Energy

HOUSTON (ICIS)–As the landmark year, 2025, swiftly passes, many within the US recycled polyethylene terephthalate (R-PET) industry doubt the demand and market growth promised by voluntary brand goals and regulatory post-consumer recycled (PCR) content minimums will come to fruition. Despite this reality, the market has and will continue to see slow progress, with forecast growth even in the face of trade and macroeconomic uncertainties heading into this year’s Plastics Recycling Conference (PRC). MARKET SNAPSHOTOver the course of 2024, average US R-PET market prices saw increases across the board ranging from 2 cents/lb to over 6 cents/lb. More muted growth is expected throughout 2025. At present, East Coast bale, flake and pellet prices remain steady, on sufficient supply and unchanged demand trends despite March typically being a period of transition for the market. On the West Coast, bale prices remain under pressure from Mexican export interest, though domestic players are muted. Flake and pellet prices have shifted in line with bales, but remain under pressure from competitive recycled and virgin imports. Demand expectations across the US for the full spring season are mixed. Historically, demand from thermoformers who cater towards agricultural markets increases in the spring and summer alongside growing season. At the same time, demand from the beverage industry also tends to increase in the spring in preparation for summer bottled beverage consumption. Though, this year, ramp-up timing and intensity remains uncertain due to the impacts of tariffs and inflation on consumer spending. On the fiber side, demand is expected to remain weak and is typically not as seasonally driven. BRAND DEMAND AND SUPPLY LANDSCAPEWhen assessing PCR demand, there are two factors of influence: firstly, the overall product demand as referenced above, but then secondly, the transition from virgin packaging materials to recycled content. Hinging on the same macroeconomic uncertainty, late last year and early this year several brands have publicly stated it is likely they will miss their 2025 sustainability goals. Under this mentality, PCR sellers have noted that many brand and converter customers have downsized PCR growth plans throughout this year as a cost-savings mechanism. This comes as the most recent fast-moving consumer goods (FMCG) data suggests slowing progress, or even in the case of the 2023 Canadian Plastics Pact annual report, negative progress. According to the latest Ellen MacArthur Foundation Global Commitment report, nearly 1.6 million tonnes of additional recycled plastic would be needed for signatories to meet their 2025 targets, as compared to 2023 PCR volumes. On top of the overarching trend, much of the market presently remains in wait-and-see mode due to the whiplash effect of proposed US tariffs, though few players are heard to be operating strongly with consistent year-round demand. The fragmentation of the market persists, as was highlighted during off-peak season last year, and underscores the evolving landscape of polyethylene terephthalate (PET) recycling infrastructure. While some large players who have become entrenched as a premier provider of R-PET see strong order books, other standalone players continue to struggle. Adding to the mixed messaging, several players expect expanded capacity in 2025 such as Republic Services, D6 and Circularix, while another player, Evergreen, has announced a partial facility closure. Future investments in R-PET, whether domestic or international, have largely been paralyzed by the risk that market sentiment and trade policies could shift with each administration, and investments take several years to come to fruition. POLICYWhile not a primary driver of US international trade, plastic scrap and recycled plastic do have strong exposure to international markets, particularly Canada and Mexico as waste is regional and typically market economics hinge on location proximity. To be clear, the proposed 25% tariff on imported goods from Canada and Mexico does include recycled plastic and plastic scrap. When looking at bale and flake supply, tariffs could push US recyclers who are close to Mexico and Canada away from international supply, and towards domestic volumes, thus further straining the limited collection system. The US imported 133 million lbs of PET scrap in 2024, with Canada leading the globe as the US's strongest PET scrap trade partner, followed by Thailand, Ecuador and Japan. Moreover, several US converters and brands have partnered with Canadian and Mexican recyclers over the last several years and now may seek supply relationships with domestic recyclers to avoid additional tariff-related costs. This could be seen as a positive force for the domestic recycling market, though players expect little further support from the current administration, as sustainability and environmental progress has not been identified as a key priority. No federal policies are expected. Despite the ongoing negotiations of the Global Plastics Treaty, based on President Trump's second withdrawal from the Paris Climate Accord, it is unlikely the US will support another global sustainability effort. Instead, state-level legislation is expected to continue carrying PCR momentum, with several proposed extended producer responsibility (EPR) bills as well as some PCR mandates active within various state legislatures. Moreover, as existing policies continue to take shape, such as defining the regulations of California’s Senate Bill 54, or the implementation of Oregon’s EPR program starting this July, the industry hopes that regulation provides a stronger foundation for recycled plastic market growth over voluntary goals which shift with economic sentiment. Hosted by Resource Recycling Inc, the PRC takes place on 24-26 March in National Harbor, Maryland. ICIS will be presenting "Shaping the Future of Recycled Plastics: Trends and Forecasts" on Monday, 24 March at 11:15 local time in room Potomac D. As well as attending our session, we would love to connect with you at the show – please stop by our booth, #308. Visit the Recycled Plastics topic page Visit the US tariffs, policy – impact on chemicals and energy topic page Visit the Macroeconomics: Impact on chemicals topic page Visit the Logistics: Impact on chemicals and energy topic page Focus article by Emily Friedman

