Energy Outlook February 2023

Energy crisis supports
green transition
Atradius Economic ResearchAtradius Economic Researchjohn.lorie@atradius.com
John Lorié, chief economist

Global energy mix+31 (0)20 553 3079

afke.zeilstra@atradius.com
Afke Zeilstra, senior economist

Renewables

Dana Bodnar, economist

Oil

Theo Smid, senior economist

Gas+31 (0)20 553 2724

dana.bodnar@atradius.com+31 (0)20 553 3165

theo.smid@atradius.com+31 (0)20 553 2169

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Executive summary
1 Energy crisis shakes energy mix
The fallout from the Russian invasion of Ukraine has triggered an energy crisis. Perhaps paradoxically, this is also acting as acatalyst to accelerate underlying trends in the energy mix towards cleaner energy provisioning.
The short-term impact of the crisis is increased use of fossil fuels; the long-term impact is the opposite. Higher energy prices aswell as the need for energy security are pushing countries, especially in Europe, to an acceleration towards renewables while
reducing fossil fuels, especially gas.
This is reflected in our updated benchmark outlook, based on the Announced Policies Scenario (APS) of the International Energy
Agency (IEA), in which fossil fuel prices are higher and global energy demand is lower and cleaner by 2050. The temperature rise
is limited to 1.7 degrees Celsius.
With an improved APS, steps are arguably being taken towards the Net Zero Emissions 2050 scenario (NZE), in which net
emissions of CO2 are zero and the temperature rise is limited to 1.5 degrees. To achieve net zero, and even the APS, daunting
investments (and efforts) are needed.

2 Renewable energy outlook
The energy crisis is providing momentum for renewables. Energy security concerns, especially in Europe, are accelerating theenergy transition.
Climate pledges support strong growth in renewables. Around the globe, countries are increasingly committing to NetZero 2050
and announcing ambitious targets and policy incentives. Most visible are those in the US and the European Union, with the
Inflation Reduction Act and the REPowerEU strategy respectively.
China is leading in installed wind and solar capacity and will add most capacity in the medium and long term. India and the US
will follow, at a distance, adding solar capacity. Regarding wind capacity, the European Union and the US will follow, again at
distance.
Wind and solar capacity additions mainly take place in the electricity sector. Currently, around 28% of global electricity is
generated by renewables, with hydropower being the largest renewable source (15%), followed by wind (7%) and solar (4%).
Electricity demand will increase strongly, in both the APS and NZE scenarios, as we move to an electrified world. This growth will
be entirely met by renewables; solar in particular, is becoming the dominant renewable globally. In the APS, renewableelectricity will rise to 49% by 2030 and 80% by 2050. In the NZE scenario, a faster growth to 61% in 2030 and 88% in 2050 is on
the cards.
Huge investments are necessary to decarbonize the energy sector. Renewables and the grid account for the lion’s share ofinvestment in the power sector. Investments in the grid are key in an electrified world.

3 Oil market outlook
Peak demand is now in our baseline scenario and will be sooner rather than later, in the mid-2020s. More decisive energy
transition policies, especially in Europe and North America, are the key drivers to declining demand. Lower levels of production
will be needed to meet demand and OPEC will increase its market share.
With peak oil now on the cards, the equilibrium price for oil production to meet demand is significantly lower. The price of oil is
forecast to fall to USD 64 in 2030 and to USD 60 by 2050. The general downtrend is subject to high volatility and upside risks inthe short run, based on how Russia’s war in Ukraine develops and how Chinese demand recovers, now that the authorities havescrapped the ‘zero-Covid’ policy.
Under the NZE Scenario, demand never recovers to its pre-crisis levels thanks to more aggressive energy transition policies. Oil
production is concentrated in resource-rich countries with lower operating costs and OPEC’s market share increases to 52%. The
oil price falls to USD 24 per barrel by 2050.

4 Gas market outlook
Globally, gas demand is expected to peak soon and to be 8% lower in 2030 than in the base year 2021, and even 40% lower in
2050. Asia (especially China and India) and the Middle East are still forecast to see demand growth over the next decade. Demandin these regions will increase to 2030; after which demand peaks and starts to decline. The US and Europe are projected to see a
decline in gas demand both in the medium and long term.
Despite a decline in supply, Russia is still expected to be the largest gas supplier in 2050. Its role in the international gas trade isforecast to diminish strongly, as the reduced supplies to Europe cannot be fully compensated by higher exports to other markets.
Gas prices in all three regions (US, Europe, Asia) are forecast to decline to lower equilibrium levels in 2050. In the near term,
however, gas prices are likely to remain high and volatile. This is especially true for Europe as it is taking in less gas from Russia
and is forced to rely on more expensive LNG with knock-on effects in other importing regions, especially in Asia. That said, thethe effects are somewhat muted by long-term oil indexed contracts that are more common in Asia.

Atradius Energy Outlook – February 2023 | 1

1. Energy crisis shakes energy mix
1.1 An existential threat
There is no denial anymore. Whereas in our Energy Report ofJune 2021 we reported that energy transition had become akey issue for governments, firms and financiers, we can now
observe that this realisation has extended to the rest ofsociety as well. It is no longer only an intensification ofawareness among the broader public of the need for energy
transition. Climate change has rapidly become a matter ofeveryday life. No one can deny the significantly warmer
winters, heatwaves, calamitous storms and floodings any
longer. The media drive this message home. And if this is notenough, activists such as Extinction Rebellion gluingthemselves to a major Dutch motorway on a January
Saturday cannot be ignored. This is indeed a huge crisis,
arguably an existential one for mankind. Something needs tobe done, and quickly.
This is, as we will see in this report, easier said than done.
The Russian invasion in Ukraine has turned the energy
landscape almost upside down and may well have diverted alarge number of countries’ attention. For the moment, thefocus of the international community seems to be on
defending core values such as the right to sovereignty, whilst
containing the risk of nuclear escalation, another existential
threat. In that context, the results of the recent COP27
Summit in Egypt, meagre as they are perceived to be, should
be considered a success. At least some results were achieved,
including confirmation of the agreement on the limitation of
the temperature rise to 1.5 degrees Celsius.1 Meanwhile, there
may even be a silver lining to the war in Ukraine. The
economic fallout, especially in the energy markets, isaccelerating the badly needed energy transition. Thus, one
existential crisis helps resolve the other. It is too early toclaim victory, but, as we argue in this report, there is at leasta glimmer of hope that the energy transition will besupported.

1 For a discussion of the outcome of COP27, see COP27- Achievements andDisappointments, the Oxford Institute for Energy Studies, December 2022.
2 Our outlook draws on the IEA publication of October 2022. The reason for choosing thispublication is because the IEA simply reflects the best there is in the market, given the sizeof what is arguably the most powerful international think tank in the energy world.

As opposed to the March 2022 update, which was relatively
brief, with this report we return to the more comprehensive
overview of developments in the energy sector that thereader may know from previous Outlooks. That means inaddition to a discussion of the developments and outlook
concerning the energy mix, we include details on
developments in the oil, gas and renewables sector. Theenergy mix is further discussed in this chapter, renewables
in chapter 2, followed by oil and gas in chapters 3 and 4
respectively.

1.2 Energy transition scenarios
have a lot in common
We elaborate using essentially two scenarios, following theEnergy Outlook of the IEA.2 The normative one to strive for is
Net Zero 2050, the state of the world where the average risein temperature since industrialisation is kept at 1.5 degrees
Celsius by that date.3 This is achieved by, as the namesuggests, reducing global net CO2 emissions to zero by
2050.4 Although we refrain from calling this a ‘dream
scenario’, we are still too far away from being on track toachieve this target to use this as our benchmark scenario.
For this reason, we have opted for the Announced Policies
scenario (APS). This captures the implemented andannounced climate policies by countries as well as all otherclimate goals, including longer term net zero commitments.
This scenario goes one step further than the Stated Policies
scenario (STEPS). The latter is more conservative in that it
only covers implemented and announced policies. Moving
away from this scenario, which we have used in previous
Energy Outlooks, is justified by the accelerated sense ofurgency for climate change and thus energy transition. Net

4 Frequent readers of our Energy Outlook may remember that we have used a similar IEA
scenario, the Sustainable Development Scenario (SDS), as a scenario to strive for (or to
dream about). This scenario, still lurking in the back ground at the IEA, contained less clear
emissions targets, and also included other objectives such as those related to air quality
and energy access, particularly in rural areas.

3 This goal is more ambitious, as well as more focused, than the 2015 Paris Climate
Agreement of ‘well below 2 degrees’. It was formulated in the run-up to the Glasgow 2021
Cop26 Summit on climate change.

Atradius Energy Outlook – February 2023 | 2

Zero 2050 is, at this stage, one step too far, STEPS tooconservative.
The scenarios, different as they may be in their outcomes,
have a lot in common. They all describe the energy transition
that is evolving, with common underlying drivers. The goal
is to limit energy demand growth as the global economy
grows and, perhaps even more importantly, to switch tocleaner energy. We identify the following three key
characteristics of the energy transition, backed by three
conditions that play a role in the various scenarios.
The first is energy efficiency. This means a reduction in theuse of energy for the purpose of, say heating a house.
Improved insulation reduces energy demand without a lossof heat consumption. Second, electrification. The use ofelectric rather than gas driven heating may help further
reduce energy demand, and with electricity likely provided
by cleaner energy (wind, solar PV, hydropower), will also
contribute to a cleaner energy mix. Electric vehicles (EVs)are another example. The third characteristic is a move awayfrom fossil fuels where electrification is not feasible. This is
the case in sea transport and aviation. Here there is a movetowards cleaner fuels, by mixing these with fossil if needed.
For these characteristics of the transition to develop, at least
three conditions need to be fulfilled. First, government
intervention is required, providing clear plans for thetransition backed up by information, legislation and money
such as subsidies. Second, funding, not only by governments,
but also by the private sector, to finance investment for theenergy transition. Third, technological progress, allowing
new technology to become available for the transition atcommercially viable costs. All these factors play a role in the
scenarios, with the best outcome in the Net Zero 2050
scenario, where they lead to a job done in terms of (net) zero
emissions in 2050.

