This week’s report by the World Meteorological Organisation makes for alarming reading.  The report warns there is a 66% likelihood of exceeding the 1.5°C threshold in at least one year between 2023 and 2027 and notes that such a rapid change in global temperatures will take the world into ‘uncharted territory’, with an anticipated El Nino weather system likely to push already high temperatures even higher this year.  Since we have already seen the impact of a 1.1°C rise, the conclusions of the WMO report are deeply uncomfortable.

This blog looks at some of the data which give context to the Report’s conclusions.


Russia is the world’s largest natural gas exporter; the second-largest exporter of crude oil; and the third-largest producer of crude oil.  The Russian invasion of Ukraine spooked global gas markets and pushed prices to record highs – the TTF European gas price peaked at a record €343/MWh in August (equivalent in oil terms to more than $500 a barrel).  But as world gas markets have adjusted, the price has fallen – €75 per megawatt hour at the end of December and under €50/MWh by the end of April 2023.

Like global markets, the EU has demonstrated remarkable agility in its response to Russia’s invasion. In 2020, Russia supplied nearly 43% of all EU energy imports. The EU set itself the target of reducing Russian gas imports to 55 bcm/year by March 2023 (down from 158 bcm in 2021).   At the time, this seemed ambitious, but in the event, the EU easily exceeded that target and, by October 2022, the EU’s Russian gas imports had fallen to 38 bcm (12 % of the EU’s energy consumption).

Last spring, the EU required that Member States’ winter storage be 90% full by the end of autumn.  Again, at the time, that seemed a tough ask in the face of global constraints on alternative supplies. But in any event, the EU easily exceed the target, reaching 96% by the beginning of November 2022.

A combination of factors means the outlook for the EU is more positive than expected:

  • A mild winter meant the EU emerged with record high gas inventories (EU storage was 56% full);
  • The success of demand-side efficiencies (the Commission set a cross-EU efficiency target of 15% reduction in demand: the EU reduced demand by an average 19%);
  • Global gas markets have been nimble in responding to EU demand for non-Russian gas.  New and alternative supplies flowed in from Norway, Qatar, the US and (importantly) Algeria through existing, but under-used pipelines and new LNG capacity;
  • The EU has built new LNG infrastructure at record speed – with Germany opening its first LNG jetty in November 2022.

This positive combination of factors may continue.  But there are risks – the EU will continue to seek to reduce its latent reliance on Russian gas by purchasing increased volumes of gas on the international markets – not only to run its industry and supply domestic demand, but also to fill its storage capacity. This competition risks pushing global gas prices up again as we move towards the northern hemisphere winter – notwithstanding new sources of supply.


Oil markets have also adjusted to the new normal. A barrel of oil cost $86 in Jan 2022, rising to $123 in June 2022 before falling to $83 in Feb 23 and around $75 now.

The IEA’s most recent Oil Market Report predicted that daily oil demand would increase by 2 mb/d in 2023 to a record 101.9 mb/d. Non-OECD countries will account for 90% of that growth, whilst OECD countries saw two consecutive quarters of declining demand in Q4 2022 and Q1 2023.  It is too early to say whether the OECD demand reduction is due to specific circumstances (warm winter, reduced demand) or is the first indication of the impact of the accelerated energy transition.

OPEC and Russian daily production cuts will remove nearly 1.7 mbd of production from the global market.  Non-OPEC countries can replace around 1 mbd of that shortfall, but the US shale patch, traditionally the most price-responsive source of more output, is currently constrained by supply chain bottlenecks and higher costs. This means the market risks significant undersupply and a failure to meet the IEA’s projected increase in global demand – a global shortfall which risks pushing crude and product prices up.  This may accelerate the transition to renewables, which look cheaper and less volatile.

The EU’s retreat from Russian gas and oil has not, however, led to a glut of stranded Russian hydrocarbons. Russia’s March 2023 oil exports were its highest since April 2020, with total oil shipments reaching 8.1 mb/d and refined products climbing to 3.1 mb/d.  This pushed Russian monthly revenues from oil export to $12.7 billion (still 43% lower than the previous year).  Third countries have stepped into the European pull-back and purchased Russian hydrocarbons at a strong discount, giving their industry a short-run competitive advantage. In March, nearly 90% of Russian crude exports went to Russia and China – up from less than 25% in 2021 – contributing to Russia’s record current-account surplus of $227 billion (though Russia’s Urals costs $100/barrel to extract and Russia is currently only getting $50/barrel on sale).


One consequence of the increased global competition for gas has been heightened demand for coal as a cheap alternative.  2022 saw global consumption passing 8 billion tonnes for the first time. The IEA forecasts coal demand to remain at around this level until 2025 with slowing demand in mature markets offset by increasing demand in emerging markets and the world’s three largest coal producers – China, India and Indonesia – matching or surpassing their 2022 production records in 2023.

President Xi Jinping’s pledge that China would be carbon neutral by 2060 was backed-up by its last five-year plan, which placed a heavy emphasis on reducing the use of coal and developing alternative clean energy sources. Indeed, between 2010 and 2021, China’s renewable generation increased by an average annual rate of 19.2%! 

Notwithstanding this impressive progress, China does not appear to be on course to meet its emissions reduction target.  The country still relies on coal for more than half of its energy consumption and the government approved more new coal power in the first three months of 2023 than in the whole of 2021 (20.45 GW of coal power, up from 8.63GW in the same period in 2022). In the whole of 2021, only 18GW of coal was approved. 

However, despite these high prices and comfortable margins, there appears to be no sign of surging global investment in export-driven coal projects. This ray of hope perhaps reflects caution among international investors and mining companies about the longer-term prospects for coal.

