1. Alternative Oil & Gas Supplies for Europe
The Russian invasion is a major rupture in the status quo of European politics that has largely held for three decades since the end of the Cold War. European countries are now united to reduce their dependency on Russian oil and gas. In practice, this will mean more pipelines from North Africa, specifically Algeria and potentially Egypt, and significant investment in liquefied natural gas (LNG) regasification infrastructure. Germany has already signed a contract for one terminal since the invasion, and more terminals will follow in Germany and other states. Oil and gas storage capacity will also increase as insurance against future supply disruption; this will not be limited to just Europe.
2. Strong Growth in Global LNG Investment
Lower oil and gas prices from 2014 to 2018 negatively impacted total LNG investment. Higher prices will now drive investments. US LNG capacity utilization levels are now above 95%, and investment in new gasification plants is now back on the agenda. Exporting and importing countries across the Americas, Europe and Asia are now reviewing their LNG strategies. Pre-crisis, Frost & Sullivan forecasted $70 billion to be invested annually in LNG in 2025, up from $50 billion in 2020. These figures will be higher when our updated report is released.
3. Further Renewable Energy Boost
Renewable energy already dominates new power generation investment, with approximately $300 billion invested globally in 2022. Significant further growth was already forecast, but investment levels will now be higher in Europe as countries place a greater emphasis on energy security. New targets and initiatives have been announced by a number of European Union (EU) countries to expand solar and wind, particularly offshore wind. This will create significant investment opportunities for equipment OEMs, project developers and after-service providers. It will also benefit the global energy storage market, with a greater volume of short-duration projects (0-3 hours) to ensure grid reliability and longer-term storage (4-24 hours) to minimize renewable curtailment.
4. Greater Emphasis on Industrial Electrification
Higher fossil fuel prices are driving commercial and industrial companies to look for ways to reduce their consumption. Deploying energy efficiency solutions throughout the industrial process is one way, but they often involve incremental gains and are not always prioritized. A more radical approach is to replace fossil-fueled heat equipment with electric alternatives. While many of these technologies are still maturing, the conflict has provided a boost to companies raising investor funding and will accelerate commercialization. One commercialized solution is industrial heat pumps, which can be deployed for lower heat requirements and increasingly be used for higher temperatures as the technology matures.
5. Higher Growth in Commercial & Industrial Decentralized Energy
As companies electrify, minimizing exposure to higher grid electricity prices will become more important. This will drive investment in commercial and industrial power generation, associated storage, and intelligent software-led solutions such as virtual power plants that enable companies to derive the maximum benefit from the energy they generate through trading indirectly in the market. This trend was already firmly established, but the volatility of 2022 will raise the profile of energy-related issues to the C level, meaning faster action is likely.
6. Will Higher Prices Fuel the Energy Transition?
Much has been made of the higher revenues flowing to fossil fuel companies, but this can be a positive thing for the energy transition in the longer term. It provides oil and gas companies with funds to invest in non-oil and gas projects that would be harder to justify when profit margins are tight. A number of publicly traded oil and gas majors have faced significant investor pressure to increase their focus on fossil fuels—this can help them make it happen. However, in the short term, higher prices will also mean higher investment in oil and gas exploration and production as companies look to exploit reserves while they still can.