First, the energy price explosion. What we have seen during
the past year is an explosion of prices in these energy
markets (figure 1.1). While oil reaching above USD 100 per
barrel Brent may not be uncommon, natural gas prices at theEuropean Title Transfer Facility reaching the oil priceequivalent of more than USD 100 per barrel was
unprecedented. The gas price rise was the major cause of the
spike in electricity prices, with some contribution comingfrom the rising cost of capital as monetary tightening kickedin, reflected in higher interest rates (and lower share prices).
Meanwhile markets have calmed down somewhat, withprices remaining relatively high and volatile.
Europe was particularly badly hit as Russia cut its gas supply
by more than 80% over the year in response to economic
sanctions and support for Ukraine: electricity prices tripled
in the first half of 2022. The impact on the gas price wascompounded by higher coal prices, biting CO2 prices, lower
nuclear availability and hydropower in short supply as aresult of drought. Ripple effects were felt across the globe as
Europe sought to fill the gas tanks by LNG purchases
worldwide. These have consequently risen almost twofold in
2022. As Russia cut back deliveries to the EU, the US ramped
up its exports. The remainder came from the Asian market,
at the expense of some developing countries (such as
Pakistan) and helped by lower Chinese demand. This isclearly seen in the value of gas traded: as a percentage of oil
and gas it doubled in 2022 (to 40%).
Figure 1.1 Energy price explosion

1.3 The picture of an energy
crisis unfolding
The global economy advanced on the path to recovery fromthe pandemic during 2022. In line with this, energy demand
grew by an estimated 2%, bringing it back up to pre-crisis
levels. CO2 emissions likewise rebounded, though the rise
was muted at an estimated 1%.
Underlying this seemingly quiet overall picture, the state ofplay in the energy markets changed dramatically as a resultof the Russian invasion of Ukraine in February. With Russia
the largest fossil fuel producer in the world, especially for oil
and gas, this was bound to happen. What we now have is anenergy crisis, deeper and broader than those back in the
1970s. Just like the current situation, these crises had ageopolitical background and also led to high inflation. But
the shocks in the 70s were centred in the oil market. Now,
the disruption is far more widespread, encompassing gas,coal and electricity prices, and affecting the economy via a
range of energy channels. We distinguish four developmentscharacterising the current crisis.

Second, lack of investment and neglect of energy security.
Whereas the Russian invasion acted as a catalyst for thesedevelopments, we should be aware of major underlying
issues contributing to the crisis as well. These include what
we have repeatedly mentioned in previous outlooks: the lackof sufficient investment, especially in fossil fuels (see figure1.2). These reached a level of USD 2.1 trillion per annum on
average over the 2015-2019 period, sank in 2020 by morethan 25% and have only partially recovered since. It may
seem contradictory to call for fossil investments, as precisely
fossil energy should be abandoned for its CO2 footprint. At
the same time, the under-investment that we have seen inrecent years can lead to supply-demand mismatches andlarge swings in prices, even without a war. The silver liningis that investments in renewables have embarked on an
upward track, due to the decline in cost and an additional
effect of ‘getting more bang for your buck’. Unfortunately,
the current level of USD 1.4 trillion per annum investment in
Atradius Energy Outlook Update – February 2023 | 3

renewables is as yet insufficient to support a robust energy
transition. Another underlying issue is Europe’s reliance on
Russian energy prior to the war. This had long been
identified as a structural weakness, especially after theannexation of the Crimea in 2014, which - with the benefit ofhindsight - should have rung the alarm bells far more loudly.
There was some diversification to alternative import sources
but the reliance on Russian energy remained high, especiallyin countries such as Germany and Italy. Worse, in the period
2015-2020 Russia provided 40% of the European gas
demand, up from 30% over the previous period. Earlier
diversification could have prevented, or at least softened, theturmoil in the gas market we saw in 2022. Now, energy
security has become a major issue.
Figure 1.2 Meagre investment growth

Industry Plan to answer this initiative, fearing a large
exodus of firms to the US that want to benefit from thesubsidies related to climate change. China continues withinvestment in renewables and electric vehicles (EVs) andIndia has taken steps towards carbon market and energy
efficiency. Encouraging as this may be, the question is how
this will all play out for the energy transition.
Fourth, CO2 emissions growth is flat. That said, they havestabilised at a high level. There is a glimmer of hope though.
True, the CO2 emissions by the energy sector, after a declineof almost 4% in 2020 rebounded unprecedentedly by thesame figure in 2021 to 36.2 billion tonnes. This increasereflects the recovery from the Covid-19 pandemic and related
energy demand (+4% likewise) and can be attributed more
specifically to the higher use of electricity coupled with theuse of coal, as well as an increase in transport. The latter had
been restrained by the pandemic. Growth in renewables
accelerated but was not sufficient to outweigh the boost fromfossil fuels. Still, 2021 was a recovery year. In 2022, a
relatively small increase of 0.5% emissions growth isestimated. The implication is that over the period 2019-2022
CO2 emissions have remained relatively flat. There is a long
way to go to (net) zero emissions, but it is a start.

1.4 APS reset

The third significant development in the current crisis isgovernment intervention. Governments have stepped inagain to soften the impact of energy price rises onhouseholds and firms. The IEA tracked USD 550 billion
worth of interventions, mostly in Europe, until September
2022 only. Greater coal-fired electricity generation wasallowed, the lifetime of nuclear power plants extended and importantly - the flow of new renewables projects
accelerated. There were incentives to encourage andincentivise cuts in energy use, with an eye-catching 15%
voluntary reduction in gas use and a mandatory 5%
reduction of electricity in peak hours. There were alsointerventions against those benefiting from the crisis, suchas power plants sourced by cheaper sources (but with pricesetting based on gas) and oil and gas companies. Temporary
additional taxes for these firms have been imposed to fundcrisis packages.
Longer term interventions include incentives for increasing
fossil fuel production and new infrastructure such as LNG
terminals to reduce dependence on Russian gas.
Furthermore, and perhaps critically, we have seen large
policy initiatives aimed at accelerating the energy transition.
The EU is raising renewables and energy efficiency targets,backed with funding. In the US the Inflation Reduction Act
gives a USD 370 billion public money boost to a range ofclean energy technology initiatives, potentially leveraged by
the private sector. The EU has now launched a Green Deal

With these developments in mind, we turn to our benchmark
scenario, the Announced Policies Scenario (APS). As
mentioned, this is the scenario that assumes all climate
commitments, including the rather vague policy statements,
made by governments will be met in full and in time. We
think the urgency of the need for energy transition triggeredby the visible climate change that is now felt across the globe
will force governments to meet their self-imposed targets.5
Moreover, the need for energy security is now also
generating momentum for the energy transition, especiallyin Europe.
That said, we emphasise that there is a risk embedded in thisapproach, because detailed implementation measures need
to follow up these commitments. As long as that has nottaken place, we have an implementation gap. We return tothe implementation gap in the next section.
The main development of 2022 for our benchmark scenario
relative to the Energy Update of March last year concerns themuch higher energy prices we are currently facing,
especially for gas. Europe is shifting permanently from
Russian energy provisioning, necessitating more energy
imports from other regions such as the US and the Middle
East. Gas prices, due to more expensive LNG, will remainhigh until at least the middle of the decade.
This is leading to two major scenario shifts. The first is thathigher energy prices put a brake on energy demand,
diverting global demand away from energy, creating a
feedback effect into the economy, restraining overall

5 Targets are self-imposed, but there is a lot of peer pressure from other countries todeliver these. See Section on COP27.

Atradius Energy Outlook Update – February 2023 | 4

demand in the economy, including energy. These so-called
price and income effects of the energy price rise cause adouble whammy for energy demand: it is unambiguously
reduced (see figure 1.3).

it drops from 66% in 2021 to 36% in 2050, without pledges
only to 57%.
Figure 1.5 Fossil fuel down but not out

Figure 1.3 Lower energy consumption in revised APS

In a second shift, a change in the energy mix is triggered. Gas
in particular loses ground in the electricity supply until
2030. Governments opt for other sources, such as nuclear
and - temporarily - even coal, to allow for flexibility and thus
strengthen energy security. Moreover, and this is the effect ofgovernment intervention discussed above, the speed of
employing renewables is accelerated.
Relative to our latest Energy Update we see higher levels of
fossil fuels (not gas) in the energy supply. But that is
temporary and will be outweighed by the growth of clean
energy. Indeed, nuclear and, especially, renewables, become
gradually more prevalent than in the March Energy Update(see figure 1.4).
Figure 1.4 Fossil fuels lower in revised APS

Now consider the main energy sources in more detail (figure
1.6). Oil demand peaks in the mid-20s as sales for passenger
EVs rise, reflecting national and corporate targets. This is
supported by the higher oil price and targeted policy
measures. EVs go from 9% of total new car sales today to 20%
in 2025. Gas demand declines during this decade as well,reaching an 8% lower level in 2030 from current levels. In
the power sector, high gas prices and security concerns
trigger a further push to renewables. Coal demand rises witheconomic growth in China and India as well as the need forshort-term energy sourcing in the power sector in theadvanced economies. As the latter falls away and newrenewable projects come on stream, coal is in decline again
from 2025. Renewables deliver 50% of the power forelectricity generation, compared to 28% now. Wind and solar
PV account for 90% of the increase, with hydropower,
bioenergy and geothermal providing complements. Nuclear
power generation increases by 2030.
Figure 1.6 Renewables take charge

In the APS, total energy demand is expected to grow only
marginally over the decade, with the level in 2030 2.7%
higher than in 2021. In 2050, as pledges for net zero
emissions kick in further, the level is even 1.4% lower than in
2021. To understand the relevance of these pledges,6 without
these, energy demand would be 10.5% higher in 2030, and in
2050 it would be 24% higher. This is also reflected in theshare of fossil fuels in the energy mix (figure 1.5): in the APS

