It’s been three years since Russia invaded Ukraine, and the subsequent energy cutoff to Europe which occurred. With cost-of-living at an all time high, it is interesting to look back on the events of the past three years and trace how prices (especially for gas) have been irreversibly increased due to the disruption in production networks not just within Europe, but around the world., affecting all countries and trading partners in some way.
What determines the price of gas
The price of gas is directly determined by what the going price of crude oil is. The cost of oil is not fixed due to the fact that its cost is influenced by a variety of factors which are never constant. Most importantly, the cost is determined by what the global market supply is. When it is more in demand, the price rises versus when there is more of it available, it falls. Additionally, the growth of major world economies tends to mean there is more demand for energy, which causes the price to rise.
When Russia invaded Ukraine this time three years ago, many will remember how the price of gas skyrocketed. This is because Russia cut off its selling of crude oil to the European market. Russia is one of the largest global exporters of crude oil. Ranking just behind Saudi-Arabia, the largest producer of crude oil, Russia is an essential supplier of natural gas to markets all over the world. In addition to Russia’s own cut off to European markets, many other countries placed sanctions on Russia after the invasion, meaning they would not import Russian crude oil.
All these factors subsequently meant that the price of gas around the world hit an all-time high. With these major disruptions to the global market supply of crude oil, there was an energy shortage of crude oil which made it much more expensive to buy for the production of gas. This was felt hard on consumers, and the effects are still being felt today with gas prices, while reduced, still not back to what they once were before the war broke out.
Global energy crisis of crude oil
When the war first broke out, a major concern faced by Europe was how they were going to import oil for gas with one of their largest trading partners cutting off supply. While the US also supplies crude oil to Europe, they were unable to assist with expanding their exports due to infrastructure limitations:
“If U.S. producers wanted to send more, they cannot,” said Anna Mikulska, a nonresident fellow in energy studies at the Baker Institute, “which means that U.S. prices — domestic prices — are unlikely to increase because of higher demand in Europe or Asia.”
While at the time experts thought that gas prices in the US would not be severely affected, the reality was that there was a significant spike in prices. This was further impacted by the fact that the world was just emerging out of the COVID-19 pandemic which had also been a major disruptor to energy supplies and normal trading operations.
The problem with the global reliance on oil
The outbreak of the ongoing war in 2022 highlighted the global energy reliance crisis the world is currently faced with. While the transportation industry has been advancing its innovation in technological developments for more renewable alternative engine solutions, implementation has been slow on a large-scale and the internal combustion engine still dominates on the world. The world needs to move beyond its reliance on oil and gas in order to achieve a more sustainable energy distribution practice for now, and future generations.
