From a humanitarian viewpoint, the war in Ukraine has gone further down the depths of depravity with the ongoing suffering of the Ukrainian people continuing.
When we look at the War’s impacts on the energy markets as you can see from the chart below, Gas prices were lowering day by day helped by positive vibes from peace talks last week.
Reducing gas prices has helped improve Irish power prices. To illustrate, week 1 in March power averaged €387/mwh, week 2 €292/mwh and the most recent 7 days averaged €245/mwh.
On Wednesday things took a little turn for the worse.
Putin ordered that Gazprom only take payment for gas in Rubles from “unfriendly countries” i.e. The European Union.
Why has he done this?
- Prop up Russia’s quickly depreciating currency. The Ruble has fallen by 50% versus the Euro since the war commenced.
- Give a strong signal to the European Union. EU leaders have been steadfast in saying they do not want to wean themselves off Russian gas over a longer period to avoid a recession at home.
- Paying for gas in an appreciating currency will increase the Euro cost for EU purchasers.
Normally in a contract situation, changing the payment currency would be a mutually agreed change, however these are not normal times.
Initially, gas prices rose 36% on Wednesday, settling the day 18 % up on the previous close.
What can the EU do?
- Buy less gas. Unlikely as the EU intends to mandate the replenishment of gas storage to 90% by 1 November. EU is trying to wean itself off Russia gas in the medium term.
- Amend sanctions to impact the EUR/RUB exchange rate to negate the impact.
- Increase flows of US Liquid Natural Gas (LNG) flows to Europe from already historical high levels. Interestingly President Biden is attending the EU Council meeting on Thursday.
- Do nothing and accept it…. Which is unlikely