18-Mar-2025

HOUSTON (ICIS)–The US polyvinyl chloride (PVC) market is facing continued headwinds as tariff-related uncertainties persist heading into this year's International Petrochemical Conference (IPC). The domestic PVC market is expected to grow between 1-3% in 2025 but continues to face challenges in housing and construction. Meanwhile, export markets continue to wrestle with the threat of protectionist policies and tariffs at home and abroad. The domestic PVC market has been healthy to start the year but has been saddled with excess supply following capacity additions in late Q4. The new capacity, coupled with strong run rates, resulted in high levels of inventory to start the year. This added supply comes in contrast to a US housing market plagued by high prices and high borrowing costs. The pressure of these variables, coupled with exceptionally cold weather, was evident in January housing statistics, where housing starts slumped 9.8% to a 1.366-million-unit pace led by a steep 13.5% decline in the multifamily segment. Despite this, production and sales remained firm in February. Production was expected to decline in March due to turnarounds by two US producers. There was some positive economic news with 30-year mortgage rates easing in March and falling to their lowest levels of 2025 at 6.63% in early March before inching to 6.65% in mid-March. Still, current levels were well above levels considered necessary to spur demand, generally considered to be around 5.0-5.5%. Additionally, inflation appeared to stabilize in February, coming in at 2.8%, lower than the forecast 2.9% and below January levels of 3%. Despite these developments, consumer confidence remains weak. The US PVC export market will also face its share of challenges coming primarily via protectionist policies. Potential 25% tariffs on Mexico and Canada could present challenges as the US exports significant volumes of PVC to each country and then brings back the converted goods for use in medical, building and construction, auto and industrial applications. Reciprocal tariffs could increase the cost of these imports and dent US PVC demand. Additionally, US PVC exports face existing and potential tariff threats from a number of other trading partners including India, Canada, Mexico, Brazil and the EU. Given the challenges in the domestic market and current growth levels, US producers will need to export more than one-third of their production to maintain operating rates in the mid-80s% range, a tall task considering adequate supply and the proliferation of tariffs and antidumping duties (ADDs). To the south, the Latin America PVC market also faces significant challenges, with demand trends differing across key regional markets. A combination of economic pressures and the potential of US tariffs is reshaping the landscape, influencing both supply and demand dynamics. In Brazil, PVC demand remains weak, largely due to persistently high interest rates and ongoing economic uncertainty. These factors have led to buyer hesitancy, reducing the country's dependence on US PVC imports. The outlook for Brazil’s construction sector in 2025 presents a mixed scenario that could influence PVC market dynamics in different ways. The Brazilian Chamber of the Construction Industry (CBIC) projects a 2.3% growth in the sector’s GDP. At the same time, Sinduscon-SP and Fundacao Getulio Vargas (FGV) have a slightly more optimistic forecast, expecting a 3.0% expansion. This growth is primarily driven by ongoing projects and newly contracted developments set to begin in the coming months, particularly in infrastructure and real estate. However, broader macroeconomic factors may temper this momentum. The expectation of slower economic growth, higher inflation exceeding the target ceiling and rising interest rates could cool investment and business activity. If these conditions lead to tighter credit and reduced consumer confidence, demand for new real estate developments could soften, impacting the need for PVC-based materials used in construction applications like pipes, fittings and profiles. Colombia is also experiencing economic difficulties, though the exact demand trends remain unclear. The overall sentiment is cautious, with expectations for stable-to-weak demand in the near term. Meanwhile, Argentina faces persistent investment shortfalls in critical sectors, which continue to hinder PVC demand. This adds to the difficulties for US exporters separately aiming to maintain market share in the country. Mexico, as a key importer of US PVC, brings in around 350,000 tonnes annually. However, the introduction of new tariffs is expected to raise costs for downstream segments that export goods to the US, which reduces the competitiveness of US exports and demand could soften. Pricing dynamics are also likely to shift, if the additional tariff scenario among Mexico, Canada and the US changes in April, as the US Gulf PVC producers could face lower operational rates if demand from their primary export destinations declines. This could lead to production cutbacks, raising per-unit production costs. For the Americas as a whole, uncertainty remains a prevalent theme. 2025 looks to be a challenging year and the effect of proposed tariffs from the Trump administration and retaliatory tariffs on PVC demand is unclear, with economic and inflationary factors adding further uncertainty to the 2025 outlook. Policy and economic health will continue to drive demand in 2025 and producers will need to manage production and inventories closely, control costs and target alternative outlets for exports to mitigate the risks that lie ahead. Hosted by the American Fuel & Petrochemical Manufacturers (AFPM), the IPC takes place on 23-25 March in San Antonio, Texas. Visit the US tariffs, policy – impact on chemicals and energy topic page Visit the Macroeconomics: Impact on chemicals topic page Visit the Logistics: Impact on chemicals and energy topic page Focus article by Kevin Allen and Daniel Lopes Thumbnail source: Shutterstock

