Gas prices soar to £8 per therm as West weighs up sanctions targeting Russian energy supplies
Natural gas prices in the UK and Europe have rocketed from already-record highs, peaking at a staggering £8 per therm earlier today.
This follows increased fears of supply shortages with the West weighing up sanctions on Russian commodities amid escalating conflict in Ukraine.
UK Natural Gas Futures peaked at 800p per therm, and have since settled at around 650p, which represents a 47 per cent hike on yesterday’s record levels.
Dutch TTF Futures are also up 47 per cent.
EU President Ursula von der Leyen revealed last month that Gazprom supplies of natural gas have dwindled to near decade lows within European storage, with the continent chiefly relying on US imports of liquefied natural gas (LNG).
While Germany has recently played down the possibility of restrictions on Russian gas, there is increasing momentum for heavier measures on Russia – with Secretary of State Anthony Blinken revealing the West is weighing up bans on Kremlin-backed oil supplies.
However, the country was also hesitant to suspend Nord Stream 2, before Chancellor Olaf Scholz eventually made the momentous decision.
Commerzbank analyst Carsten Fritsch noted that gas continues to flow as expected for now and have even increased on last month’s totals.
This follows commitments from the Kremlin to continue exporting gas to world markets.
Fritsch said: “There is speculation that Europe might decide of its own accord to stop Russian gas imports. So far, gas is still flowing normally. At the weekend, gas flows through pipelines from Russia to Europe via Poland, Ukraine and Nord Stream totalled just shy of 3,000 gigawatts per hour (GWh). Inflows have averaged 2,975 GWh per day since the beginning of March. That’s a good 30% more than the February average.”
UK energy sector vulnerable to skyrocketing prices
The volatility in gas markets has already led to increased speculation the price cap could spike to £3,000 per year in October.
This would mean UK households would suffer a further eye-watering 50 per cent hike in energy bills this year – deepening the cost of living crisis.
Speaking to City PM, Octopus chief executive Greg Jackson, urged the UK to deal with the energy crisis with the same intensity as it did the pandemic.
He said: “We need to treat the energy crisis with the same sense of urgency we did the Coronavirus crisis. The way that we deployed vaccines that normally take 15 years in one year, we need to deploy energy solutions at that pace now.”
Laith Khalaf, senior investment analyst at AJ Bell, told City.AM : “High energy costs will hit UK businesses as well as consumers, and many will likely take some hit on profit margins, as well as having to pass some of the burden onto their customers. At a collective level this probably spells a softening of demand, as consumers battle to keep their finances above water, and increases the chances of a stagflationary slump.”
Stuart Carter, oil and gas partner at Keystone Law, noted the UK has very little storage capacity following the closure of the rough field in the North Sea – and only has sufficient storage to last a few days.
He argued while the UK’s strategy of relying on a mix of North Sea gas, pipeline imports, and LNG shipments would ensure supply security, markets remain a global reality and would still cause prices to spike.
However, the country could minimise the impact of supply shortages through boosting renewables.
He said: “As the contribution to the grid from renewables continues to grow at pace, then over time the UK will become ever more insulated from these shocks, as will Europe. It’s just that we are not there yet. And whilst Russia’s leverage is currently extremely high, it will diminish as other sources of power come on stream, which current events will only accelerate.”