Energy demand is expected to reduce in the advanced
economies. Strong policy support kicks in in both the APS
and STEPS to achieve this as well as a cleaner energy mix. In
the United States, the Inflation Reduction Act and the
Bipartisan Infrastructure Act together provide USD 560

6 Which is essentially going back to the STEPS scenario as the reader may
have noticed.

Atradius Energy Outlook Update – February 2023 | 5

billion in public support for clean energy. Rising EV sales
will account for 50% of total new car sales in 2030, bringing
down oil demand from current levels. Gas and coal demand
will fall as well, while wind and solar PV become dominant.
In the EU, various governments have lined up USD 389
billion in clean energy support up to 2030, boosting theenergy transition. The increase in the use of coal is
temporary. Gas is reduced as buildings and the industry
contribute significantly to reductions. Wind and solar PV
expand rapidly, pushing renewable power generation to50%, helping to reduce the use of gas as well. EVs also growfast, reducing oil demand. In STEPS a similar pattern oftransmission is followed, but at a lower speed.
In the emerging economies the picture is one of still strong
energy demand growth, only met to some extent by clean
energy (figure 1.7). China National Determined Contributions
and national targets, such as in the Five-Year Plan (20212025), are in place to weaken the dominance of coal in theenergy supply. Energy demand is projected to peak justbefore 2030. Renewables growth is planned so that thecountry is carbon neutral by 2060. Under STEPS, 45% ofelectricity supply should be carbon neutral by 2030. Oil
demand already peaks in the middle of this decade. In the
APS the process is slightly accelerated. In India energy
demand grows. Progress with the energy transition is madeas well: energy demand grows at less than half the pace ofthe growth in population. Programmes are in place such as
the Self-Reliant India scheme and Gati Shakti National
Master Plan to increase the use of renewables, especiallysolar PV, and sales of EVs. This helps to cover demand
growth by one third by 2030. Coal contributes similarly,
peaking in the early 30s, oil contributes 25%. In the APS
India reaches net zero by 2070. Relatively high energy
demand growth is visible in the other countries of Emerging
Asia as well.
Figure 1.7 Energy demand rise in emerging economies

updated National Determined Contributions (NDCs) and
newly announced zero pledges, including India’s. It is
predominantly in the advanced economies that these CO2
emission reductions are expected to take place - 40% decline
by 2030 whereas the emerging economies reduce by only
5%. A reduction of this scale brings us into the realm of theParis Agreement of ‘well below 2 degrees C’ with about 1.7
degrees C temperature rise.
This is progress, but still not enough. A 2022 IPCC report hasemphasised that warming close to 2 degrees C still entails astrongly negative impact for societies. In that context, thecurrently perceived impact of climate change at atemperature rise of 1.1 degrees C is a case in point. Moreover,
we are not there yet with announced zero pledges. They need
to be backed up by policy measures and these need to be
implemented as well. If not, we fall back to STEPS. The
difference is stark. In that scenario, 32gt CO2 will be emitted
in 2050, leading to a 2 degree C temperature rise.
What kind of measures are we looking at to reduce this socalled implementation gap? These revolve around thethemes mentioned in section 2. First, scaling up technologies
with the aim to decarbonise. Enhance the use of renewables,
EVs, retrofits for existing power stations and efficient motors
for industry. This mainly involves tried and trusted
technologies. But that is not enough. Long haul roadtransport and industry sectors need technology that is so far
less developed. Second, further boosting electrification,
including for freight transport, industrial processes andheating in buildings. Third, besides decarbonisation andelectrification, further enhance energy efficiency. Fourth,develop bio-energy, solar thermal and geothermal sources tosupplement the existing set of renewables. Finally,remaining CO2 emissions can be neutralised by carbon
capture, utilisation and storage (CCUS).

1.6 Towards Net Zero 2050
If one takes APS seriously, as we do, we are making progress
towards the Net Zero 2050 world. In such a world CO2
emissions decline to 23 gt in 2030 and, unsurprisingly, to(net) zero by 2050. The temperature rise is 1.5 degrees C in
2050. This is not a huge reduction compared to the 1.7
degrees of the APS, but still worth pursuing. This is because
it is in line with what IPCC calls a ‘no or low overshootscenario’ and, more formally, it is in line with the Paris
Climate Agreement. Perhaps even more importantly, as
mentioned above, every tenth of a degree C less warming is
worth pursuing in view of what we are currently
experiencing at 1.1 degree global warming.

1.5 CO2 emissions highlight callfor further action
We have already observed CO2 emissions growth was
marginal in 2022 ending at 36.6gt. In the APS, CO2 emissions
peak in the mid-2020s and fall to 12gt by 2050. This is abigger reduction than in our March Outlook, reflecting newly

Closing the gap between Net Zero 2050 (NZE) and APS, theambition gap (see graph 8), is somewhat different to closing
the implementation gap (between APS and STEPS). Thislatter involves simply fulfilling policy commitments, notnecessarily net zero commitments and if so, not net zerocommitments by 2050. Indeed, China (2060) and India(2070) have delayed net zero commitments as we saw. The
ambition gap closure concerns the elimination of all (net)zero CO2 emissions. In that sense the NZE scenario is
Atradius Energy Outlook Update – February 2023 | 6

normative: it tells what needs to be done to achieve the (net)zero target.
Figure 1.8 The ambition gap

by 2050 in the NZE. Minerals such as nickel and platinum
are needed. This is also the case for further solar PV
development. CCUS technologies in the NZE deliver deep
reductions across the industry, power and fueltransformation sector by taking CO2 from the atmosphere. In
the NZE capacity goes up to 1200 Mt in 2050; the current
level is 45 Mt.
Figure 1.9 Daunting investment required

Still, closing the ambition gap develops around comparable
themes. First, clean electricity generation and moreparticularly a strong decline in the use of coal in the NZE
compared to the APS. Especially in the emerging economies,
where coal is still dominant in the power sector, a lot more isdone in the NZE. This requires the employment of low
emission sources, mainly renewables as well as measures toexpand and modernise power grids. There is greater
investment in flexibility of the electricity grid, including
energy storage. Second, in the NZE, efficiency improvements
are combined with more robust materials efficiency andbehavioural change such as working from home and less(business) aviation travel. As a result, energy consumption is
10% lower in 2030, even while the global economy continues
to grow. This contrasts with a 2% rise in the APS scenario.
Third, electrification of end-uses in all sectors of theeconomy. While fossil fuels do not disappear from the energymix (30% remains), their dominance wanes. Electricity is the‘new oil’. In buildings, electricity becomes the principal
source of energy, with highly efficient heat pumps theprimary technology choice. In transport, oil is displaced byelectricity. In the NZE 60% of all new car sales are EVs as
opposed to 35% in the APS in 2030. In the emerging
economies electrification focusses on two/three-wheelers
and urban buses. Biofuels, hydrogen and hydrogen-based
fuels increase significantly, especially in aviation andshipping and for long haul freight. In industry there iscontinued demand for industrial materials, such as steel andcement, as urbanisation and industrialisation in Africa andIndia continue. In the NZE stringent emission standards andpolicies help support the transition for efficient use of these,
as does enhanced support for new and sometimes evenuntested technologies. Fourth, the NZE entails a steep fall inother greenhouse gases. For example, energy-related
methane emissions drop 75%. This comes partly in
conjunction with the lower fossil fuel demand. But thelargest part comes from the deployment of emission
reducing technologies across the oil, gas and coal sectors.
Technically avoidable methane leaks have disappeared by
2030. Fifth, low emissions technology application is ramped
up sufficiently fast. This involves sufficient battery capacity
for the expansion of EVs, with battery metals availability
such as lithium critical. In industry, hydrogen production
from fossil fuels is to be largely replaced by electrolyse - 70%

Closing the ambition gap also requires daunting investment(see figure 1.9). By 2030 the investment level as a percentage
of GDP should be doubled to 4% per annum. Especiallyinvestment clean energy is to be ramped up. This stood at
USD 1.3 trillion per annum in 2021 and is to triple in the NZE
by 2030 to USD 4.2 trillion, as opposed to the APS where it
doubles. In the NZE, but also in the APS, investment in fossil
fuel falls. In the NZE it declines by a larger amount: from
USD 830 billion to USD 455 billion per annum in 2030.
Investment in low-emission fuels such as biofuels, lowemission hydrogen and hydrogen-based fuels go from USD
18 billion to USD 235 billion. End-use investment includes
the cost of energy efficiency upgrades and fuel switching inbuildings, appliances as well as industry and transport. This
represents a major part of clean energy investment,
requiring about USD 900 billion per annum in both the NZE
and APS, more than double the level in 2021. This is a
deflated figure as the underlying cost of technologies
declines (more bang for the buck). In the NZE, renewables
form the foundation of an electricity sector that is four times
larger in 2050 than is currently the case. Clean power
spending is three times higher in the NZE than now, directed
at wind, solar, nuclear, CCUS, storage and networks. It rises
to USD 1.3 trillion per annum in 2030. Financing of these
intimidating figures comes from the private sector to theamount of USD 3 trillion in 2030 in the NZE. Public spending
plays a larger role in emerging economies than in theadvanced economies: 40% versus 15%.
The financing in the NZE (and APS) versus what is currently
being done provides a sobering picture of progress with theenergy transition. Indeed, massive investment is needed to
get the world on track to approach the Paris Agreement goalof a temperature rise of well below 2 degrees C by 2050. The
stepped up commitments towards NZE as reflected in the
APS provide a glimmer of hope, but no more than that. An
incredible lot of work still needs to be done before the rise intemperature is brought under control.