18-Mar-2025

TORONTO (ICIS)–Depending on who wins the next election, Canada may soon be without federal carbon pricing. Opposition Conservatives to scrap carbon pricing Ruling Liberals would retain industrial carbon pricing Industry sees carbon pricing as “backbone” of decarbonization Canada’s opposition Conservatives have finally clarified their position on federal industrial carbon pricing – they would abolish it, if they win the next election, they said, along with the federal consumer carbon tax. This would lower prices in the Canadian steel, aluminum, natural gas, food production, concrete and all other major industries, boost the economy, and allow “our companies to become competitive again with the United States”, the party said on Monday. Canada’s provinces could still address carbon emissions “as they like but will have the freedom to get rid of these industrial taxes that the federal government has forced them to impose”, party leader Pierre Poilievre said. Instead of carbon pricing or a carbon tax, the Conservatives would use technology "to protect our environment” they said. In particular, they would expand the eligibility for certain investment tax credits (ITCs), they said. The Conservatives’ announcement came after Canada’s minority Liberal government, under its new prime minister, Mark Carney, suspended the consumer carbon tax. The suspension was one of Carney’s very first actions after taking over from Justin Trudeau last week. However, Carney said that his government would retain and improve federal industrial carbon pricing as the most effective measure to control emissions. The premier (governor) of oil-rich Alberta province, Danielle Smith, said that she was concerned Carney’s government would “significantly increase the industrial carbon tax”, which would be just as damaging to Alberta’s economy as the consumer carbon tax had been. She suggested that federal industrial carbon pricing was a hidden carbon tax, rather than a transparent one. CHEMICALS Industrial carbon pricing is seen as key in attracting investments in low-carbon projects, such as Dow’s Path2Zero petrochemicals complex under construction in Alberta province. Trade group Chemistry Industry Association of Canada (CIAC) supports industrial carbon pricing. Carbon pricing and programs offering incentives for low-carbon chemical production plants were needed to get those facilities built in Canada, the group has said. “We support industrial carbon pricing as the backbone of decarbonization across this country,” CIAC and other industrial trade groups said in a joint statement last year. Industrial carbon markets were the most flexible and cost-effective way to incentivize industry to systematically reduce emissions, they said. ENVIRONMENTALIST Environmental Defense said that Canada’s industrial carbon pricing has “effectively driven down pollution levels more than any other measure”. The group also said that federal carbon pricing was needed if Canada is to diversify its exports towards other markets, away from the US. For example, Canada would not be able to access the European market without strong environmental rules like industrial carbon pricing, the group noted. The EU is implementing a Carbon Border Adjustment Mechanism (CBAM) that puts a price on the emissions of carbon-intensive goods imported into the EU. CANADIAN ELECTION Carney, who does not have a seat in parliament, is expected to call an election possibly as early as this week. Once called, the election will likely take place in late April or early May. Following Trudeau’s resignation announcement on 6 January, the tariff threat from the US, and US President Donald Trump's repeated suggesting that Canada should become part of the US, the Liberals have caught up with the opposition Conservatives in opinion polls about the next federal election. By law, the elections must be held before the end of October. Focus article by Stefan Baumgarten Thumbnail photo source: International Energy Agency

18-Mar-2025

BARCELONA (ICIS)–Moves by Germany and across Europe to boost defence spending could give a significant uplift to the region’s beleaguered chemical industry. Need to maintain robust national or regional supply chains may benefit chemical industry in Europe, which is threatened with closures German defence/infrastructure spending boost could be 2% of GDP, larger than increase linked to German reunification, post-war Marshall Plan Rising defence spending in Europe would help boost electricity demand significantly, estimates vary from 7%-30% Data-driven technology for defence would also raise electricity demand Will raise demand for gas and renewable-based power Europe will need to become more self-sufficient in energy, driven by renewables In this Think Tank podcast, Will Beacham interviews ICIS gas and cross-commodity expert, Aura Sabadus; Nigel Davis and John Richardson from the ICIS market development team; and Paul Hodges, chairman of New Normal Consulting. Editor’s note: This podcast is an opinion piece. The views expressed are those of the presenter and interviewees, and do not necessarily represent those of ICIS. ICIS is organising regular updates to help the industry understand current market trends. Register here. Read the latest issue of ICIS Chemical Business. Read Paul Hodges and John Richardson's ICIS blogs.

18-Mar-2025

LONDON (ICIS)–Business sentiment in Germany jumped this month to the highest level since the onset of the Russia-Ukraine war, driven by expectations of higher government spending and the recent interest rate cut from the European Central Bank (ECB). The metric of German business sentiment compiled by the ZEW economic institute surged 25.6 points to 51.6 points in March, the highest single monthly increase since January 2023 and the strongest reading since February 2022. Source: ZEW Russia invaded Ukraine at the end of that month, resulting in years of political uncertainty and higher energy costs for European industry. The sharp uptick follows recent elections in Germany that will likely result in the formation of a centrist coalition government and expectations of a drastic increase in spending on infrastructure and defense. Incoming Chancellor Friedrich Merz is expected to convene an emergency vote on Tuesday to push new spending plans which are expected to ease long-standing debt controls and deliver new investment. As a proportion of annual GDP, spending is expected to exceed that seen during the post-World War II Marshall Plan and German reunification in the early 1990s, according to economic consultants TS Lombard. The emergency vote is being conducted with the outgoing German government, as a strong showing for the far-left Die Linke and far-right Alternative for Germany (AfD) in this year’s elections could complicate a vote requiring near-unanimity. Two-thirds of outgoing German ministers need to back the bill for it to pass. European markets rallied on Tuesday in anticipation of the spending approval, with Germany’s DAX up 1.06% compared to Mondays close as of 12:04 GMT. “The brighter mood is likely due to positive signals regarding the future German fiscal policy, for example the agreement on the multi-billion-euro financial package for the federal budget,” said ZEW president Achim Wambach. “In particular, prospects for metal and steel manufacturers as well as the mechanical engineering sector have improved,” he added. The ECB’s move to cut interest rates earlier this month despite higher input cost inflation and the potential for retaliatory EU-US tariffs from next month was also a factor in firmer business prospects, Wambach added. The ZEW sentiment indicator is based on a survey of 350 analysts from the banking, insurance and industrial sectors. Thumbnail photo: The seat of German parliament in Berlin German (Source: Shutterstock)

