However, KBRA said in its report, this price volatility should ultimately accelerate the country’s shift toward sustainable energy. One reason, the report suggested, will be a desire to decrease reliance on energy supplies from politically unstable regimes. The U.S. government, KBRA suggested, has responded to energy price pressures, at least for now, by calling for increased fossil fuel production. While many believe that higher energy prices may prove to be a much-needed catalyst for global decarbonization efforts, the report emphasized, high oil and gas prices are likely to have the opposite effect in the short term, particularly in the U.S.
KBRA said it remains optimistic that the significant and prevailing political, economic, and environmental pressures will continue to accelerate the global push toward sustainable energy over the medium and long term. These include: increased awareness of U.S. oil and gas vulnerabilities as a result of the energy crisis; a demand for more fuel-efficient vehicles, and higher costs in the power generation sector.
The report cited the Russian invasion of Ukraine in late February 2022 as the key factor in the jump in the price of Brent crude oil from $80/barrel at the beginning of the year to around $130/barrel in early March. The price is now about $100/barrel. KBRA noted the refusal of international banks to finance the purchase of Russian commodities for their clients and the decision by many players in the global energy market chose to restrict their imports of Russian oil and gas.
KBRA believes the uncertainty surrounding the price outlook should cause insurers to consider extending timelines on announced plans to pull out of underwriting activities pertaining to fossil fuel exploration and production. Government/regulators will be critical stakeholders as they will likely set the disclosure requirements and guidelines for the insurance industry on the climate risk profile of their underwriting activities, KBRA said.