Gas prices in Europe soared by 60% in two days, even without energy sanctions

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Joseph P Chacko
Joseph P Chacko
Joseph P. Chacko is the publisher of Frontier India, portal publishing news and current affairs. He holds an M.B.A in International Business from the Maharishi University of Management, Iowa, USA. Twitter: @chackojoseph *views are Personal.

Again, with good reason, natural gas can now be called not ‘blue but ‘golden’ fuel. The sharp aggravation of the situation around Ukraine once again raised energy prices, but, as in recent months, gas has made a special effort. Since the start of the special military operation of the Russian Armed Forces in the Donbass, the gas price soared by as much as 60%. 

The price of oil has also risen. The cost of one barrel of Brent oil quickly overcame the 100-dollar mark and at the moment even reached 105 (an increase of 8.55%). Oil prices of the brand have not exceeded $100 per barrel since 2014.

Energy prices, of course, are astronomical, but this does not mean that they have reached the limit and will continue to decline. They would undoubtedly be much higher now if the new packages of U.S. and European sanctions included sanctions against oil and gas companies.

Russia is the second largest oil exporter after Saudi Arabia and the world’s largest natural gas producer. And, logically, investors fear a disruption in the supply of raw materials due to political events. The administration of U.S. President Joe Biden is already considering reselling oil from the country’s strategic reserves (SPR) if energy prices rise sharply.

“I expect very tough sanctions,” Bob McNally, the president of the consulting company Rapidan Energy Group, who used to work in the White House, said in an interview with Bloomberg. 

“But there will be nothing in them (sanctions) that would affect the energy industry … They (world leaders) (are) in full terrified and do not want oil prices to rise,” he said.

Even with non-energy sanctions, Dutch gas futures rose by more than 41% yesterday, and they have been rising for four days in a row. Energy contracts in Germany soared by almost a third (31%).

Europeans, probably, are slightly comforted that the Americans will not be able to sit out overseas. For them, the current surge in energy prices means that a nightmare that seemed impossible a year ago – $ 4 per gallon (3.785 liters) of gasoline, is rapidly approaching. It will further accelerate inflation, which the central banks cannot cope with within the coming days.

Of course, Americans have been unhappy with expensive gasoline for a long time, but the events in Ukraine allow Joe Biden and his administration to once again blame all the troubles on Russia. It is especially important in the run-up to the midterm congressional elections this fall.

The same applies to European leaders who have previously blamed Russia for the continent’s energy crisis and are now doing so with even greater confidence. Russia, we recall, is the largest energy supplier to Europe. It supplies about a third of the gas consumed by Europeans.

A third of this gas goes to Europe through Ukraine. The current circumstance, by the way, is another reason for the very likely continuation of the growth in prices for blue fuel. As Bloomberg notes, despite the hostilities, there have been no interruptions and problems with this stream. However, there will be interruptions at the first hit of a bomb or projectile in a pipe or sabotage, and gas prices may well come close to $2,000 or even surpass them. 

Wholesale gas prices also jumped after Germany’s decision on Tuesday to halt the final approval of Nord Stream 2. This decision provoked a reaction from Dmitry Medvedev, the former president of Russia and now deputy chairman of the Security Council. “Well, welcome to the brave new world where Europeans will very soon be paying €2,000 for 1,000 cubic meters of natural gas,” he tweeted. Nord Stream 2 was about to deliver the same at about $400 BCM.

According to Bloomberg’s Xavier Blas, the E.U., the U.K., and the U.S. typically buy approximately 3.5 million barrels of Russian oil, including petroleum products, and around 275 million m3 of gas per day, worth more than $700 million at today’s prices.

Short term forecast

There is a high probability of Iranian oil appearing on the world market; due to the restoration of agreements on a nuclear deal with Iran. Iranian crude and American shale oil may keep the oil prices at $102-$103 per barrel in the short term.

Gazprom has fulfilled and will continue to fulfil its gas supply obligations. Applications for the transit of Russian gas through Ukraine have increased. In the long term, prices can rise to 1500-2000 dollars per 1000 cubic meters. The boom in US LNG supplies to Europe has not yet led to a significant reduction in energy prices.

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