18-Mar-2025

Taiwan’s incumbent announces higher March prices CPC continues to grapple with LNG costs Island ramps up receiving LNG capacity SINGAPORE (ICIS)–Taiwan’s main power company announced a hike in its posted prices for natural gas in March, citing globally higher LNG prices, according to an official notice . This comes as it faces pressure to buy more LNG supplies from the US and manage a sharp energy transition from nuclear and coal power generation fuels. Electricity prices will rise by 3%, while industrial users will face a 10% increase, as CPC Corp grapples with mounting financial pressure. The price adjustments come amid a sustained surge in global LNG costs that has pushed up prices of imported LNG cargoes into the island. According to data collected by ICIS, spot cargoes into Taiwan have ticked up in the recent months, at higher prices. CPC has held onto a policy to absorb the increase costs for residential users, a practice set to continue in March, despite a government-approved pricing formula that typically passes on these costs to consumers. However, with the company’s debt ratio reaching 93%, absorbing such losses is becoming unsustainable, according to the notice. Soaring LNG prices, driven by a cold snap and heightened European demand as well as EU stockpiling regulations have led to stiff competition for LNG. All of which has stretched Taiwan’s energy budget in the past months. The state-owned company has mostly absorbed losses to shield residential users from price hikes, holding rates for users steady through January and February citing ongoing Lunar New Year festivities alongside its price-stabilization policy. While industrial prices last rose in December, residential rates have remained unchanged for months and were even cut last May. At the same time, Taiwan has also looked to shore up its trade ties with the US after President Donald Trump took office and began issuing a slew of import tariffs and calling for more onshoring of manufacturing from trade partners with a surplus, such as Taiwan. In response, Taiwan has said it could invest in the proposed Alaska LNG project and buy more US LNG cargoes. As well, Taiwan Semiconductor Manufacturing Company (TSMC) has also pledged to invest in high-end chip manufacturing in the US. Taiwan also relies on de facto US military support as it faces a push for reunification with the Chinese mainland that could be enforced by a blockade of post and incoming LNG shipments. Taiwan has some offtake from the US including deals with TotalEnergies for Cameron LNG, and supplies from US producer Cheniere. LNG TO BECOME DOMINANT ENERGY SOURCE Even as the island grapples with high costs of bringing in LNG cargoes, it remains committed to its LNG push, expanding infrastructure at a rapid clip . Taiwanese incumbents, both the state-owned CPC Corp and Taiwan Power Co (Taipower) are investing in large-scale LNG storage tanks, regasification units, and gas-fired power plants. For instance, under expansion plans, Taipower will add 2.7mtpa by 2026 and another 3mtpa by 2029, taking its total receiving capacity to close to 11mpta. Meanwhile, Yung An terminal will be boosted by 2mtpa. Still, energy security remains a key concern as Taiwan leans heavily on imported liquefied natural gas to meet rising demand. “Taiwan has no piped gas and minimal domestic production, so LNG accounts for nearly 100% of the country’s gas supply,” said ICIS analyst Yuanda Wang. This leaves the island vulnerable to price swings alongside geopolitical uncertainty. Compounding the challenge is a nuclear-free policy shuttering two nuclear reactors . Taiwan will become fully nuclear-free in May 2025 as the 950MW Maanshan Unit 2 shuts down, leaving an 8.8TWh power shortfall , according to forecasts by ICIS. Last year, Jane Liao, a vice president at CPC, told a conference that the utility expects to see more LNG purchases into 2025 on the back of the retirement Taiwan’s nuclear plants. “We need to continue the purchasing,” Liao added. Premier Cho had also in July reaffirmed the commitment to reduce reliance on coal. As the island phases out these sources, it will inevitably turn to LNG to fill in the gap in its energy mix. ICIS modeling forecasts Taiwan’s power demand will rise by 12.5% in the first quarter of 2025, with LNG imports expected to hit 21.1 million tonnes in 2025. As energy prices rise and Taiwan doubles down on its LNG ambitions, businesses and consumers brace for higher costs. The island now faces a delicate balancing act: maintaining price stability while deepening its long-term reliance on LNG. (ICIS analyst Yuanda Wang contributed to this story)

18-Mar-2025

LONDON (ICIS)–In this ICIS energy podcast, energy news editor Jake Stones is joined by ICIS head of gas analytics Andreas Schroeder and ICIS energy managing editor Jamie Stewart to discuss the role speculative participants play in European gas and power markets today. Schroeder and Stewart provide a summary of recent bull and bear runs in EU energy markets, and look at the significance of speculative financial players' trading behaviors and how these have transformed market dynamics.

