*Russian oil and gas essential importance to Europe’s economy – Germany
*We cannot be blamed for European prices hike – Russian exporter Gazprom PJSC
“Our company ensures and will ensure the fulfillment of long-term gas supply contracts,” Russian exporter Gazprom PJSC said Monday, adding that European prices may rise even more, but the company cannot be blamed.
Any attempt by the United States of America to tinker or underplay the role of Russia in the western oil and gas needs in the ongoing unprecedented sanctions by it and among its allies will be too costly to bear, reports gathered from Ria News and Bloomberg have revealed.
This fear has been developed as price of gas in Europe at the opening of trading on Tuesday March 8 jumped by more than 30 percent compared to what it was on Monday March 7, which is above $3,000 per thousand cubic meters, according to the London ICE exchange.
Amidst this unfortunate development has caused fear in particularly Europe currently, the US is mulling whether to prohibit Russian oil imports as it looks forward to anything to punish Moscow for fighting what it described as threat to the national security of its country, in Ukraine.
However, according to people familiar with the matter, Germany reportedly rejected the US’ idea, with its Chancellor, Olaf Scholz, saying Russian oil and gas are of “essential importance” to Europe’s economy and to ban their supplies would compound situation for Europe.
Gas exports from Russia, which account for one third of Europe’s demand, currently, are not covered, therefore, by the international sanctions imposed in retaliation for Moscow’s military expedition in Ukraine. It is not clear, if Moscow would want the total sanctions ongoing to include west and Europe’s ban.
According to report by Ria News, a Russian online publication, first minutes of Tuesday saw the cost of futures on the TTF index at the level of $2,870, but almost immediately rose to $3,309. The previous day, the estimated price was $2,560. At the same time, the cost of blue fuel on March 7 at its peak reached $3,900 per a thousand cubic meters.
The European gas market has been in a fever for many months now. In the spring of last year, prices fluctuated at the level of $250-300 per thousand cubic meters, by the end of August they rose to $600, in October for the first time they exceeded one thousand, and in December – two thousand. This was followed by some pullback, but prices remained consistently high, which was not observed in the entire history of the operation of gas hubs in Europe.
Experts attributed this to the low level of occupancy of European underground storage facilities, limited supply from major suppliers and high demand for liquefied natural gas in Asia.
In early February, futures fluctuated in the range of $800-1030, but then went up sharply after Russian President Vladimir Putin signed decrees on February 21 recognizing the sovereignty of the Donetsk and Lugansk People’s Republics, and on February 24 Russia launched a special military operation to demilitarize Ukraine.
In the report of Bloomberg, European energy prices started another tumultuous week with wild price swings and fresh records as fears escalate about potential disruptions in Russian supplies.
In some of the most chaotic trading the market has ever seen, benchmark natural gas futures leaped 79% to the equivalent of more than $600 a barrel of oil before paring gains. The surge likely will lead to large margins calls, which could end up driving futures even higher as companies buy exchange contracts to avoid paying up cash to cover their trades.
However, traders remain on edge for any potential disruptions. Some ships carrying Russian liquefied natural gas face uncertainty about the openness of their final destinations. While some vessels unloaded in continental Europe in recent days, none have arrived in the U.K.
Pipeline shipments, including those crossing Ukraine, remain stable, which is key for Europe.
“Our company ensures and will ensure the fulfillment of long-term gas supply contracts,” Russian exporter Gazprom PJSC said Monday, adding that European prices may rise even more, but the company cannot be blamed.
Any ban or cutoff of Russian gas flows to Europe could require “extreme” government measures to ration supplies for the industry and consumers, the head of France’s Engie SA told Les Echos newspaper.
Europe has enough supplies to get through this winter, but problems would arise in building stockpiles over the summer for the next heating season, Catherine MacGregor said in an interview published Monday.
Dutch front-month gas, the European benchmark, rose to 345 euros a megawatt-hour before closing up 18% at 227.20 euros, the highest ever. Prices fluctuated in a range of almost 139 euros per megawatt-hour, the widest gap on record between intraday highs and lows.
“I’m lost for words,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S. “Margin calls and very illiquid and uncertain markets are driving this move.”
The U.K. month-ahead gas contract rose as much as 74 percent to an unprecedented 800 pence a therm, before settling at 539.53 pence. German month-ahead power surged 60 percent to a record 675 euros a megawatt-hour before paring most of those gains.
The price surge is having a impact on companies’ financial positioning in the gas market, as they’re likely to be forced to post more cash as collateral to back their trades. To avoid the margin calls and a potential liquidity squeeze, several energy firms could take a hit by swapping their positions, paying a premium to buy futures on the Intercontinental Exchange while selling gas in the over-the-counter market at a lower price.
The hit on the economy would be even more profound. Russia met 17 percent of global consumption and as much as 40 percent of western European demand as of 2021, according to Goldman Sachs Group Inc.
If shipments through Ukraine are curtailed, Euro-area gross domestic product could be cut by around one percent, with the impact expanding to 2.2 percent on an annual basis should Russian gas stop flowing completely, Goldman Sachs said in a report.
Even in a baseline scenario where the fuel keeps flowing, high prices could have a 0.6 percent hit on the European economy, the bank said.
The European Union already is bracing for potentially severe economic consequences should supplies be affected. The European Commission, the bloc’s executive arm, is set to adopt a strategy on March 8 intended to boost energy security, cushion the impact of soaring gas prices, and accelerate the build-up of renewables and energy efficiency.
It’s also planning to ensure more imports from the U.S., Qatar, Norway, Egypt, Algeria and Azerbaijan, among others.
“At these prices, we are likely approaching the limits of affordability in Western Europe,” Kaushal Ramesh, a senior analyst at Rystad Energy, said in a note.
