Russian gas supplies to Europe continue unabated, but the markets are increasingly taking blockades into account.
On Monday, the gas price even exceeded 300 euros per megawatt hour for the first time. This means that the wholesaler pays more than 3 euros per cubic meter for the gas delivered in April. At the end of the afternoon, the price per cubic meter dropped to around 2.40 euros. A year ago it was less than 20 cents.
Oil prices are also at a high level. The European benchmark Brent had a maximum price of more than USD 139 per barrel on Monday, but gradually declined towards Friday’s level, when more than USD 118 was paid. Since 2008, oil, including the US WTI, has not been this expensive.
The nervousness in the markets was fueled by the possible extension of sanctions on gas and oil from Russia. In particular, US Secretary of State Antony Blinken has campaigned for this in talks with European representatives.
Europe is dependent on Russia for almost 40 percent of its gas needs. For oil, which is financially much more important to Vladimir Putin’s country, that dependency amounts to a quarter. Prime Minister Mark Rutte, along with his host Boris Johnson, said Monday from London that “it will take time to reduce dependence on oil and gas from Russia”. If companies were forced into a ban, “it would have enormous consequences”.
You can’t just end the use of oil and gas from Russia
Boris Johnson Prime Minister UK
Import ban
When asked by journalists whether there should be a European energy import ban, Johnson replied that countries differ in the degree of dependence. “We have to keep that in mind. You cannot just end the use of oil and gas from Russia.”
Analysts from several banks predicted a higher oil price on Monday if tensions over the Russian invasion and bombing in Ukraine continue. According to the Bank of America, there will be a global shortage of oil if Russia is cut off from the export market. Analysts expect a deficit of at least 5 million barrels per day – on a global consumption of about 100 million – with the oil price as high as 200 dollars.
Analysts at the Swiss bank UBS are forecasting an oil price of more than $150 in an ongoing conflict this year. At JP Morgan, the spread sheets in that case, up to $185.
At the same time as threatening Russia with oil sanctions, the United States is seeking to intensify talks on lifting sanctions through Iran and Venezuela. The talks will not lead to quick alternatives. Iran will need months after a possible nuclear treaty to bring oil and gas production up to standard, while the first talks with deputies of President Maduro’s controversial regime have hardly yielded any results.
European strategy
The European Commission will shortly present an updated energy strategy. The aim of this strategy is to increase the independence of fossil fuels from Russia, without denying the sustainability objectives.
The European Union aims to reduce CO . emissions2 to be reduced by 55 percent in 2030 (compared to 1990). The massive use of, for example, coal instead of gas, would only put the climate objectives further out of the picture. The production of electricity with coal results in emissions that are twice as high as with gas.