17-Mar-2025

HOUSTON (ICIS)–Here are the top stories from ICIS News from the week ended 14 March. US energy secretary optimistic as tariff proposals in early days The US is still in the early stages of its tariff proposals, which could increase the costs of the steel and aluminium needed for oil and gas production, but vigorous dialogue about their effect on the economy is taking place behind closed doors, the secretary of energy said on Monday. AFPM ’25: Shippers weigh tariffs, port charges on global supply chains Whether it is dealing with on-again, off-again tariffs, new charges at US ports for carriers with China-flagged vessels in their fleets, or booking passage through the Panama Canal, participants at this year's International Petrochemical Conference (IPC) have plenty to talk about. AFPM ‘25: US tariffs, retaliation risk heightens uncertainty for chemicals, economies The threat of additional US tariffs, retaliatory tariffs from trading partners, and their potential impact is fostering a heightened level of uncertainty, dampening consumer, business and investor sentiment, along with clouding the 2025 outlook for chemicals and economies. INSIGHT: Tariff war escalates as EU new round of retaliation includes US PE, plastic products Yet another front is opening up on the US tariff war – this one with the EU. In retaliation for US 25% tariffs on steel and aluminium imports that took effect on 12 March, the EU plans to not only roll out old measures, but launch new more significant tariffs directly targeting US polyethylene (PE) and other plastic products. AFPM '25: INSIGHT: New US president brings chems regulatory relief, tariffs The new administration of US President Donald Trump is giving chemical companies a break on regulations and proposing tariffs on the nation's biggest trade partners and on the world. Dow to announce decisions on European asset footprint on Q1 and Q2 earning calls – CFO Dow plans to announce decisions from its European asset review on its Q1 and Q2 earnings calls, its chief financial officer (CFO) said. Canada’s new prime minister to focus on trade diversification and security Canada’s new prime minister, Mark Carney, will focus on diversifying the country’s trade relationships and improving its security, he said on Friday after officially taking over from Justin Trudeau. AFPM ’25: LatAm chemicals face uncertain outlook amid oversupply, trade policy woes Latin American petrochemicals face ongoing challenges from oversupplied markets and poor demand, with survival increasingly dependent on government protectionist measures.

17-Mar-2025

TORONTO (ICIS)–Canada’s new prime minister, Mark Carney, will focus on diversifying the country’s trade relationships and improving its security, he said on Friday after officially taking over from Justin Trudeau. The new government’s top priority would be “protecting Canadian workers and their families in the face of unjustified foreign trade action”, he said with reference to the US tariffs on goods from Canada. Canada would be “building here at home” to become stronger while working “with different partners” abroad, he said. Carney plans to travel to France and the UK next week to talk about trade diversification and security with European leaders, he said. Although he has no immediate plan to meet US President Donald Trump, Carney was looking forward to speaking with Trump “at the appropriate moment”, he said. Canada joining the USCarney explicitly rejected Trump’s repeated suggestions that Canada should join the US as its 51st state. Following a G7 foreign ministers meeting in La Malbaie in Canada’s Quebec province on Friday, US Secretary of State Marco Rubio told reporters that Trump's position is that Canada would be better off joining the US "for economic purposes." Asked about these remarks, Carney said: “It’s crazy, [Trump's] point is crazy, that’s it.” “We will never, ever, in any shape or form, be part of the United States”, he said. Regarding the trade conflict, Carney reminded that Canada was the largest client of the US in many industries. “We respect the United States, we respect President Trump”, he said. Canada understood Trump’s priority to address “the scourge of fentanyl”, which was also a problem in Canada. It also understood the importance Trump places on American workers and jobs, Carney said and went on to say: “We want him [Trump], and his administration, to understand the importance we put on Canadian workers and jobs”. Carney noted that Trump was a “successful businessman and deal maker”, and he expressed the hope that the US will understand Canada’s position. As for Canada’s consumer carbon tax, Carney said that the new government would move quickly to abolish it. Carney said previously he would retain Canada’s industrial carbon pricing. Carbon pricing has been important in attracting investments in low-carbon projects, led by Dow’s Path2Zero petrochemicals complex under construction in Alberta province. He did not say when he will call an election. Carney, who is a former governor of the Bank of England and the Bank of Canada, does not have a seat in parliament. In the wake of Trudeau’s resignation announcement on 6 January and the trade conflict with the US, Carney’s Liberal Party has caught up with the opposition Conservatives in opinion polls about the next federal election. Elections must be held before the end of October. Please also visit US tariffs, policy – impact on chemicals and energy Thumbnail photo of Canadian Prime Minister Mark Carney; source: Liberal Party of Canada