Atradius Energy Outlook Update – February 2023 | 7

2. Renewable energy outlook
The Russian invasion in Ukraine and the subsequent sharp
increase in fuel prices are providing momentum for the useof renewables. Although the high gas prices resulted in ashift towards the use of coal for generating electricity, at thesame time the demand for renewables has increased. Theenergy crisis will accelerate the energy transition towards
low-emissions renewables. Many governments, as in the EU
and the US, have announced new policies since the Russian
invasion that will provide a boost to investment in clean
energy and efficiency. In the Announced Pledges Scenario(APS), it is assumed that all targets announced bygovernments are met, including their long-term net zero andenergy access goals. In this scenario, renewables will
increase strongly towards 2050. In the Net Zero Emissions
by 2050 Scenario (NZE) the increase will be even moremarked, as in a Net-zero world electrification will be key. Insuch a world, the global energy sector will have changed
dramatically. In an electrified world, the power sector will
become more important. Because of the widespread use ofrenewables in the power sector and the rapidly growing
importance of solar and wind in this sector in both the APS
and NZE, we will focus on this sector in this report.

2.1 Key developments
The energy crisis is fuelling the use of renewables. The highfuel and electricity prices have improved thecompetitiveness of solar and wind generation versus otherfuels. Moreover, due to energy security, renewables are
increasingly attractive. Compared to a year ago, the IEA has
increased its renewable capacity projections for 2022-2027
in its Renewables 2022 report. The IEA estimates that
renewables capacity will be almost 30% higher than was
forecast a year ago. This increase is mainly driven by China,
the European Union, the US and India. It is assumed thatthese countries will implement all existing policies andregulatory and market reforms and will introduce newpolicies in response to the energy crisis. Especially in Europe,
the energy transition will accelerate due to energy security
concerns. In May 2022, the European Commission released
its REPowerEU plan in which it proposes to end the relianceon Russian fossil fuels by 2027. The plan also aims toincrease the share of renewables in final energy
consumption to 45% by 2030.

Both solar and wind capacity have increased sharply over
the years; China is leading investment in solar and wind. In
2021 China had a market share of around 40% of global
installed wind capacity, with the United States (16.1%),
Germany (7.7%) and Spain (3.3%) following at distance. China
also has by far the most installed solar capacity. It has ashare of 36.3% of global solar capacity. Other countries withrelatively high shares in global solar capacity are the US(11.1%), Japan (8.8%) and Germany (6.9%). China’s support forclean energy technologies is not only driven byenvironmental and industrial strategy considerations, its
policy to reduce import dependency of fuels is also
responsible for this. Although a leading global investor inrenewables, China is still highly reliant on coal for
generating electricity.
Despite increasing use, renewables still have only a minor
share in global primary energy consumption. According to
BP statistics, renewables, i.e.,solar and wind, have a share of
7%. For the first time they have the same level ashydropower in global energy consumption. Whereas
renewables continued their growth, the consumption ofhydropower actually dropped in 2021. Severe droughts incountries where hydropower is the main energy source
resulted in sharp declines in these countries. In particular,
Brazil, Chile, Argentina and Turkey had lower than usualhydro capacity utilisation in that year. According to the IEA,
hydropower generation in Brazil, US and China will behigher in 2022 because drought conditions have eased.
2.1 Renewables (solar and wind) on a par with hydropower in
2021

Atradius Energy Outlook Update – February 2023 | 8

2.1.1 Climate pledges will boost renewables
Around the world, countries are increasingly committing to
NetZero 2050 and announcing Nationally Determined
Contributions (NDCs). Ambitious targets and policy
incentives will boost renewables.
China will remain the leader in renewable capacity growth
for the coming years. Despite the phasing out of wind andsolar subsidies, China will add the most capacity, both solar
and wind, in the short and long term. Support is coming fromthe 14th Five-Year Plan, in which China has ambitious
renewable energy targets. In this plan, China has changed its
policy focus from installed capacity to share of renewableenergy sources in electricity generation. It aims for 33%
renewables and 18% wind and solar in electricity generation
by 2025. In addition, market reforms and strong provincial
government support provide long-term revenue certainty forrenewables. For the longer term, the ambition of the Chinese
government to reach net-zero emissions by 2060 will
underpin growth in renewables.
In the US, the Inflation Reduction Act, announced in August
2022, will result in a strong rise in renewables. The energy
transition will accelerate in the US and have a major impact
in the power sector. Due to the legislation extending tax
credits for renewables until 2032, the deployment of solar
PV and wind will increase sharply. In addition, many states
have renewable portfolio standards and goals supporting
expansion. In APS, the US could actually reach net zero
emissions in the electricity sector around 2035. Not only willa faster deployment of renewables contribute to this, but also
the increased use of CCUS, hydrogen and ammonia and an
expansion of nuclear power.
In the EU, even before the war in Ukraine, several member
states had already introduced ambitious targets and policies
to accelerate the deployment of renewables. In 2022, theEuropean Commission announced its Fit for 55 package andproposed raising the targeted EU renewable energy share in
final energy consumption from 32% to at least 40% by 2030.
Since then, the European Union has even proposed moreaggressive goals under the REPowerEU strategy (a 45%
renewables share by 2030). In particular, the elimination of
Russian fossil fuel imports by 2027 will accelerate thedeployment in the short term. The IEA classifies policy
actions in the EU into three categories. The first is increasing
renewable energy ambitions. Several EU countries haveraised their renewable electricity targets. For instance,
Germany has increased its target from 65% to 80% in 2030.
Second is increasing policy support. Actions include raising
remuneration levels and introducing new financial support.
The Netherlands eliminated the VAT for residential PV
systems and Germany increased feed-in tariffs for
distributed PV. Third is addressing non-financial challenges.
Governments are passing regulatory reforms to streamline
permissions, make grid connection easier and improve
network congestion. These are the three main barriers thathave delayed project development. For instance, Spain has
introduced a simplified licensing procedure and made grid
capacity available for renewable energy projects.
In the APS, China will add the most solar capacity, followedby India and the US. India is expected to increase its solar

capacity especially between 2030 and 2040 when it isprogressing towards NetZero in 2070. India’s energy system
is highly dependent on coal (75% of the electricity mix),
which is gradually being replaced by renewables. Coal
demand is expected to peak late this decade in the APS, andwill then steeply decline. India has implemented competitive
auctions to achieve the target of 500 GW of renewable power
in 2030.
2.2 APS: China leads solar PV capacity addition

Wind capacity will also increase strongly, but much less thansolar. Particularly in China, wind capacity will increase
greatly. Towards 2030, the European Union and the US will
follow second and third. In the period 2030 towards 2040
wind capacity will grow faster in the US, supported by the
Inflation Reduction Act. In Europe, licensing delays are a key
barrier for faster renewables growth. IEA mentioned that in
Q3 2022 wind turbine orders fell by 36% compared to a year
ago. In 2021, onshore wind auctions held in Germany, France
and the United Kingdom were undersubscribed because
projects could not obtain permits due to authorisation
complexity, siting restrictions or social opposition. Therefore,
the IEA has revised downward the onshore wind forecasts
for these markets. Other constraints are grid congestion,
coupled with a lack of investment and long lead times for
upgrading the network.
2.3 APS: China by far adds most wind capacity

2.1.2 Hydrogen still in early stages
The energy crisis, especially the gas security crisis, has also
boosted momentum for hydrogen, which is mainly produced
from unabated fossil fuels. Hydrogen can play an importantrole in sectors where emissions are hard to abate andalternatives are either unavailable or difficult to implement.
Atradius Energy Outlook Update – February 2023 | 9

For example in heavy industry, shipping, aviation andheavy-duty transport, as an alternative for oil.
There is growing interest in international trade in hydrogenand hydrogen-based fuels, especially in the US and Europe
where respectively the Inflation Reduction Act and the pushfor clean energy will boost hydrogen. But there arechallenges. High costs of production and limited enabling
infrastructure hinder this substitution currently.
Production is currently at a very low level. Development anddeployment over the next decade will be essential to lower
costs and improve performance so that these fuels canbecome important. A significant amount of investments isnecessary to set up an international value chain. The IEA
mentions that only for the European Union investments
would amount around 1.4-1.7 trillion (including financingcost) to reach that assets could deliver 10 MT H2 per year to
the European Union. Moreover, planned projects reveal asignificant imbalance, export projects are more numerous
and more advanced than those for the corresponding importinfrastructure.
In APS, the share of hydrogen in total final consumption will
increase from 0% in 2021 to 2% in 2050. In the NZE scenario,hydrogen will grow in importance due to its low emissions. It
will be mainly deployed in the heavy industry and long
distance transport. The share of hydrogen in total final
consumption in the NZE scenario will reach 6% in 2050.

2.2 Moving to an electrified
world
Solar and wind capacity additions are mainly taking place inthe electricity sector. On a global level, renewables alreadyhave a major share in generating electricity. In 2021,
renewables had a share of 28% in global electricity
generation. Hydropower is still by far the largest renewableelectricity source, contributing around 15% of electricity
generation. Although wind (7%) and solar (4%) follow at somedistance, their share is growing strongly, unlike hydropower.
In 2010, the share of wind and solar was respectively around
2% and 0.1%, whereas hydropower had a share of 16% backthen. In some countries, the share of renewables inelectricity generation is much higher. For example in Brazil,
renewables have a share of almost 80% in the electricity mix,
with hydropower being the major contributor (57%). Somecountries that are so dependent on hydropower are quite
vulnerable to climate change, as was clearly visible in 2021.
Countries where solar and wind together have large sharesin generating electricity are in Europe, with the United
Kingdom leading with a share of 38%, followed by Germany(32%), Spain (35%) and the Netherlands (33%). A region whererenewables have only a minor share in generating electricity
is the Middle East (4%).
Other main end-use sectors are heating and transport.
Renewable sources are limited in both heating and thetransport sector. Heating is concentrated in industrial
processes and in buildings, space and water heating andcooking. This sector is largely dominated by fossil fuels, withrenewable energy sources accounting for around 11% in 2021.
The IEA expects this share to increase to 14% in 2027. Due toenvironmental and energy security concerns, renewable
heat will increase. The move away from gas results in a push
to retrofit buildings and install heat pumps that are fuelled
by electricity. The increasing use of renewables in electricity
for heating contributes to the increase in this sector. For
industry, decarbonisation will take place via electrification,
the use of large-scale heat pumps and renewables-basedhydrogen. This will especially be the case in the EU where
the REPowerEUplan contains plans for industry.
In transport, electrification will accelerate over the coming
years. Oil is still dominating in transport, accounting for 90%
of consumption. This will change in both scenarios, but mostsignificantly in the NZE scenario. In 2021, electricity
accounted for just 1% of the fuels consumed in transport. In
APS, this is expected to increase to 5% in 2030 and 25% in
2050. In this scenario, oil will remain the leading fuel intransport. This is in contrast to the NZE scenario, where
electrification will accelerate and the use of oil declines
sharply. In the NZE scenario, electricity will account for 48%
of the energy consumption and oil drops to 9% in 2050. In
this scenario, the use of hydrogen will also rise rapidly andaccount for 18% of energy consumption in 2050. Particularly
in aviation and shipping, the use of biofuels, hydrogen andhydrogen-based fuels will increase.
This electrification in transport is the result of the faster
adoption of electric vehicles. In 2021, around 10% of new cars
sold were electric. In APS, by 2030 around 35% of global new
car sales are electric, compared to 60% in the NZE Scenario.
The IEA expects that the electric car markets will be six
times bigger than in 2021. Especially in China, the European
Union and the United States EV sales will increase. In around36 countries, for example in the United Kingdom, there aretargets to phase out internal combustion engine vehicles aswell as plans by major manufactures to pivot to EV
production. In 2050 70% of passenger cars are electric or fuelcell vehicles, and 40% of heavy trucks. Especially in the NZE
scenario, it is assumed that policy makers will demand astrong push towards cleaner alternatives. In this scenario it
is assumed that no new cars with internal combustion
engines are sold after 2035 and nearly all trucks sold from2040 use electricity or hydrogen. In this scenario, the roadtransport sector is almost fully decarbonised.

