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Russia-Ukraine crisis could see gas supply ramifications for the world


Gazprom brand end cap is adjusted on section of pipework by worker in pipeline laying operation for GazpromPJSC Power Of Siberia. The line connects the Kovyktinskoye to Chayandinskoye gaz fields, near Irkutsk (Russia) on Tuesday, April 6, 2020.

Andrey Rudakov | Bloomberg via Getty Images

The long-awaited Russian attack on Ukraine was launched by Russian forces Thursday sending shockwaves through financial marketsIt is increasing fears over the potential consequences of gas shortages around the globe.

Russian President Vladimir Putin reacted to international condemnation of the initial tranche of sanctions and declared that a new “special military operations” was underway with the goal of “demilitarizing” Ukraine.

Russian forces fired missiles on military control centers in Kyiv. Sirens can be heard across the capital. NBC News correspondents on the ground witnessed and heard the explosions in Kyiv, as well in other areas of Ukraine. 

Dmytro Kuleba, Ukrainian Foreign Minister, said on Twitter Thursday that Putin “launched full-scale invasion” of Russia. This he described as “a war for aggression.” Kuleba demanded that world leaders stop Russia’s president. He said, “Now is the time to act.”

European Gas Prices jumpedInternational benchmarks are being established in response to the news about the invasion Brent crude futures surpassed $100 a barrelFor the first time since 2014

According to analysts from Eurasia Group political risk consultancy, “While Western governments may exempt energy transactions form sanctions,” they said that traders will have to be extra cautious handling Russian barrels.

The authors stated, “Gas transiting Ukraine may be disrupted. This will affect supplies to many Central and Eastern European countries and increase gas prices in Europe.”

The U.S., Canada and Britain were all among those countries that announced the first wave sanctions against Russia, which targeted wealthy individuals and banks. Another round of harsh measures has been announced widely expected shortly.

Germany is also included haltedA highly controversial gas pipeline project is known as Nord Stream 2This has prompted a wider rethink of the deep dependence on Russian gas in the region.

What happens if Russia cuts off gas supply?

Russia’s attack on Ukraine is one of the most serious security problems in Europe for decades. The global economy will be impacted by the invasion, which is especially significant given Russia’s status as the 2nd-largest natural gas producer in the world.

Russia has been charged with a variety of crimes for many months. intentionally disrupting gas suppliesIt is important to maintain its status as Europe’s largest energy supplier, despite the growing dispute with Ukraine.

This was indeed the topic of rare public rebukeThe International Energy Agency called upon Russia to improve gas availability in Europe, and to ensure that storage facilities are adequate during periods of high winter demand.

While the Kremlin repeatedly denied claims it uses gas for geopolitical purposes, Gazprom owned by state has stated that it fulfilled contractual obligations.

Now, energy analysts are deeply concerned about the risk of a full supply disruption to the EU — which receives roughly 40% of its gas via Russian pipelines, several of which run through Ukraine.

Russia would probably cut its gas supply if it did. Particularly during winter, when the coronavirus pandemic is raging, such an event could have devastating economic and public health implications.

Wood Mackenzie analysts said that Europe is able to meet its gas demands for the moment and it’s in a much better position than at winter’s beginning. But, longer term prospects are uncertain.

Kateryna Phillippenko, Wood Mackenzie’s principal analyst for Europe Gas Research, stated that things could get “a lot worse” should Russian gas exports be stopped to Europe.

“It [Europe] would have to pull every lever in the energy system to keep the lights on – reducing gas burn and cranking up mothballed nuclear and coal plants; maximising indigenous gas production and pipeline imports; persuading Asian buyers to use coal and free up LNG,” Filippenko said, noting that even this would only be a temporary solution.

An employee adjusts a valve on a pipeline pipe at Gazprom PJSC Slavyanskaya compressor Station, which is the beginning point of Nord Stream 2’s gas pipeline. This was done in Ust-Luga (Russia) on Thursday January 28, 2021. Nord Stream 2 is a 1,230-kilometer (764-mile) gas pipeline that will double the capacity of the existing undersea route from Russian fields to Europe — the original Nord Stream — which opened in 2011.

Andrey Rudakov | Bloomberg | Getty Images

Filippenko explained that Europe could not cope with all Russian gas if it was shut off. Europe might be able to muddle along in the short-term if all of its gas flow stops today due to higher storage stocks and lower summer demand.

She stated that gas inventories could not be rebuilt during prolonged disruptions. Gas storage would be near zero next winter, which could lead to a catastrophe. The prices would rise to an alarming level. Industries will need to close down. Inflation could spiral. Global recession may be possible due to the European energy crisis.

China’s unique position

Troy Vincent (senior market analyst, researcher DTN Markets) told CNBC by email that Russian quantities of oil and natural gas are the only alternatives. “They don’t entail much higher prices or potentially severe shortages.”

He stated that it was clear from this perspective how sanctions on Russian energy exports to Europe and other parts of the world could lead to mutually-sustained destruction of growth and budgets.

Vincent noted, “Sanctions against Russian oil and natural gas would lead to higher energy prices all over the world,” but also pointed out that China’s infrastructure for supplying Russia with its crude oil is a significant asset and Beijing’s refusal to ignore U.S. restrictions put it in a uniquely positioned position.

Vincent claimed that China was the likely only nation to reap the benefits of such sanctions as it would absorb increasingly discounted Russian volume.

Stewart Glickman from CFRA is an energy equity analyst. He stated in Wednesday’s research note that he expects sanctions on Russia to have “fairly serious consequences” for the energy market.

Glickman stated that Russia is an important supplier of natural gaz to Europe and noted that Russia is also one of the largest producers of fossil fuels.

With that in mind, Glickman said: “Cutting off the spigot would, in our opinion, cause pain in all directions – both to Russia, since its national budget is fairly reliant on commodity exports, and to buyers, since fossil fuel demand would still be high and likely result in higher pricing from other suppliers.”