14-Mar-2025

The following text is from a white paper published by ICIS called Trump peace talks bring further uncertainty over Russian oil and LNG sanctions. You can download the pdf version of this paper here. Written by: Aura Sabadus, Barney Gray, Andreas Schroeder, Rob Songer As US president Donald Trump pushes for Ukrainian-Russian peace negotiations, it is uncertain whether he might seek to strengthen or unwind some of the sanctions imposed on Russian oil and LNG over the last three years. Trump has also been pursuing a blend of tariffs and sanctions, complicating an already difficult landscape. This latest ICIS paper proposes to help companies navigate a complex environment, reviewing the impact of new tariffs and existing sanctions on markets, the likelihood that they may be scrapped and asks whether unilateral European sanctions on Russian oil and gas could be just as effective.  INTRODUCTION US President Donald Trump’s second term has ushered in a whirlwind of economic measures sparking volatility across markets and shaking the global economy. Since his return to power at the end of January, US trade policies have focused on a blend of tariffs and sanctions targeting import partners, Canada and Mexico but also political adversaries, Iran and Venezuela. From this vantage point, his wider economic measures have the potential to spur inflation and a global economic slowdown that could weaken energy demand at a time of surging global oil and gas supply, weighing heavily on prices. With events unfolding at rapid speed as policies are announced and rolled back within days or even hours, it is becoming increasingly difficult for companies to assess the direction that oil and gas markets will take in the longer-term. Perhaps the biggest wild card in this unpredictable environment is the US’ position on Russian oil and LNG sanctions. On 7 March, the US president said he was strongly considering an array of tariffs and sanctions on Russia but many observers do not exclude the possibility of a u-turn on restrictions as Washington has been doubling down on efforts to conclude a peace deal with Moscow over Ukraine. These sanctions could be eased either during peace negotiations or once the war ends. SANCTIONS AND LOOPHOLES Since Russia invaded Ukraine in February 2022, the US together with the EU and the UK imposed over 20,000 sanctions, targeting primarily its oil sector. Nevertheless, despite the sweeping sanctions, Russia still made close to €1tr in oil and gas sales since the start of the war, as the two account for up to half of Russia’s tax revenues, according to estimates from the Centre for Research on Energy and Clean Air (CREA). Although the US and the EU introduced limited restrictions on Russian LNG, the country lost most of its European pipeline gas market share after cutting close to 80% of its exports following the invasion of Ukraine. Following the expiry of the Russian-Ukrainian pipeline gas transit agreement at the beginning of 2025, the Russian share of LNG and gas in Europe is 11%. Since then, the shortfall has been plugged primarily by the US, which now accounts for nearly a quarter of European gas supplies. RECORD IMPORTS In January alone, a record 58% of LNG imported into Europe came from the US, while Russia’s market share including pipeline and LNG exports accounted for 11%, dropping from close to 40% in 2021. While Europe has become increasingly dependent on the US, the same could be said about the US, as 80% of its LNG exports have been heading to Europe in recent months, according to ICIS data. With US LNG production set to double in the second half of this decade, unwinding sanctions against Russia’s Arctic LNG2 project would create direct competition to US producers. In contrast, by removing some of the sanctions on the oil sector, the Trump administration might hope to offset the inflationary effect of tariffs through falling oil prices and greenlight the return of US companies to Russia. Meanwhile, with the EU and the UK pledging to weaken Russia economically as part of efforts to help Ukraine negotiate from a position of strength, the onus would be on Brussels and London to continue sanctions on their own but that raises questions about their effectiveness. An EU transshipment ban prohibiting the transfer of Russian LNG via European terminals could have the perverse impact of redirecting these LNG volumes into European markets when it comes in force at the end of this month. Last year, more than 50% of Russian LNG exports ended up in Europe, which means that with the trans-shipment ban even more volumes could enter the market just as the EU is preparing to announce a roadmap for the scheduled 2027 Russia fossil fuel import phaseout. TARIFFS Donald Trump’s administration has had a profound impact on the global crude market in only a few short weeks. His mix of tariffs on friendly countries and sanctions on adversaries have led to ramped-up volatility and uncertainty with a distinct bearish tinge. Tariffs against Canada and Mexico announced in February, paused for a month and reintroduced in March only to be suspended again, have sparked fears of a global trade war. Canada is the US’ largest source of imported crude, representing over 4 million barrels/day or 62% of total imports in 2024. US refiners rely on Canada’s heavier, sour grades for which many US Gulf Coast refiners are specifically adapted to process. The US has placed a tariff of 10% on Canadian imports, adding more than $5/barrel to the current cost of Canada’s Western Canadian Select export grade. This will adversely impact refiners’ margins and may encourage them to seek replacement barrels from overseas, boosting demand for non-tariffed Middle Eastern or Brazilian grades. While the majority of Canada’s export pipeline infrastructure is dedicated to serving US customers, Canada is likely to ramp up exports through its Trans Mountain pipeline on the Pacific coast targeting Asian customers. Such a move could compete with Middle Eastern exports to Asia as higher volumes of Canadian grades find their way to South Korea, China and Japan. US tariffs on Mexican