2.2.1 Renewables will reshape the power
sectorGlobal electricity demand showed its largest increase in 2021
since 2010 due to the rebound in many economies after the
Covid19 pandemic. Electricity demand will increase strongly
in the coming years and decades. In the APS, announced
pledges lead to more rapid deployment of electric vehicles
and of heat pumps in buildings and for industrial processes.
In the APS, total electricity demand will be 120% higher in
2050 than nowadays. In the NZE scenario, where theelectrification of end-users will be faster, total electricity
demand will be 150% higher in 2050. Growth in electricity
demand differs per region. Strong growth will take place in
China, India, the Middle East and Africa due to growing
demand in industry and buildings. High economic growth
Atradius Energy Outlook Update – February 2023 | 10

and rising living standards will boost demand in emerging
markets, especially in India. Increasing consumption ofhousehold appliances, specifically air conditioners, willaccount for this growth. Climate change is largely
responsible for the strong rise in demand for cooling. In
Africa, increasing access to electricity and rising ownershipof household appliances are responsible for the strong
growth. In advanced economies, the efficiency gains inmodern appliances and heating and cooling systems willtemper electricity demand. In these economies, the transport
sector is mainly responsible for the robust growth inelectricity demand. It is expected that the number of electricvehicles will grow rapidly. For instance in the US, thanks to
the Inflation Reduction Act and state level targets, the shareof electric cars will increase from less than 5% in 2021 to 50%
in the APS in 2030.
To keep up with faster growth in electricity demand, in both
the APS and the NZE scenario, electricity generation needs toaccelerate significantly. This will be entirely met byrenewables, making renewables the dominant energy sourcein the power sector. Solar is becoming the dominant
renewable at global level. Deployment of solar or wind varies
by region or country. For instance in the US and India solar
will become the leading technology. This is in contrast to theEuropean Union, which is moving to an energy system
fuelled by onshore and offshore wind.
2.4 Solar leads added capacities in both scenarios

sources like geothermal and bioenergy will have limited
shares in electricity generation.
2.5 Renewables becoming the dominant source in power sector

In APS, solar will be the fastest growing renewable. In 2021,
solar had a share of 4% in total electricity generation and thiswill grow strongly to 13% in 2030 and accelerate further to
28% in 2050. Solar will thereby surpass wind and leavehydropower far behind by 2050. Wind will also increase
sharply, from 7% in 2021 to 16% in 2030 and 28% in 2050.
Both are benefitting from government policies and declining
costs, but solar is set to be favourable because of its short
construction times, very low costs and ready availability of
manufacturing capacity. In the NZE scenario solar and wind
are expected to increase even faster, supported by policies.
The share of solar in electricity generation will be 20% in
2030 and increase to 37% in 2050. Wind will increase to 21%
and 32% respectively.
2.6 APS: solar to expand rapidly in electricity

Although the electricity supply mix differs per region,
depending on available resources, policy choices and therelative economic competitive position of various power
generation technologies, a common trend across regions is
the expanding contribution of wind and solar power. The
share of renewables in electricity generation is currently
around 28%. In APS, this share will rise to 49% in 2030 and
80% in 2050. In the NZE scenario, renewables will growfaster and have a share of 61% in 2030 and 88% in 2050.
Currently, there is a strong momentum for renewables
because of the rising fuel prices and concerns about energy
security. Although the high fuel prices increased the use ofcoal in 2022, they have also boosted the commitments forreaching net zero emissions by 2050. Many countries havepledged to reach net zero emissions, albeit Indonesia in 2060
and India by 2070. G7 members have even committed toensure that their power sectors are fully or predominantly
decarbonised by 2035. Technology innovation and progress,
including declining costs for solar, wind and batteries,
facilitate the strong growth in renewables. Renewable

Hydropower will remain an important source for electricity
generation. Although it will increase because of its low
emissions and its role as a stable energy source in the power
sector, its share in electricity generation will decline towards
2050. Hydropower is already a mature technology andtherefore has limited room to grow.
A challenge with such an increase of solar and wind ingenerating electricity is ensuring a reliable, stable electricity

Atradius Energy Outlook Update – February 2023 | 11

supply and flexibility. Power system flexibility7 is required
to continuously balance the supply and demand of electricity
and maintain a stable grid. As both solar and wind are
dependent on weather conditions, this will increase thevariability of the net load. This is especially true in the NZE
scenario, in which renewables rise fast and electricity
security is key because the global economy will become
increasingly dependent on a reliable electricity supply.
Traditionally, coal and natural gas power plants andhydropower were providing the flexibility to power systems,
but when the world decarbonizes this will change
dramatically. The IEA sees four mains sources of flexibility:
power plants, grids, demand-side response and energy
storage. Batteries and demand-side response will meet morethan half of the flexibility needs in 2050.

2.7 APS: Investments in power sector increasingly to grid

2.2.3 Investments in grid crucial

Investments in the grid support the expansion,modernisation and digitisation of transmission anddistribution networks. Total world investments in the power
sector increase to an estimated annual average USD 1.2
trillion in 2022-2030, much higher than USD 858 billion peryear in 2016-2021. In the APS, world investments will
increase to an annual average of USD 1.7 trillion in 20312040 and increase further to USD 1.8 trillion in 2041-2050.
In the NZE scenario, investments will rise to USD 1.7 trillion
in the next decade. Investments in renewables and the gridaccount for the lion’s share. Most investments will take placein advanced economies and China where the energy
transition is at an early stage.

To decarbonize the energy sector, huge investments arenecessary. In previous years investment in the electricity
sector was biased towards renewables and the grid. This will
only increase in the coming years to meet the ambitious
targets around the world. With the growing importance ofelectricity in energy consumption, and the increasing shareof solar and wind in generating electricity, it is important tohave a reliable electricity network. To ensure this, a major
increase of investments in the grid is necessary andexpected.

7 Flexibility is defined as the ability of a power system to reliably and cost effectively
manage the instantaneous, hourly, daily, weekly and seasonal variability of demand andsupply. It ranges from ensuring the instantaneous stability of the power system tosupporting long-term security of supply. IEA WEO 2022

Atradius Energy Outlook Update – February 2023 | 12

3. Oil market outlook
Policymakers’ efforts and investors’ capital are increasingly
being directed away from oil and other fossil fuels towards
renewable energy resources to slow the rate of climatechange. The collapse in demand for oil spurred by the
pandemic dealt another blow to the sector. Then Russia, theworld’s second largest oil producer, invaded Ukraine in
February 2022, severing major supply chains and rerouting
trade flows as a result of Western sanctions. Supply concerns
exacerbated by the Russia-Ukraine war put upward pressure
on prices and have contributed to the global economic slump,particularly in advanced economies.
The energy transition, supply uncertainties and geopoliticalrisks have all combined to expedite the decline of global oil
consumption. For the first time ever, we anticipate peakdemand in our baseline scenario, the Announced Policies
Scenario of the International Energy Agency (IEA). From themid-2020s on, oil demand will steadily decline, driving
down prices almost 20% by 2050 compared to today. Should
governments act more decisively to pursue sustainable
development goals, as modelled by the IEA in the Net Zero
Emissions (NZE) scenario that we use as an alternative
benchmark, the price of oil will fall by up to 60%. While thelong-term outlook is even more decidedly downwards, shortrun volatility will likely be even more severe than previously
expected, given years of under-investment and uncertainty
surrounding the Russia-Ukraine war.

