Grain Markets & Natural Gas Production Explain Key Trends Going Into 2023

Scenarios for global commodities have been disrupted in profound ways.

Since Feburary 24, 2022, when Russia’s invasion was declared, sanctions on Russia have been an immediate response from the United States, European Union, and a few other countries, but it can’t be said to have been the response from the international community as a whole.

Particularly Brazil, China and India, three of the world’s biggest emerging markets with some of the world’s largest producers of raw materials and global commodities. All three of these countries have not taken part in the Russia sanctions. I already wrote an extensive review about Brazil’s Fertilizer Diplomacy.

As a result, Geopolitics are playing a much greater role in many countries’ industrial policies as a result of Russia’s, European Union’s and the United States’ politicization of crude oil, coal and natural gas — arguably the three most important commodities in terms of short- to -medium term risk in global commodity markets after the Covid-19 pandemic disrupted supply chains and energy supplies.

Disruptions to global commodities indicatee how vulnerable countries are to food and energy dependence on Russia and Ukraine. Grain markets and natural gas/liquified natural gas (LNG) production are case in points.

World-Grain.com published its Top 10 Stories of 2022 whereby disruptions to grain export-import markets have proven to be a key issue with food insecurity. The Black Sea has been a focal point of the Russia-Ukraine conflict. That’s why the diplomatic foray over permitting grain transit and supplies through the Black Sea Grain Initiative have been a difficult pill to swallow.

Nevertheless, there have been some evident changes to the grain markets, such as in North Africa, where Algeria, Morocco and Egypt became top importers vying for European Union (EU) wheat exports. According to Argus, overall EU common wheat exports increased from 11.44mn tons to 11.54mn tons in July-October 2022. With France sending more wheat to Morocco than before, Egypt’s imports rising slightly, and Algeria’s imports declining.

Since the Black Sea Grain Initiative was agreed to by Russia, Turkey and Ukraine in July 2022, food and fertilizer prices have been correlated with Black Sea and Mediterranean Sea markets, since the focus on the agreement has been less about cooperation over food security and more about increasing politica leverage over the transit issues pertaining to the Black Sea and Meditereanean Sea. For instance, the procedural matters on how to conduct ship inspections through the Bosphoruous in Turkey and guaranteeing safe passage to and from the ports through Russia and Ukraine.

That’s why the European Council On Foreign Relations argued that, irrespective of the deal reached between Turkey, Russia and Ukraine, that it was imperative that the EU find new markets for grain exports-imports by investing in new port and land transport infrastructure.

One of the most significant developments since the deal has come from Belarus, a country that had sanctions placed on its critical potash industry due to their cooperation with Russia during the invasion of Ukraine. On 9 December 2022, it was reported Belarus Deputy Foreign Minister Yury Ambrazevich had met with U.N. Secretary-General Antonio Guterres to discussions to allow grain transits from Ukraine through Belaruisan ports.

If this is a prelude to getting some sanctions lifted on Belarus, then 2023 is going to be a very different year in terms of how fertilizer markets will function, because potash exports from Belarus are a very important part of the global fertilizer supply scenarios for potash.

The world’s largest potash producer, Nutrien Ltd, is based in Canada. The interim President and CEO of Nutrien, Ken Seitz, told BNN Bloomberg that sanctions on Belarus’ potash supplies led to increased potash production to meet global demand — the company increased potash production capacity by 1mn tons in 2021 and 1mn tons in 2022.

The reason why potash supplies are related to the discussion about grain import-export markets is because all of this activity is susceptible to geopolitical trends, especially in the case of the Russia-Ukraine conflict, as all of these markets are vital to the security and safety of ships and supplies in Black Sea and Mediterranean Sea areas.

Furthermore, prices for potash and grain are both going to be closely tied to prices for natural gas and LNG. This is where sanctions by the USA and EU are having the biggest impact on global markets. Both a oil price cap and a gas price cap intend to reveal to the world how sanctions on Russia intend to work.

Liquified Natural Gas (LNG) was on the top of the energy affairs agenda at the Group of Seven (G7) Summit in Germany in 2022.

The G7 rejected demands from Russia that countries pay for natural gas exports in Russian rubles, after Russia’s President Vladimir Putin announced that “unfriendly” countries should respect Russia’s banking regulations in the future. By threatening to convert natural gas contract to rubles, European utilities companies are weary of an emerging energy emergency ahead of the 2022 winter season.

The G7 not only agreed to a plan that would put a price cap on Russian oil imports, the Group of Seven also formulated its joint statement to reflect both the climate change policies and the current concerns over the global energy crisis. Notably, the joint statement called for increased production of LNG and nuclear power sources, while adhering to a “fully or predominately decarbonized” global economy by 2035. Although the G7 continued to lambast coal production, they noted that LNG needed investments to address global energy needs.

