18th Mar 2022
- Russia plays a disproportionate role in worldwide oil supply, being the single largest exporter to global markets
- Russian aggression has plunged the world’s energy security into uncertainty as the United States and its Western allies seek to suspend Russian oil and gas exports
- European and American leaders are turning to green energy in order to overcome fossil fuel shortages, presenting green hydrogen stocks with an opportunity for growth
As Russia’s invasion of Ukraine continues to intensify, investors remain anxious over the far-reaching effects that this bloody conflict and its resulting international backlash could have on global socio-economic issues. In addition to humanitarian concerns, Russia’s offensive has had a resounding impact on the energy industry, particularly given the country’s major player status in this domain.
The United States, Europe and their other Western allies find themselves walking a tightrope as they look to penalize Russia for its military offensive while minimizing the detrimental effects that such action could have on their economies and energy security in particular, should Russian oil supplies be halted. At the same time, green energy sources such as hydrogen are emerging as a viable solution.
Russia’s disproportionate role
As a single nation, Russia has played an oversized role in the global supply of oil and natural gas, particularly when focusing on regions such as the European Union and the United Kingdom.
The world’s third largest oil producer, Russia is the single largest exporter to global markets and the second largest exporter of crude oil behind Saudi Arabia.1 Europe has also become increasingly reliant on Russian gas in recent years. While Russian imports made up 25% of all Europe’s gas supply in 2009, this figure increased to 32% in 2021.2
Clearly, sanctions and other responses could potentially affect the energy security of Europe and the world at large. But what actions have the United States and its Western allies taken to curb Russia’s energy supply to date?
While an array of Western sanctions on Russia have been imposed, the energy sector has so far been untouched. Still, several leading fossil fuel companies have taken the decision to leave Russia following its invasion of Ukraine.
BP has decided to abandon its nearly 20% stake in the state-owned oil and gas company Rosneft; a move that is expected to cost the company between $14 billion and $25 billion.3 Following suit was Norwegian energy company Equinor, which chose to withdraw from its $1.2 billion joint ventures in Russia, as well as ExxonMobil, which withdrew from the Sakhalin-1 offshore oil and gas production project. Shell decided to abandon its joint venture with Russia’s state-owned Gazprom while withdrawing from its involvement in the Nord Stream 2 pipeline, which was constructed to transport gas to Western Europe.4
Despite no official energy sanctions being implemented as of yet, several governments and authorities have taken action to curb Russia’s energy exports. Germany has announced the suspension of the Nord Stream 2 pipeline; a €10 billion infrastructure project intended to deliver natural gas from Russia to Northern Germany.5
The German government has also announced its intention to introduce an amendment to its Renewable Energy Sources Act that would see its 100% clean energy target brought forward to 2035.6 This would enable the nation to limit its dependence on Russian gas and oil supplies sooner than initially intended.
While the United Kingdom has placed no direct limits on the import of Russian oil, the nation has banned Russian ships from docking at British ports, making it highly challenging for oil to be transported to the U.K. unless it is done using foreign ships. British dock workers have decided to take their own action against Russia, refusing to unload Russian oil and gas imports.7
According to U.S. Secretary of State Antony Blinken, the United States is in “very active discussions” with the European Union as they finally consider placing an oil and natural gas ban on Russia.8 While the public may view this as a favorable move from a moral perspective, the blockage of Russian oil and gas exports may have a lasting impact on energy security for Europe and the world.
Independence comes at a cost
By refusing to conduct business with one of the leading oil exporters on earth, European and worldwide energy security faces an uncertain future.
Global stockpiles of crude oil are low as of present, meaning that a blockade on Russian exports could further sink these inventory levels.9 While the world currently has approximately 2.5 million barrels per day in spare production capacity,10 ING projected in a recent report that the barring of Russian oil exports may cause a disruption of 2 million barrels per day, placing global oil supply in jeopardy.
Indeed, when the United States’ decided to enter into talks with the European Union about a Russian oil ban, the price of Brent Crude surged past $139 per barrel; the highest level since July 2008.11
While the Organization of the Petroleum Exporting Countries (OPEC+) was expected to assist in relieving world economies from the oil and gas supply shortage and price hike, the intergovernmental group consisting of some of the leading global oil producers seems unlikely to ramp up production drastically. The body decided during a video conference that it would stick with its existing production plan, whereby an increase of 400,000 barrels per day would be implemented.12
In an effort to prevent long-term disruptions to energy security, the International Energy Agency (IEA) has proposed a 10-step plan to reduce the reliance that Europe has placed on Russia and ensure that the continent is prepared to face the next winter period in seven months’ time.
In addition to not signing any new gas and oil delivery contracts with Russia, the plan focuses on shifting the source of Europe’s energy security; abandoning its reliance on fossil fuels in favor of clean energy.13
IEA’s stance on bringing clean energy to the forefront of energy security is being reiterated by several world leaders.