3.1 Key developments
Price volatility is a common feature of the oil market but theprice swings observed in 2022 are exceptionally large. Pricesrose steadily through 2021 as global economic activity
picked up after the worst of the Covid-19 pandemic; but
Russia’s invasion of Ukraine in February 2022 caused theprice to spike above USD 130 per barrel. Since then, the pricetrend has been generally downward due to demand-side
weakness with sharp upward surges resulting from lessflexible supply.
Supply side developments are the main culprit behindelevated volatility. These include Russia’s invasion of
Ukraine, OPEC+ strategy and US oil production. First of all,the invasion of Ukraine worsened post-pandemic supply
chain issues, especially in Europe. This reduced the capacity
to trade oil while eventual EU import bans on Russian oil
further restricted supply – either outright or by increasing
paperwork and complications associated with trade. This has
proved one of the most acute shocks to global oil markets inrecent years, but Russian oil output has thus far provenrather resilient. In December 2022, Russia produced 9.8

million barrels of oil per day (mb/d) compared to 10.1 mb/din the previous February. Russian producers continue tobenefit from elevated global prices which allow profits to bemade per barrel even at steep discounts to the global Brent
benchmark price. This is even despite the introduction ofbans on oil imports to the EU and a G7-imposed price cap of
USD 60 per barrel, as third countries like India, China andTurkey have increased their imports of cheaper Russian oil.
Figure 3.1 Oil prices subject to high volatility

OPEC+, the alliance of OPEC countries and other major oil
producers like Russia and Mexico, has continued its policy oflimiting output through 2022 as well. The group’s priority is
tailoring supply to influence prices, especially in lowdemand environments, as they’ve done since 2016 in
response to the US shale boom. Accordingly, the groupagreed to reduce production by 2 mb/d, or about 2% of total
supply, in its October meeting. Thus far, the impact on prices
has been limited though, since most members are actually
producing below quota as is. It is clear that OPEC+ willcontinue to prioritise supply management to keep prices
elevated, even against loud calls from the US to increase
supply to ease the energy crisis spurred by the Russian war
in Ukraine.
The world’s largest oil producer, the US, may never fully
recover from the pandemic, but it has seen production pickup in the face of the Russia-Ukraine war. The US oil sector
has struggled to recover from the pandemic as producers’
focus has shifted to strengthening balance sheets andinvestor returns. Prior to the pandemic, the US shale
revolution elevated the US to the world’s largest single
producer. Given the relative flexibility and short upstart
times for shale projects compared to conventional
production in OPEC, the US also became the world’s swing
producer. This allowed it to ramp up or down production in
response to global developments to ensure relative stability
in the market. But the sector was highly leveraged, leading toa wave of bankruptcies during the pandemic and difficulties
Atradius Energy Outlook Update – February 2023 | 13

recovering now that credit is significantly more restricted
and labour costs have exploded. Even in the face of skyrocketing prices, shale operators prioritised capital restraint.
Sticking to lower growth has still allowed steady recovery inthe sector and brought US exports to a record high in 2022 asglobal trade flows shift as a result of the war. In the firstweeks of 2023, US production averaged just above 12 mb/d,
compared to 13 mb/d just before the crisis. But the annual
growth rate was only 7%, half of that during the shale boom.
Figure 3.2 US production growth offsetting lower Russian output

On the demand side, slowing global GDP growth and rising
prices put a ceiling on oil prices. Rising concerns that‘stagflation’ could become entrenched motivated central
banks to hike rates aggressively. Higher consumer prices
compounded by rising interest rates put some brakes on
consumer spending and consequently demand for oil.
Monetary tightening was led by the Federal Reserve, which
also resulted in a significant appreciation of the US dollar.
Given that global oil sales are denominated in US dollars, oil
imports became more expensive for other countries,
especially emerging market economies, further weighing on
demand. On top of that, China, the world’s largest oil
importer, continued to pursue its ‘zero Covid’ policy
including strict lockdowns until December 2022, whichfurther capped global demand. The effect of the global
economic slump on demand helped prevent additional oil
price surges past H1 despite ongoing supply constraints.
Global investment in the oil sector has been weak since theprice collapse in 2014 and the Paris Climate Accord in 2015,
which has increased concerns that the oil supply may not beable to keep up with demand to ensure a smooth energy
transition. Investment did pick up in 2022 in response tohigher prices and energy insecurity but remains well below
pre-crisis levels. The IEA estimates a USD 417 billion
investment in upstream oil and gas in 2022, 16% lower thanthe USD 499 billion recorded in 2019. The Middle East is the
only region with spending now well above pre-crisis levels.
Overall costs for input, transport and labour increased
significantly, dampening the attractiveness for investors.
Tighter capital conditions and general uncertainty also
temper investment.

3.2 Oil demand outlook
Under the Announced Pledges Scenario, demand for oil is
expected to peak at 98.1 mb/d, just above its pre-crisis levelof 97.9 mb/d, in 2024. This is in contrast to our last Energy
Outlook, when we expected demand to surpass its pre-crisis
level in 2023 and stabilise around 104 mb/d in the 2030s.
The main reason behind this sharp downward revision ismore aggressive policies to support the energy transition
which particularly target demand reduction throughincreasing renewable energy resources.
After peaking in 2024, global oil demand is predicted to coolto 93.0 mb/d in 2030. From 2030 to 2050, oil demand is
expected to decline by 40% to 57.2 mb/d. The reduction indemand is led by the transport sector, including passenger
cars and road freight, followed by industry. Electrification in
the transport and buildings sectors is key to governments
reaching their current climate goals and ensuring thisdecline. Aviation and shipping may also see a 25% reductionin oil use by 2050 thanks to pledges from the International
Civil Aviation Organization to offset emissions growth above
2019 levels, and from the International Maritime
Organisation to cut emissions from maritime transit by halfby 2050 relative to 2008.
Figure 3.3 Peak oil on the horizon in 2020s

The global decline in oil demand is concentrated in advanced
economies, which lead the electrification of car fleets.
Demand there is expected to fall by nearly 15 mb/d to 2030.
Oil demand in emerging market and developing economies
will also decline but to a lesser extent - 5 mb/d, as more rapid
economic development, population growth, and urbanisation
partially offset the shift to more efficient energy sources.
Asia-Pacific will remain the largest oil-consuming region,but even there, demand is expected to decrease to 20.6 mb/din 2050. The magnitude of decline is just below the 14.5
mb/d decline forecast in North America to 6.9 mb/d
consumption in 2050.

Atradius Energy Outlook Update – February 2023 | 14

3.3 Oil supply outlook
The largest uncertainty in the short term for supply of oil is
how Russia’s producers react to sanctions. Thus far, thesector has been relatively resilient as high global prices haveallowed production to continue above break-even prices andtrade has largely been rerouted to emerging market
economies in Asia. Given the outlook for rising demand in
China especially and the price cap’s goal of ensuring global
price stability, we expect Russian oil to continue pumping –but with high downside risks. Additionally, the increasingly
heavy sanctions against Russia limit access to technologies
and oil field equipment, which will drag on productivity inthe long run. The IEA estimates this to trim just over 2 mb/d
off Russia’s production in 2030 and for that country tofurther lose its slice of the pie to only 3.9 mb/d total in 2050
– from 12% of global production in 2021 to 7%.
Figure 3.4 Conventional crude from OPEC remains mostimportant source of production

most extra investment stems from cost inflation instead ofincreasing activity. Oil companies have been making record
profits though in the high oil price environment; andwhether they invest these windfall revenues in large-scale
production assets or pay back shareholders will have a large
impact on supply. Investments averaging USD 378 billion peryear to 2030 then USD 227 billion per year to 2050, will beneeded in both new and existing fields to compensate fordeclining production from existing supply sources.

3.4 Oil price outlook
Our baseline scenario projects prices to decline gradually inthe near term, continuing the downward trend from a peakabove USD 130 in March 2022 following Russia’s invasion of
Ukraine. This is based on the assumptions that short-term
production growth, concentrated in non-conventional nonOPEC producers, will outpace demand growth, tempered byweak economic activity and strong policy initiatives inadvanced economies to accelerate the energy transition. Thisis supported by an anticipated continuation of building of oil
inventories in 2023 and 2024 which generally correspondswith declining prices (see figure 3.5).
Figure 3.5 Net oil stock-building exerts downward price pressure

It is clear that the US shale sector is no longer the dynamic,
swing producer it was a decade ago, but it is still a central
producer to meeting demand to 2030. US tight oil supply is
forecast to still be 8.8 mb/d in 2030 from over 10 mb/d at
end-2022. We expect that producers will continue toprioritise returns over production growth but the high nearterm prices ensure some boosts to drilling. From 2030 to2050, overall US production will fall 8.1 mb/d to 10.7 mb/d as
conventional fields mature and lower prices spur lessinvestment in shale plays. Other non-OPEC producers,
especially Guyana, which first began producing oil in 2019,will see strong increases in output and development in new
non-conventional oil sources.
OPEC will increase its influence over the period at theexpense of the US. While overall OPEC production is set to
decline by 7.8 mb/d to 23.8 mb/d in 2050, its market share
increases from 35% in 2021 to 43%.

The oil futures market is also in backwardation again, whichsuggests investors expect the price of oil to decline fromcurrent levels over the coming period (see figure 3.6). The
curve has narrowed significantly from the last Energy
Outlook, showing the short-term decline will be more
gradual.
The slower decline is due to two key risks to the outlook:
Russia on the supply side and China on the demand side. As
such, we see the risks for short-run volatility to lean heavily
to the upside for prices. Global demand is set to reach arecord high around 98 mb/d in the mid-2020s, led by China’s
scrapping of its zero-Covid policy in December 2022. With
years of low investment and high risks to production,
especially from Russia, the production outlook ensures afloor on prices of around USD 70 in the coming years.

The supply outlook is vulnerable to investment
developments. As discussed in section 3.1, investment in
2022 remains about 20% lower than pre-crisis rates andAtradius Energy Outlook Update – February 2023 | 15

Figure 3.6 Oil market in backwardation

Figure 3.7 Peak demand has passed in NZE scenario

USD/BarrelWith peak oil on the horizon, the long-run equilibrium pricefor production to meet demand is now lower. We now expect
a barrel of Brent crude oil to fetch USD 64 (in real 2021
terms) in 2030 and USD 60 in 2050 (see figure 3.7). US oil
production will continue to grow but at an increasingly slow
pace, continuing to lose its strength in smoothing global oil
markets. The ongoing reliance on tight oil and increasingly
costly environmental regulations will prevent the price fromfalling more quickly in the long run, as the break-even costof the marginal producer in this instance is around USD 55.
In this environment, OPEC will continue to grow its influenceand maintain its market management strategy to keep prices
elevated.