At a political level, Russia intends to transform its industrial policies in a way that favors the “anti-West” rhetoric; from a geographical point of view, raw materials are located in vulnerable areas where supply chains are being disrupted by sanctions. This is why Russia must expand its “sovereignty” over global commodities.

This is Russia’s geopolitical objective within the context of global commodities, hence the critical nature of the China-Russia relationship. China basically has the same geopolitical objective within the context of global commodities, which is why the two countries could seek to dominate raw materials in some of the world’s most vulnerable areas.

If you ask me, though, it seems like the world is still desperate for the commodities that have been lambasted as a tool of influence for adversarial governments, bringing in some key concepts about the effect of foreign policy aims: For which commodities? Against Whom?

In this scenario of the world, it’s a pretty scary place to live in, since the demand for raw materials, commodities and energy are producing effects in the foreign policy area of many countries today, including in both developing and developed areas — I’ve already written extensively about the illustrations of this theory from the perspective of how countries and corporations are formulating industrial policies around oil and gas while preparing for the Energy Transition in the future.

These strategies are being carried out under the backdrop of increasingly volatile global markets and diverging geopolitical trends, which have put global commodities at the forefront of geopolitics. For instance, the future of industrial production revolves around energy cooperation as sanctions on Russia take hold of global energy markets.

For example, just look at how Russia disrupted global oil supplies from the Caspian Pipeline Consortium (CPC) in March 2022. These are critical global oil supplies, that must transit Russia and the Black Sea to reach global markets.

Kazakhstan’s government understands that both Western oil interests and Russian oil exporters matter a great deal to the country’s own ability to export crude oil and increase oil production revenues. Just because Kazakhstan changed the name of its vital oil exports to Kazakhstan Export Blend Crude Oil (KEBCO) doesen’t mean it will be able to avoid the USA’s and Europe’s sanctions on oil originating from Russian sea ports.

The ultimate test of USA and Europe sanctions will be playing out in areas such as Kazakhstan and the wider Central Asia region, where those countries are the most susceptible to Russian influence, yet need Western oil imports and international investors to decrease reliance on Russia. I don’t see this problem getting solved in the near-term.

For Kazakhstan, the long-term problem is going to come down to the success of Russia’s political leverage and military strength to ensure that their economic interests, particularly crude oil exports from the CPC, stay intact in the future without any interruptions from USA and European sanctions.

In the aftermath of the Russia-Ukraine conflict, oil and coal production has become one of the biggest concerns of the global economy. It will affect the broad base of global commodities for the entire industrial production base.

Many energy experts and CEOs alike agree that OPEC is back in the driver’s seat in terms of the global oil supplies and energy market prices linked to OPEC production capacity.

While other companies seek to profit handsomely from the G7’s oil price cap of Russian seaborne exports of oil and the European Union’s embargo of Russian crude oil and petroleum products, such as ExxonMobil, as the giant U.S. oil and gas producer and retailer now wants to lean on the risks associated with European dependency on Russia for its vital natural gas imports.

No doubt, in Q3 2022 alone, XOM’s earnings surged to $18.7 billion. So it’s not like the company doesen’t have the amount of capital to invest in natural gas production capacity.

But natural gas production is linked to developments in Floating Liquified Natural Gas (FLNG) infrastructure investments and technologies, which I’ve already written about extensively in Areas & Producers.

Back in October, I posed a serious question to readers: Does the newly proposed deal by the United Nations give hope for the success of the Grain Export Corridor (Black Sea Grain Deal) or is it just another act of Fertilizer Diplomacy for Russia?

This was my initial thought when writing about Fertilizer Diplomacy 2.0.

As the world focused on what I’ve been writing about extensively since I joined Medium: global commodities are playing a much greater role in how countries are formulating industrial policies under the backdrop of Environmental, Social, Governance (ESG) and geopolitical trends.

Energy market volatility has been directly impacted by Russia’s actions, particularly oil and coal production on international markets, which have been affected by the G7’s price cap on Russian oil on December 5, 2022. The future of energy supplies will continue to revolve around how oil and coal are fit into the overall energy mix. These scenarios for energy markets have been made less complicated since Russia’s oil, coal, and most recently, gas supplies, were subject to sanctions by the United States and European Union.

The gas price cap by the European Union reveals how sanctions on Russia are bringing global commodities to the forefront of geopolitics, and thus revealing the changes to industrial polices among the world’s core areas and critical producers.

