Russia's invasion of Ukraine has roiled international commodities markets with uncertainties.
Russia and Ukraine are vital players in the international trade of key commodities serviced by bulk liquid terminals - including crude oil, liquefied natural gas, ammonia, fertilizers and food oils. Supply chains will need to be nimble as they seek to adjust to whatever new trade patterns emerge for these commodities. Bulk liquid terminals will play a vital role as they provide logistical support and storage options to enable supply chains to function.
Russia is Europe's largest supplier of natural gas. Europe's largest economy, Germany, depends on natural gas for over a fifth of its energy mix, and Russia supplied 38 percent of it in 2021. Ukraine, as the main route for Russian natural gas to Europe, earns about $3 billion per year in transit fees.
The International Energy Agency (IEA) has issued a 10-point plan to reduce European reliance on Russian natural gas by one-third over the next year. The plan calls for an increase of 20 billion cubic meters (Bcm) in LNG imports over the next year, and notes that the EU could ramp up LNG imports by 60 Bcm based on available regasification and pipeline capacity.
Rising tensions in the region have contributed to significantly increased U.S. LNG exports to Europe. In fact, U.S. LNG shipments to Europe surpassed Russian pipeline deliveries of natural gas in January 2022. Europe will look to supplement increased LNG imports with pipeline imports from other suppliers, energy conservation efforts, more domestic production, and other resources such as coal, wind, solar and, potentially, nuclear.
In the longer term, the Russian invasion of Ukraine has further raised the political stakes associated with natural gas. Europe can be expected to accelerate its overall transition away from natural gas in the longer term.
Natural gas is an essential input into the production of synthetic ammonia, which is, in turn, a major feedstock for producing much of the world's fertilizers. In 2020, Russia was the second largest producer of synthetic ammonia in the world, with 15 million tons. That same year, Russia accounted for 23 percent of the global ammonia export market.
The connection of natural gas to fertilizer in Russia and Ukraine is compounded by the stature of these nations as agricultural exporters. While Ukraine ranks 51st in the world in terms of export value overall, it is a powerhouse in the export of another category of bulk liquid commodities - vegetable oils. Ukraine's exports of sunflower seed oil increased more than 30-fold between 1998 and 2021. The value of Ukraine's export sales of edible oils and fats grew by nearly 20 percent from 2020 to 2021 alone, rising to $8.56 billion.
Ukraine's sales of vegetable oils accounts for more than 30 percent of its agricultural exports and over 12 percent of its exports overall. Ukraine's edible oils are destined for 155 foreign markets, most notably India, China and the European Union. Vegetable oils are key inputs for commercial production of packaged foods and breads. Compounded by the fact that Russia and Ukraine together account for nearly 30 percent of global wheat production, consequences to world food supplies are likely.
The economic inter-relationships of natural gas and other bulk liquid commodities will have implications around the world. The full consequences of the market upheavals that will follow are unknowable, but it is certain that tank terminals will continue to provide essential services to support supply chains for critical commodities as new trade patterns emerge.
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