3.5 Net Zero Emissions
Under the Net Zero Emissions scenario, peak demand is nolonger in our forecast period, but instead it’s already beenreached. Oil demand never recovers to its 2019 level and falls
an average of 2.5% per year to 2030. From 2030 to 2050, thepace of decline picks up to 6% per year. The NZE world ischaracterised by very significant policy mandates to boost
the clean energy transition. Most notable is the shift indemand to electrification for road transport, as discussed in
section 2.2. 75% of the demand for oil that persists in 2050
will be from petrochemicals where the oil is not combusted,such as lubricants and asphalt.

Under the NZE scenario, even with rapidly declining
demand, investment in existing oil production assets is stillneeded to ensure an orderly transition. This entails in-fill
drilling, enhanced oil recovery and tight oil drilling, but nofurther investment in new conventional oil fields will be
required. The IEA estimates the required annual investment
to be about USD 350 billion to 2030 - USD 130 billion peryear less than in the APS. This reduction in investment must
be taken in tandem with redirecting investment to clean
energy and reducing oil demand to prevent painful market
volatility. In a smooth transition, this would bring the priceof oil further down in line with the operating cost of themarginal project. In 2021 real USD, this would bring oil
prices to about USD 26 per barrel of Brent in 2030 and USD
24 per barrel in 2050.
Production falls across all regions, but OPEC’s market share
increases even further to 52% in 2050 – its highest level ever.
This is due to the large size and slow decline rates of their
existing fields allowing minimal investments to continue togarner output gains. With such low oil prices and policy
commitments to reaching net zero, we do not foresee OPEC
members developing new fields.
Figure 3.8 NZE leads to very low prices

Atradius Energy Outlook Update – February 2023 | 16

4. Gas market outlook

Under our two main scenarios – Announced Pledges and Net
Zero Emissions – gas demand falls between now and 2050.
Under the APS scenario, it flattens up to 2030, before
declining to below present levels in 2050. In the alternative
Net Zero Emissions (NZE) scenario, demand starts to decline
sooner and the level drops even lower in 2050 compared to
APS. Globally, the share of gas in the energy mix is expected
to decline from 16% today to 10% in 2050. Europe is expected
to see a severe drop in gas demand in the medium term (upto 2030), while Asia and the Middle East still have thepotential for demand growth in the same period (though notin the longer term). China and India are important catalysers
of demand growth in Asia. On the supply side, the increases
that are still needed in the medium term are mainly comingfrom the Middle East. In all the other major gas producing
regions, supply is expected to decline in both the medium (upto 2030) and long term (up to 2050).

4.1 Key developments
The world is facing a global energy crisis of unprecedented
depth and complexity. Europe is the main theatre in which itis playing out, and natural gas is centre stage. Gas markets
are traditionally separated into three markets - North
America, Asia and Europe - each with its own pricing
mechanism. In North America, gas prices are dictated by thefundamentals of supply and demand as a result ofcompetition between multiple sellers and buyers interacting
in a spot market (gas-on-gas competition). The reference
price is that of Henry Hub, a distribution hub in the US
pipeline system in Louisiana. The dominant pricing
mechanism in Asia remains oil indexation. European prices
are determined by a mixture of gas-on-gas competition andoil indexation, with the former getting more prominence,catalysed by new EU rules on market liberalisation. The
European gas price can be measured in various ways, though
for the purpose of this report we follow the World Bank inusing the Netherlands Title Transfer Facility (TTF), which isEurope’s biggest (market-based) gas benchmark. In most ofrecent history, the European gas price was positioned
between that of the US and Asia. In the past 1.5 years,
however, it rose far above Asian prices due to the European
gas crisis.
Gas prices have been rising quickly since mid-2021. There
was no single cause behind the initial price rise in 2021, prior
to Russia’s invasion of Ukraine. Many factors played a part,the most important being: (1) the rapidity of the economic
recovery from the pandemic‐induced recession, (2), theimpact of weather‐related events on demand and electricity
generation trends, (3) unplanned outages at LNG liquefaction
plants and (4) reduced short-term sales by Russia’s Gazprom.

Russia’s invasion of Ukraine in February 2022 greatly
exacerbated the strains in the gas sector. Russia has cut
pipeline gas supplies to the European Union by 80% since theinvasion of Ukraine. This drove European gas prices – andindirectly Asian spot LNG prices – to record highs in 2022.
The European gas price spiked at USD 70 per million btu inAugust 2022 (more than 350% year-on-year). Besides lower
Russian pipeline supplies, higher gas burn in the power
sector amid lower nuclear and hydro output, and strong gas
storage injections, provided upward pressure on European
hub prices.
In recent months, mild winter conditions and lower storage
injections have lowered the European gas price. In December
2022, the TTF gas price was USD 36 per million btu on
average, compared to USD 28 at the start of 2022, and USD 7
in January 2021. The Henry Hub price has been relatively
stable through 2022. In December 2022, it was USD 5.50 per
million btu, compared to USD 4.30 at the start of the year.
The price of LNG gas in Japan reached USD 20 per million
btu in December 2022, compared to USD 15 at the start of theyear (Figure 4.1).
4.1 Global gas prices, USD per million btu
70
60
50
40
30
20
10
0

EuropeLNG Japan

Henry Hub

Oil price
Source: World Bank

To fill the gap left by lower Russian gas supplies, Europe
increased its LNG imports by 65% (or 43 bcm) in the firsteight months of 2022. However, increased LNG imports
covered only a small part of the reduction in Russiandeliveries, putting a large part of the burden on European gas
demand. Gas demand in OECD Europe declined by about 10%
year-on-year in the period January-August 2022, largely
driven by demand destruction in the industrial sector. In
response to limited supply, energy shortages also emerged inseveral parts of the developing world that rely on imported
gas, notably Pakistan and Bangladesh. Major growthmarkets for gas such as China and India meanwhile sharply
reduced their LNG imports in 2022. In the US, demand
increased by over 4%, supported by demand from power
generation. The demand increase was mostly driven by
weather-related events, with colder than average
Atradius Energy Outlook Update – February 2023 | 17

temperatures in the first half of 2022, followed in thesummer by successive heatwaves resulting in an increase ingas-fired power generation for cooling.
On the supply side, global LNG trade expanded by 6% in thefirst eight months of 2022, a slight increase on the 5.5%
growth rate in 2021 (but less than the 2018-2021 average of8%). More than half of the increase in global LNG output
came from the United States. US LNG exports expanded by
14% year-on-year in the period January-August 2022, thanks
to the ramp-up of Sabine Pass train 6 (the sixth liquefaction
unit of the Sabine Pass LNG facility in Louisiana) and the
Calcasieu Pass terminal (notwithstanding the prolonged
outage at the Freeport facility since June 2022). The second
biggest contribution came from Russia, where LNG outflows
jumped also by 14% year-on-year due to record production at
the Yamal LNG facility. Other sizable contributions camefrom the restart of Norway’s Hammerfest terminal andhigher LNG output from producers in the Middle East (Qatar
and Oman) and South America (Trinidad & Tobago andPeru).

4.2 Gas demand outlook
The recovery in global gas consumption that followed the
pandemic‐induced drop in 2020 ended prematurely with
Russia’s invasion of Ukraine in early 2022. The International
Energy Agency (IEA) estimates that gas demand in OECD
Europe declined by 10% in 2022 and it forecasts a 4% decline
in 2023 amid high prices. Europe successfully increased its
gas storage levels for the heating season 2022/2023, with EU
storage levels at 88% in December 2022. The market
dynamics in the coming months will determine how muchgas needs to be injected into storage in the summer of 2023,
in preparation for the winter of 2023/2024. The IEA expects
that demand in Asia could see a modest recovery to 3%
growth in 2023 on the assumption of a reopening of theChinese economy. Gas consumption in North America (USplus Canada) is expected to flatten and then slightly contract
in 2023 with a close to 1% decline, led by lower gas use forpower generation and assuming average weather conditions.
We use the Announced Pledges Scenario (APS) from the IEA
as a baseline for the outlook in the coming decades. In the
APS scenario, global gas demand soon peaks and by 2030 is
8% lower than in 2021 (Figure 4.2). The decline continues inthe years after 2030, until gas demand in 2050 is almost 40%
lower than in 2021. The decline is driven by the push forrenewables, but also by the supply squeeze on the gas
market that is not expected to ease until the mid-2020s. The
path provided by APS is surrounded by high uncertainty as
the assumption is that governments will meet, in full and ontime, all of the climate‐related commitments that they haveannounced, including longer term net zero emissions targets
and pledges in Nationally Determined Contributions (NDCs).

4.2 Gas consumption per region in billion cubic metres (bcm)Three regions are still expected to see growing gas demand
between 2021 and 2030: Asia-Pacific, Middle East and Africa.
In Asia, gas demand continues to grow by 60 bcm in the next
decade, with growth concentrated in China and India. In
China, it slows considerably: growth drops to 1% per annum
between 2021 and 2030 compared to 12% in the previous
decade. The coal‐to‐gas switching which started in the 2010s
continues into the 2020s, but at a more moderate pace. We
expect gas demand in China to peak in 2030. After this, it
starts to decline at almost 3% annually between 2030 and
2050. In 2050, Chinese demand is forecast to be 130 bcm
lower than in 2021. In India, gas demand is ramped up in thenext decade, with almost 6% annual growth. Most of thegrowth comes from manufacturing and other industry,helped by the expansion of city gas distribution networks.
Around 2040, demand in India peaks. It declines by anannual 2% per year between 2040 and 2050.
Besides Asia, the Middle East is an important source ofdemand, accounting for an additional 70 bcm in the next
decade. This translates to an annual growth rate of 1.3%. After
2035, it starts to decline, but at a very moderate pace. In the
coming decade, growth is mainly concentrated in the power
and industry sectors.
North America (particularly the US), Japan, Europe andCentral and South America are projected to see a decline ingas demand both in the medium and long term. In the US –the world’s largest natural gas consumer - gas demand falls
by 2.2% annually between 2021 and 2030. The Inflation
Reduction Act spurs increased deployment of renewables,
improved energy efficiency measures and cost declines forheat pumps, significantly reducing gas demand in the powerand buildings sectors. In the more distant future, after 2030,
US gas demand starts to decline at an accelerated pace.
Between 2030 and 2050, gas demand is expected to decline
at an annual rate of 4.2%.
Europe is forecast to reduce gas demand by 230 bcm
between 2021 and 2030, a total decline of 37%(corresponding to an annual decline of 5.0%). In the baseline
scenario, APS, in the EU there is a strong surge in wind andsolar capacity additions and a bigger push to retrofit
buildings and install heat pumps. These help to bring EU gas
demand down by 180 bcm by 2030, which corresponds to a

Atradius Energy Outlook Update – February 2023 | 18

6.0% annual decline. Between 2030 and 2050, EU gas
demand declines at a higher speed of 7.4% annually.

increase by 45 bcm from today. In the more distant future,
after 2030, US gas production starts to decline at anaccelerated pace of more than 3% per year.