Renewable energy push

European countries are now making huge efforts to strip hydrocarbons out of their energy systems. In January 2022, Germany purchased 55% of its gas; 50% of its coal; and 35% of its oil from Russia.  Within three months, those figures had fallen to 40% gas, 24% coal and 25% oil.   Germany has pledged to reduce its gas requirements to supply less than 10% of domestic consumption by 2024 and increase its energy provision from renewables from 42% to 80% by 2030.  That is an ambitious target, not least since increased demand does not translate into a like-for-like increase in installed capacity.  Meeting Germany’s doubling of renewable energy provision will require a near-trebling in installed capacity – from 225 TWh in 2021 to over 600 TWh by 2030.

But the economics are increasingly favourable. During the 2010s the levelised cost of solar, offshore wind and onshore wind fell by 87%, 62% and 56%, respectively. In 2015, UK winning bids for offshore wind farms were over $120 per MWh, far higher than the cost of fossil-fuel electricity: at a recent auction the average bid was $50 per MWh, roughly the level of average wholesale power prices. Solar and onshore wind are even less expensive. By 2030, it will be cheaper to build solar installations from scratch than operating fully depreciated fossil-fuel plants, and renewable cost curves still have some way to fall.

The Worsening Climate

The Sixth IPCC Report did little to brighten the mood. The past eight years have been the warmest on record, with extreme weather events expected to become more frequent and intense as climate change accelerates. Greenhouse gas emissions continued to rise in 2022 and temperatures have already increased by at least 1.1°C since pre-industrial times. Last year, China suffered its worst summer heatwave on record, rivers dried up across Europe (which experienced its second warmest year on record and hottest ever summer), the UK hit 40 degrees C for the first time ever and record forest fires devastated the US and Australia.  The European Alps and Greenland suffered record ice losses.

The trend has continued this year, with record temperatures in Myanmar, India, China Thailand, Laos, Bangladesh and Japan and parts of South America. Southern Europe is experiencing its second major drought in less than a year. For 32 consecutive days in January and February no rain fell anywhere in France—the longest dry spell in winter since monitoring began in 1959.

A US National Oceanic and Atmospheric Administration report earlier this month found that temperatures in the world’s oceans over a 42 day period were consistently higher than in any year since records began in 1981, leading scientists to conclude that this could indicate a tipping point and that the world might be reaching the limit of the oceans’ capacity to absorb carbon dioxide. 

These are not ‘just’ climate events, the economic impact is real.  A dry spring will hit agriculture, exacerbating global grain and food shortages already under pressure and helping sustain inflation. Parts of Europe and China rely on waterways for the transport of commercial goods.  If water levels are low, they may have to be closed to big barges, increasing transport costs. And low rainfall will reduce electricity production at Europe’s hydroelectric and nuclear plants.


Energy transitions are normally slow – it took a century for crude oil to make up 25% of the world’s primary energy source. And they are normally incomplete – new fuels reduce the proportion of the total demand that old fuels provide, but the total energy demand keeps increasing – between 1850 and 2000 global energy use increased by a factor of 15 and is currently increasing by around 2% per year.

But the urgency of the climate crisis means that this energy transition will need to be larger, quicker and more complete than any before it. To meet the Paris target of 1.5 degrees C, emissions must peak by 2025 and halve by 2030. Failure to meet those targets would mean that 8.8% of current farmland will be unproductive and one billion people will be at risk from coastal flooding by 2050.

Governments are legislating to force the pace of change.  But they need to do more to set the policy signals to which the private sector can respond. In 2020, governments collectively spent more than $400bn in direct support for fossil-fuel consumption: more than twice what they spend subsidising renewable production.  Today’s policies look likely to deliver a global temperature rise of close to 3°C by the end of the century.

In the next 30-50 years, 90% or more of the world’s energy demand will need to be provided by renewable-energy sources.  And continued human development means demand will keep increasing. There is a growing sense of urgency in the scale of renewable investment – IRENA calculated that global investment in energy transition technologies, including energy efficiency, reached $1.3 trillion in 2022 – a record.  But it is not sufficient: to reach the Paris Goal, IRENA calculates that investment needs to be $5.2 trillion per year.

This sense of urgency adds to the pressure on COP28, taking place in Dubai at the end of the year, to deliver concrete outcomes and transforming it into one of the most important COPs to date.

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Photo of Thomas Reilly Thomas Reilly

Ambassador Thomas Reilly, Covington’s Head of UK Public Policy and a key member of the firm’s Global Problem Solving Group and Brexit Task Force, draws on over 20 years of diplomatic and commercial roles to advise clients on their strategic business objectives.


Ambassador Thomas Reilly, Covington’s Head of UK Public Policy and a key member of the firm’s Global Problem Solving Group and Brexit Task Force, draws on over 20 years of diplomatic and commercial roles to advise clients on their strategic business objectives.

Ambassador Reilly was most recently British Ambassador to Morocco between 2017 and 2020, and prior to this, the Senior Advisor on International Government Relations & Regulatory Affairs and Head of Government Relations at Royal Dutch Shell between 2012 and 2017. His former roles with the Foreign and Commonwealth Office included British Ambassador Morocco & Mauritania (2017-2018), Deputy Head of Mission at the British Embassy in Egypt (2010-2012), Deputy Head of the Climate Change & Energy Department (2007-2009), and Deputy Head of the Counter Terrorism Department (2005-2007). He has lived or worked in a number of countries including Jordan, Kuwait, Yemen, Libya, Iraq, Saudi Arabia, Bahrain, and Argentina.

At Covington, Ambassador Reilly works closely with our global team of lawyers and investigators as well as over 100 former diplomats and senior government officials, with significant depth of experience in dealing with the types of complex problems that involve both legal and governmental institutions.

Ambassador Reilly started his career as a solicitor specialising in EU and commercial law but no longer practices as a solicitor.