Just look at what CEOs are saying about the Future-Facing Commodities as China’s and Russia’s exposure to critical metals brings into question how geopolitical trends are going to create divergent and convergent scenarios for global commodities. The politicization of copper, nickel, lithium and iron-ore is the story about China’s and Russia’s growing future presence in global commodity markets and industrial production value chains. These are some of the biggest uncertainties for long-term commodity market volatility.

But putting aside the commodity markets, I offer another key point in how geopolitical trends are taking shape in the future: With so much activity occuring in maritime areas — just look at what I explained about The Black Sea and Mediterranean Sea during the Russia-Ukraine conflict — there’s going to be significantly more problems related to the maritime dimensions of International Relations (IR) and future military conflict over the ownership of natural resources and energy security.

A flashpoint case has recently come into the spotlight over a disputed claim where natural gas discoveries in the maritime Exclusive Economic Zones (EEZ) of Cyprus are at the center of the territorial dispute between Greece and Turkey.

On 21 December 2022, it was announced that French oil and gas producer TotalEnergies and Italian oil and gas producer Eni had made new discoveries of natural gas deposits off the coast of Cyprus in the Mediterranean Sea. This part of the sea is referred to as the Eastern Mediterranean, or East Med.

It has been estimated that the offshore gas area of Cyprus can produce 2 trillion tcf, or 72 billion cubic meters (bcm), but territorial issues have come into play between the Turkish Cypriot government and the Greek Cypriot government. The former entity is only recognized by North Cyprus, which was occupied by Turkey in 1974.

The offshore gas exploration and production (E&P) in Cyprus has caused Turkey to accuse Cyprus of escalating tensions with Turkey. The Turkish foreign ministry said that the latest discovery intends to “violate the rights of the Turkish Cypriots, who are one of the co-owners of all natural resources of the island.” Reuters

This dispute is a classic example to understand how the framework of divergent and convergent scenarios for global commodities is likely to contribute to the future of world peace and prosperity.

To end this final story for 2022. I want to share my concluding points about the direction of geopolitical trends, and how commodity market volatility and ESG strategy plays a role in the future.

• As the world has been grappling with a global food crisis governments are hoping that needs that Brazil would produce more food, because it is already one of the world’s largest food-producing countries along with Ukraine. Governments need more cooperation on food and energy, though this seems to be very unlikely, as Brazil certainly cannot take the lead here. Dealing with indigenous groups’ issues in vulnerable areas of political control will be paramount to the future supply of raw materials and food production around the globe, especially during the era of climate change action in domestic politics.
• There’s going to be a lot of partnerships and deals made in the future for the mining and electrification industries, and how they will be transformed to meet a surging demand for global commodities in the future — under the backdrop of increased market share of Electric Vehicles (EVs). On the issue of maritime security, the critical metals needed to produce the energy tranisiton metals are concentrated in fewer areas. Like the solar panels and offshore wind installations along the coast of the Atlantic Ocean, those metals will need to be transported from areas further away, through the straits of China and Southeast Asia in the Pacific Ocean. This is one angle of the South China Sea dispute; that’s why the Freedom of Navigation (FON) exercises are so crucial to the Indo-Pacific strategy being carried out by the United States in cooperation with India, Japan and Australia.
• Cybersecurity is not only a symptom of these issues; it is a core problem to be dealt with in respect to global commodities and industrial policies across the board. One way to take down bad actors in cyberspace is for countries to cooperate more throroughly on issues pertaining to maritime shipping and transportation, while advancements in Maritime AI are likely to make security dilemmas more vulnerable to conflict. That’s why the maritime domain is crucial to our well-being in the future: food exports and energy supplies depend on shipping lanes and access to ports.
• While sanctions on Russia have led to more energy cooperation, the impact of oil and gas prices on global markets have yet to be deterimined. What’s clear to me is that a new era of Adversarial Geopolitics is taking place by similiar drivers of Concept Development— to build more and invest more — across a broad range of areas, boundaries and peoples and cultures. Therefore, non-state actors should be given more attention to the outcomes of global commodities and maritime areas — the focal point of grain and natural gas markets during the Russia-Ukraine conflict.
• For maritime security, one of the key themes is to improve on how countries share information, known as “information-sharing” capabilities, so that dispute resolution mechanisms between countries can be more transparent and equitable. This is ultimately going to be one of the only solutions to avoid war in the Indo-Pacific. Scenarios of international maritime law outcomes and dispute resolutions should explain how the future of business, politics and global society arebeing driven by energy supplies, commodity markets volatility and ESG strategies. The big-picture questions include whether or not these outcomes meet the criteria on climate change action, particulary on the oceans.