Russia-Ukraine: Four possible scenarios, energy prices to remain elevated – ABN Amro

Tensions between Russia, on the one hand, and Ukraine and the US and Europe on the other hand, are building. Strategists at ABN Amro have identified four different scenarios, with the most negative assuming a halt of Russian exports of energy products such as natural gas, liquified natural gas (LNG) and/or oil.

The status quo (75% likelihood)

“We expect the situation in the energy markets to remain unchanged. Nevertheless, in this scenario, natural gas prices stay elevated for a longer period of time as the markets continue to be tight, at least until the spring of 2023. In the event of a harsh winter, either in Europe or in Asia or both, pressure would increase on the LNG markets. However, these extra price gains will probably disappear as soon as the cold period is over.”

A de-escalation leading to normalisation of markets (15% likelihood)

“Energy markets would start to normalise. There will be enough gas supply available for consumers in Europe in the course of 2022. Natural gas prices would normalize towards the pre-2021 levels of the low EUR 20s/MWh or even lower as soon as the ongoing tight market conditions for this winter are over.”

Tensions worsen, Russia halts gas exports to Europe (5-10% likelihood)

“With no short-term alternatives to fully replace Russian gas exports towards Europe, energy supply would need to be rationed, in particular for industry. In addition, prices of natural gas would jump significantly higher, and reach new record highs for a large part of the forward curve. The TTF monthly contracts could trade above EUR 200/MWh for an extended period, with peak prices significantly higher. As an indirect effect, prices of electricity would jump higher throughout the whole of Europe.”

An even bigger escalation would also affect oil markets (<5% likelihood)

“Russia would decide to halt oil exports towards Europe. Such a shift in the oil markets would lead to higher oil prices. Oil prices would be trading above $100/bbl and in case of serious supply worries even head for a new test of the all-time high ($149/bbl). Due to tighter market conditions, this situation could hold for the rest of the year.”