed in Germany. Germany relies on gas for more than a quarter of its energy needs. In 2021, imports of Russian gas via pipelines accounted for approximately a third of European gas demand. The disruption of these supplies has had profound economic consequences, prompting a scramble to find option sources and considerably impacting industrial output.

Europe’s biggest economy, Germany, has been working to replace Russian supplies through increased imports of liquefied natural gas (LNG) delivered by tanker. However, this alternative is more expensive, leading to a sharp decline in overall gas consumption as heavy industry output has slowed due to higher energy costs. The shift to LNG has also required notable infrastructure investments, including the progress of new import terminals.

The potential for a return of Russian gas has sparked debate among European officials. It emerged in January that European officials were already considering whether Russian pipeline gas sales to the EU could be restarted as part of a potential Ukraine peace deal. While the suggestion sparked a backlash among countries loyal to Ukraine, proponents argue that a return of russian gas could help alleviate high energy prices across Europe, which have contributed to the ongoing cost-of-living crisis.

However, the path to resuming Russian gas supplies may not be straightforward. Christoph Halser, a senior analyst at Rystad Energy, cautioned that even though a peace deal could “open the door for russian gas” the chances of a swift return of supplies via pipelines “remains questionable.”

European leaders and ukrainian officials have voiced concern over being excluded from the negotiating process, leaving both likely facilitators and takers of Russian gas alienated.
Christoph Halser, Senior Analyst at Rystad Energy

The potential involvement of Donald Trump in brokering the deal adds another layer of complexity.Trump may have reasons to maintain Europe’s increased demand for U.S. LNG.He has promised U.S. oil and gas company executives that they will be free to “drill baby drill,” and a shrinking European market woudl be a disadvantage to the U.S. energy sector. Last year more than half of Europe’s LNG was sourced from the US.

This scenario could also align with the interests of some European countries, many of which have invested billions of dollars in developing LNG import terminals to reduce their reliance on gas pipeline imports. Under current plans, Europe’s LNG import capacity is expected to grow by 60% between 2021 and 2030, led by countries including Germany, the Netherlands, Turkey, Italy, France, Belgium, Greece, Finland, Poland and Croatia.

The convergence of Trump’s pro-hydrocarbon stance, Europe’s shift towards seaborne LNG imports, and the potential return of Russian pipeline supplies could unleash a significant wave of fossil fuels into the global market. Even before Trump’s election victory, the International Energy Agency (IEA) had begun “warning” of a “new energy era” in which countries transitioning to clean energy have access to more oil, gas and coal than needed to fuel their economic growth.

According to the IEA, this could lead to lower prices for households and businesses, providing relief to billpayers and global economies struggling with inflation. This progress would likely be well-received in the U.S., where Trump promised voters lower energy bills and a domestic manufacturing renaissance.

However, the increased availability of fossil fuels could also pose challenges for green energy investments. Fatih Birol, the IEA’s executive director, warned that the shift to plentiful fossil fuels will require green alternatives – such as electric vehicles and heat pumps – to become cheaper too if they hope to compete against more affordable fossil fuels.

This situation could provide fossil fuel companies with an possibility to remain competitive against green alternatives for a longer period. This would be good news for the U.S. oil and gas industry, which donated billions to Trump’s election campaign.

china may also emerge as a significant beneficiary of Trump’s prospective Russia-Ukraine peace deal. By lowering global energy costs, Trump may help the world’s biggest energy importer to accelerate its sluggish economy by kickstarting its manufacturing base.At the same time China will be free to extend its lead in the global race to develop green energy alternatives, while Trump scrambles to claw back support offered to renewable developers under the Biden administration.

The U.S.’s planned 60% trade tariffs on China may go some way to keeping a lid on the unintended benefits its rival may reap from the new energy norm set Trump and Vladimir Putin are aiming for.