The war in Ukraine will likely slow near-term European efforts to cut carbon emissions as immediate economic imperatives spur many countries to prioritize energy security and affordability over decarbonization, Trend reports with reference to Moody’s.
The war, which caused natural gas prices to spike following a sharp increase during the prior year, has triggered unprecedented economic sanctions on Russia's government.
“The global energy supply crunch that preceded the invasion had already highlighted the dependence of many European Union (EU) member countries, such as Germany, Italy and the Baltic states, on Russian natural gas imports for their heating needs. These developments have made energy security an urgent priority for governments in the region – potentially at the expense of near-term decarbonization efforts,” the rating agency said in its report.
However, Moody’s analysts note that increasingly ambitious national and corporate climate commitments and the long-term drive to reduce dependence on fossil fuels will ensure that plans to reduce carbon emissions will remain intact.
“And the credit implications of this momentary loss of momentum are likely to be limited. Because of pressing economic imperatives, the only viable, near-term alternatives to Russian hydrocarbon imports are other hydrocarbons. As European oil- and gas-importing countries shift away from Russian hydrocarbons, other hydrocarbonexporting sovereigns, such as Saudi Arabia (A1 stable), Abu Dhabi (Aa2 stable) and Norway (Aaa stable), will be poised to benefit from higher oil and gas prices. Based on their environmental issuer profile scores, hydrocarbon-exporting sovereigns have highly negative or very highly negative exposure to environmental considerations, mainly driven by carbon transition risk,” the report says.
Moody’s notes that a new US-EU task force aimed at strengthening European energy security is credit positive for US-based liquefied natural gas (LNG) exporters and related export facilities because it may hasten the completion of new contractual arrangements with European natural gas wholesalers and retailers.
“However, an immediate increase in EUbound LNG volumes would likely require these offtakers to divert shipments bound for Asia (see Joint task force to strengthen European energy security is credit positive for US LNG). Even before the Russian invasion, capacity constraints also left the Organization of Petroleum Exporting Countries with limited oil and gas spare capacity to increase supply in 2022,” reads the report.
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