imports are a more punitive 25%, impacting around 465,000 barrels/day. While Mexican imports could dip in the short term, most Mexican production is coastal and offshore, and the country has the option to reroute exports more readily than Canada. However, with Mexico’s OPEC+ partners starting to return 2.2 million barrels of production cuts to the market over the next 18 months from April, surplus Mexican oil on the global market is likely to pressure prices. Meanwhile, with OPEC+ seeking to increase monthly production by around 138,000 barrels per day, US sanctions will try to remove supply from Iran. Iranian production dipped sharply under Trump’s first term only to rally again during president Biden’s tenure to 3.26 million barrels/day in 2024. While US sanctions could pare this back by 1.0 million barrels/day, offsetting global supply gains elsewhere, it is likely that this number is optimistic as consumers in China and India continue to ignore US sanctions on Iran. The US is likely to be more successful sanctioning Venezuelan imports which currently average around 220,000 barrels/day. Since Trump cancelled Chevron’s license to operate in the country, imports of Venezuelan oil are now likely to cease completely with these barrels competing in the global heavy, sour market. RUSSIAN SANCTIONS US president Donald Trump's tariffs and sanctions policies so far this year have weakened oil prices. These policies, along with likely increased supply of competing grades from Canada, Mexico and the Middle East, mean medium and heavy-sour benchmark oil prices could weaken even further this year. One implication is that president Trump may sacrifice the growth of the US oil sector for lower oil prices as a net benefit to the US economy. Should he also relax sanctions on Russia, the prospect of up to 0.6 million barrels/day of spare capacity hitting the market comes closer to reality, which could tank prices. What decision the Trump administration takes regarding Russian oil and gas will be pivotal for global markets, determining not only immediate price movements but also the long-term direction of the industry. Recent diplomatic events suggest the US is sympathetic to Moscow’s cause, as it pushes for an immediate peace deal with Ukraine. Many observers say that lifting sanctions could be detrimental to US oil and LNG producers and could have major oil price downside. Since the start of Russia's full-scale invasion of Ukraine, western partners, including the US, UK and the EU have introduced over 20,000 sanctions against Russia, expecting to dissuade it from pursuing its aggression against Ukraine. Most of these sanctions target its oil and LNG sectors, which account for more than a third of Russia's annual revenue. They took the form of either sanctions on production and services, or a price cap designed to limit revenue while not creating global supply imbalances. These were bolstered by a comprehensive package introduced in the final days of the previous Biden administration, directed at 183 oil tankers, some of which overlap with the 90 vessels blacklisted by the UK and another 80 sanctioned by the EU. Since the G7 plus Australia introduced a $60/bbl cap on the price for seaborne Russian-origin crude oil, prohibiting service providers in their jurisdictions to enable maritime transportation above that level, Russia has built a shadow fleet of tankers stripped of ownership, management and flagship to help circumvent the restrictions. It spent over $10 billion in acquiring the vessels and is thought to have earned around $14 billion in sales, according to CREA. CREA also noted the comprehensive sanctions on oil production might cut up to $20 billion from Russia’s oil and gas revenue forecast of $110 billion this year. Following tougher US sanctions introduced earlier this year, India and China halted the purchase of Russian oil.  But the effectiveness of sanctions lies not only in their enforcement but also in the perception that they would be imposed. With Donald Trump driving the US increasingly towards Russia, that perception will be diluted, raising questions about the effectiveness of the sanctions in the longer-term. LNG SANCTIONS To date, the most wide-reaching sanctions to be imposed on Russian LNG ships and infrastructure have been through the US treasury. The most significant European sanctions, clamping down on LNG ship-to-ship (STS) transfers in European ports, come into effect at the end of March and are intended to reduce Russia’s ability to supply its Arctic LNG to markets outside Europe. However, they could result in increasing European imports of Russian LNG, since less will be able to be exported. To minimize disruption to the US’s European allies, US treasury sanctions did not target the established 17.4 million tonne per annum (mtpa) Yamal LNG and 10.9mtpa Sakhalin 2 liquefaction plants. Nor did they initially target much Russian shipping, although this soon followed. HITTING LNG PRODUCTION Instead, measures were aimed squarely at the 19.8mtpa Arctic LNG2 (ALNG2) liquefaction plant, which was sanctioned before it had loaded a commercial cargo, as were two giant brand-new floating storage units (FSUs), each with a storage capacity of 362,000cbm. These two FSUs, named Saam and Koryak, were intended to be installed as storage hubs at Murmansk in Europe, and Kamchatka in Asia, respectively, allowing laden Arc7 ice-class vessels to shuttle cargoes away from icy conditions, so they could be reloaded via STS transfers onto more lightly winterised vessels. In keeping with the theme of sanctions targeting new, rather than existing Russian infrastructure, four newbuilds built by South Korea’s Samsung Heavy Industries (SHI) called North Air, North Way, North Mountain and North Sky were all sanctioned, preventing them from being put to work at the neighbouring Yamal LNG facility. However, four more vessels also intended to perform this role but arriving slightly later from another South Korean shipyard – Hanwha Ocean – have only recently been delivered. As a result, these four vessels – called North Moon, North Light, North Ocean and North