Twelve months ago, on Feb. 5, 2023, the European Union effectively relinquished its main source of diesel supply by implementing a ban on imports of oil products from Russia. The continent has so far been able to find new sellers, but the current situation in the Red Sea is a reminder of how vulnerable European supply security has become.

For many decades, Europe has relied on Russia for its energy needs. Moscow’s cheap natural gas and crude oil were too convenient to ignore. So when Russia expanded its refinery capacity during the 2010s, Europe took advantage quickly. Imports of Russian diesel jumped to almost 25 million metric tons in 2017 from 6 million mt in 2012. This meant lower fuel prices for European drivers, lower costs for the industry – and more cash pouring into Russia, funding Vladimir Putin’s regime.

The deal was so good that Russian supplies increased to account for nearly half of the EU’s annual diesel imports. However, in February 2022, everything changed. Putin decided to invade Ukraine, and the G7 countries retaliated with sanctions on Russia’s main source of income – the oil and gas industry.

The EU announced a ban on imports of Russian crude and oil products from December 2022 and February 2023, respectively. This meant that Europe was obliged to find new sources for some 25 million mt of annual diesel imports, and Russia would also need to redirect the same volumes elsewhere.

With traders scrambling to make sense of the sanctions, markets rushed to reflect the new, worrying reality. The European ultra-low-sulfur diesel (ULSD) crack, which had averaged just under $8/barrel in 2021, jumped to $40/bbl over the first month after Russia invaded Ukraine and soared to $63/bbl after the oil ban was announced.

One year later, ULSD crack values have eased to around $30/bbl, still high compared with historical levels. The market has managed to keep diesel flowing to where it’s needed, but this has come at a cost, particularly for the European economy.

On one hand, Russia has defied expectations, maintaining diesel export volumes broadly unchanged throughout 2023 by finding new buyers across the developing world. Some refiners, particularly in Turkey and the Middle East, have taken the opportunity to buy discounted Russian diesel for domestic consumption, redirecting their own production to Europe instead. Other countries like India have stepped in to take discounted Russian crude to maximize refinery runs and then sell the fuel to Europe.

Russia’s exports of diesel and gasoil to Turkey have climbed by 10.3 million mt on an annualized basis since the EU ban was implemented, according to Kpler data for the last three years. Flows to Brazil have increased by 8.1 million mt, with the balance mostly redirected to an array of countries in North Africa (5.6 million mt), the Middle East (4.8 million mt) and West Africa (3.9 million mt).

A source at the European Commission told OPIS that the original plan when the sanctions were designed was to reduce Putin’s oil revenues without “impacting global energy markets”, suggesting that they intended to slash Russia’s export prices rather than volumes, in particular for the global south. The sanctions were successful at harming Russia’s war effort, even if they haven’t met the expectations of some people, the source said.

The Centre for Research on Energy and Clean Air (CREA), a Finnish research organization, estimates that the sanctions have reduced Russia’s oil export revenues by 14%, or €34 billion ($36.9 billion) as of December 2023. “That impact, though, is far short of what could have been achieved,” CREA said.

Europe’s Diesel Consumption Plunges

And what about Europe? The continent, too, has found new trade partners. Compared with 2021 and 2022, the 27 EU countries and the UK increased diesel imports from the Middle East by 7.8 million mt on an annualized basis, by 5.8 million mt from the US, by 5.2 million mt from India and by 2.7 million mt from Turkey.

However, the bulk of the balance comes from lower overall diesel flows into Europe of around 10 million mt. With domestic refinery runs broadly flat in 2023 compared with 2022, according to data from the International Energy Agency (IEA), the supply deficit suggests that Europe has adjusted to the loss of Russian supply by reducing its own fuel consumption.

Indeed, the IEA estimates that diesel and gasoil demand in OECD Europe declined by around 200,000 b/d in 2023, which is roughly equivalent to 10 million mt. Collapsing diesel consumption in the continent has been mainly driven by an ongoing switch away from diesel cars. These are being replaced by new models of gasoline, gasoline-fuelled hybrids and, to a lesser extent, electric vehicles.

Automobile manufacturers recently reported that sales of new diesel cars in the EU slumped to just 1.4 million units last year. This compares with 6.6 million registrations in 2017, only six years earlier.

In addition, the European manufacturing sector remains in deep contraction, particularly in Germany, which is clearly weighing on consumption. Industrial activity is directly linked to diesel and petrochemicals demand.

Finally, heating use is also falling, as gasoil systems are replaced by gas boilers and electric heat pumps, and, crucially, the last two winters have been warmer than average.

In summary, Europe is now using less diesel and paying a premium to source it from further away. “Sending Russian crude to India, and then India sending products back to Europe – that adds a structural cost,” Calvin Froedge, the founder of maritime analytics platform Marhelm, told OPIS.

Moreover, James Noel-Beswick from Sparta Commodities said the EU ban on crude oil imports impacts diesel production at European refineries. This is because Russian crude has been replaced with other crude types that yield lower middle distillate output.

Shipping Costs Soar

Meanwhile, the reshuffle of traditional diesel trade routes into longer sea journeys is causing cargoes to travel further to their final destinations, which reduces vessel availability and, therefore, increases shipping costs – all of which eventually feed into the final fuel price.