European Commission President Ursula von der Leyen stated that Europe’s expansion into renewables and hydrogen is a necessity in order to achieve energy security in the face of the Russia-Ukraine conflict. “We have to accelerate the green transition,” von der Leyen explained, “because every kilowatt-hour of electricity Europe generates from solar, wind, hydropower or biomass reduces our dependency on Russian gas and other energy sources.”14
The United Kingdom seems to agree with this approach, as Secretary of State for Business, Energy and Industrial Strategy, Kwasi Kwarteng, explained that his government would accelerate its renewable energy efforts in order to decrease its reliance on Russian fossil fuel imports.15
United States White House press secretary Jen Psaki echoed this sentiment in her response to the ongoing crisis. “We need to reduce our dependence on foreign oil, on oil in general, and we need to look at other ways of having energy in our country and others,” Psaki explained, favoring a shift away from foreign oil towards renewable energy production.16
With strong support for the clean energy push expressed across the board, investors’ confidence in green hydrogen stocks has surged. As oil prices rose and stock markets plummeted, hydrogen power stocks enjoyed significant gains. Among the breakout stocks were Bloom Energy, with a 14.3% rise, Ballard Power Systems, with a 13.7% hike, and fuel cell stock Plug Power, which experienced a 12.2% increase.17
The road to recovery
Although energy security for Europe, the United States, and the world at large remains uncertain, the global push towards renewable energy sources is undeniable, particularly as hydrogen fuel cell stocks enjoy significant gains.
While selecting the best hydrogen stocks is a near-impossible task, investing in a hydrogen ETF can help you to diversify your capital over many of these companies, while providing the opportunity to reap the success of those hydrogen power stocks that are capitalizing on the green energy push.
For current performance and holdings, please visit defianceetfs.com/HDRO
1 “Oil Market and Russian Supply”, accessed 07 March 2022, https://www.iea.org/reports/russian-supplies-to-global-energy-markets/oil-market-and-russian-supply-2
2 “Gas Market and Russian Supply”, accessed 07 March 2022, https://www.iea.org/reports/russian-supplies-to-global-energy-markets/gas-market-and-russian-supply-2
3 “Factbox: Western companies in Russian oil and gas sector”, 01 March 2022, https://www.reuters.com/markets/europe/western-companies-russian-oil-gas-sector-2022-02-28/
4 “These are the corporations that have pulled out of Russia since its invasion of Ukraine”, 06 March 2022, https://www.cbsnews.com/news/russia-corporations-that-have-pulled-out/
5 “Germany shelves Nord Stream 2 pipeline”, 22 February 2022, https://www.politico.eu/article/germany-to-stop-nord-stream-2/
6 “Germany’s green energy goal and factories on stilts: The sustainability success stories of the week”, 06 March 2022, https://www.edie.net/news/7/The-factory-of-the-future-and-Germany-s-renewable-energy-vision–The-sustainability-success-stories-of-the-week/#:~:text=ENERGY%3A%20Germany%20sets%20100%25%20clean%20energy%20target%20for%202035&text=This%20commitment%20will%20be%20enshrined,of%20electricity%20generation%20by%202030.
7 “Angry dock workers in the UK are refusing to unload Russian oil due to Ukraine invasion”, 06 March 2022, https://www.cnbc.com/2022/03/06/ukraine-angry-dock-workers-in-the-uk-are-refusing-to-unload-russian-oil.html
8 “European stocks sink 2.5% as U.S. and Europe consider Russian oil ban”, 07 March 2022, https://www.cnbc.com/2022/03/07/europe-markets-us-europe-mull-russian-oil-ban-oil-prices-surge.html
9 “Oil Inches Closer To $110 As API Reports Surprise Inventory Draw”, 01 March 2022, https://oilprice.com/Latest-Energy-News/World-News/Oil-Inches-Closer-To-110-As-API-Reports-Surprise-Inventory-Draw.html
10 “Energy Security, Prices Take Priority Over Climate Concerns In Crisis”, 06 March 2022, https://www.forbes.com/sites/daneberhart/2022/03/06/energy-security-prices-take-priority-over-climate-concerns-in-crisis/?sh=5bd1c00fdc9e
11 “Ukraine conflict: Oil price soars to highest level since 2008”, 07 March 2022, https://www.bbc.com/news/business-60642786
12 “OPEC+ Sticks To Production Plan Despite $111 Oil”, 02 March 2022, https://oilprice.com/Latest-Energy-News/World-News/OPEC-Sticks-To-Production-Plan-Despite-111-Oil.html
13 “IEA’s 10-Step Plan For Europe: Diversified Gas Imports And Clean Energy”, 04 March 2022, https://oilprice.com/Alternative-Energy/Renewable-Energy/IEAs-10-Step-Plan-For-Europe-Diversified-Gas-Imports-And-Clean-Energy.html
14 “European Commission President Bats for Hydrogen and Renewables to Russian Overhang”, 07 March 2022, https://www.saurenergy.com/solar-energy-news/european-commission-president-bats-for-hydrogen-and-renewables-to-russian-overhang
15 “Amid war, Biden reluctant to unleash clean energy rhetoric”, 07 March 2022, https://www.eenews.net/articles/amid-war-biden-reluctant-to-unleash-clean-energy-rhetoric/
16 “Psaki pushes renewable energy to stop dependence on foreign oil instead of increasing US production”, 27 February 2022, https://www.foxbusiness.com/politics/psaki-pushes-renewable-energy-stop-dependence-foreign-oil-instead-of-increasing-us-production
17 “Why Shares of Plug Power, Ballard Power Systems, and Bloom Energy Are Soaring Today”, 28 February 2022, https://www.fool.com/investing/2022/02/28/why-shares-of-plug-power-ballard-power-systems-and/