Valley –  managed to escape the last of the Biden-era sanctions and are being used for Yamal LNG STS operations. The operator of Arctic LNG2 turned to smaller, older vessels to try to circumvent the loading ban, and these vessels – which were characterized by regular changes to their names, flags and byzantine ownership structures – were also sanctioned. Finally, in January 2025, the outgoing Biden administration slapped sanctions on existing liquefaction plants for the first time, seemingly calculating that their small sizes would not greatly inconvenience buyers. These were the 1.5mtpa Portovaya midscale and 0.66mtpa Vysotsk small-scale liquefaction plants, along with two Russian-owned vessels, the Gazprom-chartered Pskov, since renamed Pearl, and Velikiy Novgorod, which Gazprom used to load Portovaya cargoes. As it stands, some 15 LNG vessels are the subject of US treasury sanctions, according to ICIS LNG Edge, including Saam and Koryak. It should also be noted that less specific sanctions targeting technology transfers have also meant that five Arc-7 carriers that were being completed in Russia’s Zvezda shipyards, their hulls having been built in South Korea by SHI, are yet to be commissioned, two years after they were supposed to be delivered. In addition, a further ten SHI hulls have since been cancelled, which will likely slow down future Arctic LNG projects planned by Russia. Given the Trump administration’s current cordiality to Russia and antagonism towards Ukraine, it seems unlikely at this stage that further sanctions on LNG vessels will be implemented. Instead, it is arguable that existing sanctions now stand more chance of being rolled back. The sanctioned vessels are as follows: UNWINDING SANCTIONS? With the US pivoting towards Russia, there are two questions that will dominate discussions in global oil and gas markets: Will the US unwind the sanctions imposed so far and, if so, can unilateral European sanctions be equally effective? Alexander Kolyandr, a sanctions specialist and non-resident senior fellow at the Washington-based Center for European Policy Analysis (CEPA) said several conditions must be taken into consideration. Firstly, with Trump’s tariff policies likely to lead to inflation that would hit both his blue-collar Rust Belt electorate and tech companies in California, lifting some sanctions on Russian oil production could pressure crude prices, offsetting the impact of tariffs, he said. As steep price falls could hit current and future oil output, such a measure would have to be weighed against the interests of US producers. Kolyandr said the blacklisting of Russian oil companies Gazprom Neft and Surgutneftegas has a relatively minor impact because their combined production is around one million barrels per day, or less than a tenth of Russian overall production. More critical are sanctions against the so-called shadow fleet that has been carrying 78% of Russian seaborne crude oil shipments in in 2024, according to a report by the Centre for Research on Energy and Clean Air (CREA). When EU and UK sanctions are added to those imposed by the US, the number of blacklisted oil tankers increases to 270, around a third of Russia’s shadow fleet. APPROVAL Kolyandr said another factor that will determine the unwinding of US sanctions is ease of removal. “Some sanctions derive from CAATSA (Countering America's Adversaries Through Sanctions Act), which need Congressional approval and are more difficult to remove and some were introduced through emergency acts, which are easier to unwind,” Kolyandr said. Although sanctions against Russian LNG are limited in scope, the likelihood of removing them, particularly against the Arctic LNG2 project , is lower as adding more LNG to a production glut that is expected to build up in coming months would hit US producers. However, it is unlikely the US Office of Foreign Assets Control (OFAC) will seek to expand the scope of sanctions beyond Arctic LNG2 and the smaller Portovaya and Vysotsk to the bigger Yamal LNG and Sakhalin II exports as these would create major disruptions in a global LNG market set to remain tight in the mid-term. EUROPEAN SANCTIONS If the US did unwind critical sanctions against Russia’s oil and LNG shadow fleets as well as against oil production, could European measures prove as effective? Some observers believe that a possible US exit from the G7 price cap would not pose a problem to Europe because most of the Russian oil dodging the cap is exported via EU-controlled chokepoints in the Baltic Sea, giving the bloc leverage to control and enforce the cap. Russian LNG exports are equally critically dependant on European insurance. In 2024, 95% of LNG volumes were transported on vessels insured in G7 + countries. More than half of these vessels belonged to UK and Greek companies, making them vulnerable to European leverage, according to CREA. Ongoing price volatility and tight market conditions expected for the rest of the year will likely leave the EU unable to join the UK in banning Russian LNG imports, at least for the time being. However, the EU could work with Ukraine to ban remaining land-based oil exports to Hungary, Slovakia and Czechia via the Druzhba pipeline. The expansion of the Transalpine Pipeline from Italy to the Czech Republic could help replace some of the volumes transiting Ukraine. FINANCIAL MARKETS To restart Russian oil and gas operations, western companies would need access to markets, where the major global financial centres of the EU and UK could also exert pressure. On March 13, there were reports that a waiver introduced by former president Joe Biden exempting 12 Russian banks used for oil payments may have lapsed on March 12 without being renewed. As the waiver lapsed, the May Brent future price fell below $70/bbl but regained some of the lost premium the following day to hover around that level. Kolyandr said that in the case of Gazprombank, which had received a separate exemption to allow payments from pipeline gas buyers from Turkey, the waiver may still be on for now. By: Barney Gray, Aura Sabadus, Andreas Schroeder, Rob Songer

14-Mar-2025