“In our last update, we had LR (Long Range) 1 and LR2 tanker rates at just under $50,000/day; that’s an extremely strong rate. It used to be around $10,000/day prior to the invasion,” Calvin Froedge said. LR1 and LR2 are the types of vessels typically used to carry oil products from the Middle East and India into Europe, able to haul 60,000 mt and 90,000 mt, respectively.

Yet, on Jan. 26, just one week after OPIS spoke with Froedge, LR2 diesel tanker rates for the TC20 route from Jubail to Rotterdam had soared above $120,000/day. This was as companies chose to avoid the Red Sea due to Houthi attacks by diverting to the much longer Cape of Good Hope route, triggering a shortage of tankers and increasing shipping costs. As a result, European ULSD cracks widened to $33/bbl from $24/bbl in the span of three weeks.

“Europe has become very dependent on flows of Asian diesel and jet fuel via the Suez Canal due to the sanctions on Russia, and that is why those recent Suez issues are affecting European prices so much,” James Noel-Beswick told OPIS.

The disruption caused by the Houthis in the Red Sea is a good reminder of how dire the situation is for Europe. The continent is now significantly more exposed to supply shocks, as evidenced when French refineries were shut by strikes in the autumn of 2022 and spot diesel cracks soared above $80/bbl.

In short, European policymakers have been relatively successful at trimming Russia’s profits. But, in doing so, these officials have increased the price that EU citizens and companies pay for fuel. They have also left the continent more vulnerable to unexpected supply disruptions and have made it costlier for everyone to transport oil and refined fuels across the world.

Did you know that at one time, the natural gas industry was under monopolistic control? Let’s take a look back at how it evolved toward “common carrier status” and how that has encouraged competition and growth in the natural gas market.


U.S. natural gas prices could very well be looking at a volatile year in 2019.

While U.S. dry gas production is soaring, natural gas demand is also growing, most notably as a global fuel source with exports to Mexico and through liquefaction terminals on the Gulf Coast and East Coast consuming more and more gas each month.

What do these developments mean for natural gas supply, demand, storage and price? 

Several important developments emerged in 2018. First, natural gas dry production in the Lower 48 repeatedly set new records on a daily, weekly and monthly basis. In every month but December, production levels set a new record, usually by a wide margin. This allowed the U.S. to build its position as the world’s top producer of natural gas.

Second, from a demand perspective, fuel switching in the electric power sector was less affected by price than in prior years. During summer 2018, natural gas prices remained above the levels that traditionally had incentivized power generators to switch to coal operations. But the switching didn’t occur last year, and gas demand remained strong even at higher price levels. In short, gas-generated power has become more inelastic as it relates to competing fuels, particularly coal.

Third, higher and steady prices in summer 2018 affected the pace of injections of natural gas into storage during the summer. End-of-summer inventory levels were 13% below the five-year average and their lowest since 2002. As fall began, however, those low inventories led to another effect: increased volatility.

Top Natural Gas Price Trends in 2019

As we look to 2019, OPIS PointLogic has several key questions we will be asking:

These are important issues to watch on a national and regional basis. For price volatility, OPIS PointLogic will be watching both Henry Hub and the regional markets, which are affected differently by the forces driving the natural gas industry. The Northeast and West Texas are now the centers of production in the Lower 48, with the Southeast and Midcontinent largely relegated as demand centers. The Rocky Mountains are facing mounting pressure on production without much systemic demand growth, while the Western market’s view on natural gas dependency looks tenuous at best.

Below are some key issues that our regional analysts will be following this year.



Natural gas storage inventories in the U.S. Lower 48 have been 20%-25% below normal for almost all of 2018, despite record U.S. natural gas production.

OPIS PointLogic, tracking natural gas storage, notes that firm contract commitments for that storage are exhibiting patterns that were not expected several years ago.

Much can be learned about market sentiment by looking at firm storage contract commitment trends. (more…)

My colleagues and I are excited to organize and attend the North American Export Coal & Gas Summit on October 9-11 in San Francisco. It is unique among North American energy conferences in that the sole focus is the export markets for coal and natural gas. The timing is auspicious. Coal exports have been exceedingly strong, and the development of the export LNG market is one of the most compelling subjects on the global energy scene.


A decade ago, something dramatic — and largely unanticipated — began to emerge in the US natural gas industry. At the time, we dubbed it the “Shale Gale.” (more…)

U.S. natural gas exports to Mexico are growing. Exports were a record 4.2 billion cubic feet per day (Bcf/d) in 2017, or more than twice the level in 2013.

Growth will continue. OPIS PointLogic is forecasting that exports will rise to 4.6 Bcf/d this year. And yet, Mexico holds much more potential as a natural gas destination than the current exports are providing.

What’s holding it back? Infrastructure.


Thanks to record natural gas production and growing production capacity for liquefied natural gas (LNG), the United States is becoming a global player in natural gas markets. 


As summer 2017 wound down, the U.S. Northeast experienced record natural gas production output and depressed consumption.

This set the stage for recently expanded pipeline routes to make their mark on the Lower 48 market.