A potential peace agreement between Ukraine and Russia would be unlikely to lead to large additional volumes of Russian gas returning to European markets, as the EU has nearly fully replaced it with alternative sources, Fitch Ratings says. The global oil market implications would be minimal since Russian oil has been largely redirected from Europe.
While not our base case, we consider three hypothetical scenarios for Russian gas resumption beyond current LNG and Turkstream flows, with the resulting implications for the TTF gas price ranging from negligible to a decrease of 50%-60%. However, prospects for a ceasefire and peace agreement remain highly uncertain.
Sanctions have slightly reduced Russian oil exports, with limited impact on global supply, as discounted Russian oil has been redirected to China, India, and Turkiye. Russian oil and product exports decreased by 0.5 million barrels of oil equivalent per day (MMboepd) in 2024 from 2022. Despite a 2.8 MMboepd drop in EU exports, exports to China, India, and Turkiye increased by 1.8 MMboepd.
Sanctions have not significantly affected Russian oil production, although, if they were to remain in force, the long-term effects could be more pronounced due to challenges in accessing Western technology.
The global oil market remains oversupplied, with OPEC+ spare capacity of 5.6 MMbpd. We believe market balance and oil prices will chiefly be determined by global economic performance and OPEC+'s supply management. Russian oil production and exports account for 10% and 5% of global demand respectively, which is insufficient to tighten the oversupplied market. Russian supply is constrained by its OPEC+ production target.
Following sanctions and a USD60/bbl price cap on Russian oil by the Price Cap Coalition (including the G7, Australia and the EU) in 2022, the Russian Urals benchmark has traded at a substantial discount to Brent. If sanctions were lifted, the discount – currently USD15/bbl compared to nearly zero historically – may normalise. However, we would expect this to provide minimal support for oil prices overall, given the market's oversupply and the greater role of other factors.
We believe a full return of Russian gas supplies to pre-war levels is highly unlikely. The EU has substantially cut its reliance on Russian gas and diversified its sources, focusing on energy security. Remaining small volumes of Russian gas supplement alternative LNG and other imports, fully meeting Europe's needs. We therefore do not expect substantial additional flows of Russian gas to Europe if the war ends. While a peace agreement could see partial resumption of additional volumes, they would likely be limited by geopolitical considerations, affecting the chosen routes.
Moreover, new LNG projects are likely to create a market surplus in the medium term, further diminishing demand for cheap Russian gas. We forecast new large LNG supply from Qatar and the US to come onstream in 2027-2028, putting pressure on gas prices. The US has become an important LNG exporter, while Europe offers a competitive market. QatarEnergy is expanding LNG production capacity to 126 million tonnes per annum (mtpa) by 2028 from 77mtpa currently. The EIA estimates LNG export capacity will grow by 100bcm in the US in 2024-2028.
Russian gas supplies to the EU in 2025 are limited to the Turkstream pipeline and LNG, accounting for just 13% of imports year-to-date. Flows via the Nord Stream, Ukraine, and Yamal pipelines have been halted. Russian pipeline gas supplies to the EU fell to 33bcm in 2024 – split evenly between Turkstream and Ukraine pipelines – from 153bcm in 2021. This equates to a fall from 41% to 11% as a share of total EU imports, or to 18% if including LNG.
Source: Fitch Ratings