4.3 Gas supply outlook

We expect gas production in Russia to fall significantly by
210 bcm between 2021 and 2030. This represents an annual
production decline of 3.3%. The APS scenario assumes
Russian gas deliveries to Europe fall to zero before 2030. The
upstream projects designed to serve Nord Stream II –Kharasavey and the Bovanenkovo expansion – struggle in
the near term to find alternative outlets. The Tambey field
expansion to underpin new LNG projects is unlikely to ramp
up to its original capacity. The flaring of associated gas9 hasrecently increased, and there is a short-term risk of large‐
scale flaring or venting to ease system pipeline pressures.

Russia has cut its natural gas pipeline flows to the European
Union by 80% since invading Ukraine. This has led to a
profound reshuffling of trade flows around the world.
Europe is importing more LNG, whereas other importing
regions such as Asia are importing less. The procurement of
more LNG is not shielding Europe completely from theeffects of reduced Russian supplies. It will need to import
more LNG and also diversify gas imports from non-Russian
pipeline suppliers. The US has the capacity to step up LNG
deliveries, but it will take time to establish other major new
sources of LNG: for example, large new export facilities in
Qatar are not expected to start operations until the middle ofthe decade. There are considerable uncertainties
surrounding the future of LNG. While LNG demand is
expected to grow until the mid-2020s in all IEA scenarios,
there are sharp divergences thereafter. In the APS scenario,
only projects currently under construction are required.
In the APS, global gas supply declines by about 7% between
now and 2030 and by almost 40% between now and 2050
(Figure 4.3).8 Russia is projected to remain the largest gas
supplier in 2050, though it will supply 310 bcm less gas
compared to 2021 (an almost 40% reduction). We project the
US to remain the second-largest supplier, though it delivers
600 bcm less gas in 2050 than now. Qatar is forecast to moveto third place among the largest suppliers (currently Iran isthird).
4.3 Gas production per region in billion cubic metres (bcm)

We now turn to each region in more detail. In the UnitedStates, gas production is reduced by about 55 bcm between
2021 and 2030. This translates to an annual production
decline of 1% between 2021 and 2030. The production decline
is in stark contrast to the 4.5% growth rate in the previous
decade (when the US increased its production by 365 bcm).
Even as US gas production falls 7% below current levels by
2030 due to declining domestic demand, LNG exports
8 By definition, in the long term, global gas supply has to equal global demand.
9 Associated gas is natural gas that is produced along with crude oil, and typicallyseparated from the oil at the wellhead.

Russia’s efforts to diversify its export markets have mixed
success. Deliveries to China are expected to increase, whichis largely achieved through the ramping up of the Power ofSiberia pipeline, and to a lesser extent by a new pipelinefrom Sakhalin into northeast China. Overall, however,Russia’s increased pipeline natural gas deliveries to China
cover less than half of the drop in exports to Europe by 2030.
There are no easy options for Russia in its search for newmarkets. Sanctions undercut the prospects for large new LNG
projects, and long distances to alternative markets make new
pipeline links difficult. In the APS, Russia’s share ofinternationally traded gas, which stood at 30% in 2021, falls
by 2030 to less than 15%.
The Middle East remains the largest near-term source of
supply growth. The entire Middle East region is projected to
add about 140 bcm in additional supply up to 2030. Qatar is
expected to step up its gas production by around 70 bcm up
to 2030. This forecast is underpinned by rising LNG trade asEurope has significantly higher import needs after theRussian invasion of Ukraine. New supplies are madepossible by expansion of the North Field in Qatar.10 Saudi
Arabia adds about 50 bcm in production up to 2030, but thisis solely used for domestic needs. The country with thelargest gas reserves in the region, Iran, adds only about 20
bcm in production, which is also mainly used to meetdomestic demand.
The other gas producing regions – Europe, Africa, Asia andLatin America – all see production declines as well. In Asia,
the decrease mainly takes place in Southeast Asia. China andIndia are still ramping up production until 2030; and Indiaeven up to 2050. China emerges in each scenario in the top
five largest natural gas producers, along with the US, Russia,
Iran and Qatar. India increases gas production by 4.4% peryear between now and 2030 (for a total of 15 bcm); its
government has recently announced a doubling of its licencearea for oil and gas exploration. In Latin America, the APS
scenario foresees a 1.4% production decline between 2021
and 2030 (in total 18 bcm). In Africa, most of the increased
production in the next decade comes from Mozambique,which increases its production by 10 bcm until 2030. Finally,

10 The world’s biggest single non-associated natural gas field, offshore north-east Qatar
peninsula. The North Field represents the southern part of the giant natural gas field thatis shared between Iran and Qatar.

Atradius Energy Outlook Update – February 2023 | 19

we forecast that Europe will lower its gas production by
about a quarter (65 bcm) in the next decade.

4.4 Gas price outlook
We align our baseline price forecast with the Announced
Pledges Scenario (APS) from the IEA, and the alternative
scenario with the IEA’s Net Zero Emissions (NZE) scenario.
The IEA scenarios model an energy system in equilibrium, inwhich energy prices follow a relatively smooth trajectory tobalance supply and demand, and where energy markets,
investment, technologies and policies all evolve in amutually consistent direction. Unlike oil, there is no single
global price for natural gas, but instead a set of regional
prices that are increasingly interlinked by the ability of LNG
tankers to seek out the most advantageous commercial
destination. Figure 4.4 shows the gas price forecast underthe APS and Net Zero scenarios. The 2022 gas crisis is not
visible in this figure as IEA takes 2021 as a base year andmakes long-term projections.
Under the APS scenario, the gas price is trending down in all
three regions. The gas price stays relatively high in Europe in
the near term as Russian exports to the European Union are
assumed to fall further in line with the expiry of contracts
that have yet to be cut unilaterally. By 2030, however, the EU
gas price returns to around USD 8 per million btu as new
supply comes online and market conditions ease. The Henry
Hub price, the marker for natural gas in the United States,
remains more or less flat up to 2030, but declines slightly
after this. The Asian LNG price shows a declining trend overthe forecast horizon, but remains higher than in Europe or
the US (except in the near term, which is not explicitly
depicted in the figure). Over the coming decades, LNG trade
is expected to take a more prominent role, which reduces theprice spread between Asian LNG and Henry Hub.

4.5 Net Zero Emissions:stronger demand reduction
Given climate change and the increasing speed of energy
transition, it is important to look at alternative scenarios. We
use the Net Zero Emissions scenario (NZE) as the alternative
to APS. NZE is a normative IEA scenario that shows apathway for the global energy sector to achieve net zero CO2emissions by 2050, with advanced economies reaching net
zero emissions in advance of others. Under the NZE scenario,
the decline in gas consumption is stronger than under APS,
but some additional investment is needed to compensate for
reduced Russian supplies. Gas demand in NZE is over 900
bcm lower in 2030 than in 2021, a drop of around 20%. By
2050, the level of demand is 70% lower than today. Due tothe stronger push for renewable energy, the position of gas
in the total energy mix declines even more sharply thanunder APS, from 16% today to 5% in 2050 (compared to 10%
in 2050 under APS). By 2050, unabated natural gas meetsless than 15% of total demand for gaseous fuels; low‐emissions gases account for over 70% of total gaseous fueldemand and natural gas used either for non‐combustion
purposes or equipped with carbon capture utilisation andstorage (CCUS) for the remainder. Around 500 bcm of natural
gas is used with CCUS to produce low‐emissions hydrogen in
2050, providing around 25% of total hydrogen demand (withmost of the rest produced from electrolysis).
4.6 Gas consumption under APS and NZE

Under the APS, the EU still needs to attract additional non‐Russian gas, keeping near‐term gas prices elevated. This has
knock‐on effects on prices in other importing regions,although the effects in Asia are muted by the link to oil prices
in many long‐term contracts.
4.4 Gas price forecast under APS and NZE scenarios

The gas price in the NZE scenario clearly gravitates to alower equilibrium level. Compared to our 2022 Energy
Outlook, equilibrium prices in the long term (2050) are allrevised upwards, except for the US Henry Hub price under
the NZE scenario. These upward price revisions are driven
by a permanent loss of Russian gas supplies to Europe, partly
due to supply cuts by Russia, but also to a drive within
Europe to reduce imports from Russia.

Atradius Energy Outlook Update – February 2023 | 20

Sources
Atradius Economic Research, “Energy Outlook Update – May 2022”, Energy Outlook Update - May 2022 | AtradiusBP, “Statistical Review of World Energy 2022” – all data, 1965-2021, https://www.bp.com/en/global/corporate/energyeconomics/statistical-review-of-world-energy.html, January 2023
International Energy Agency, “World Energy Outlook 2021”, October 2021
International Energy Agency, “World Energy Outlook 2022”, October 2022
International Energy Agency, “Gas Market Report, Q4-2022”, October 2022
International Energy Agency, “Oil Market Report – January 2023”, January 2023
International Energy Agency, “Renewables 2022”, December 2022
North Field East Project, Qatar, https://www.offshore-technology.com/projects/north-field-expansion-project/ (accessed 30
December 2022)
Oxford Institute for Energy Studies, “Quarterly Gas Review”, December 2022

Atradius Energy Outlook Update – February 2023 | 21

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