European gas and electricity prices soared on Feb. 24 after Russian forces launched an early morning military attack on Ukraine on multiple fronts.
The benchmark Dutch TTF gas futures rose over 50 percent, the biggest gain since late summer 2019, with the front-month (currently March) contract reaching €133.555 per megawatt-hour in late afternoon before closing lower at €118.505 per megawatt-hour, a 33 percent advance on the day.
European gas prices have been jittery throughout the week amid rising tensions concerning Ukraine. However, gas prices dropped on Feb. 25 after it appeared that western sanctions would not cripple Russia’s ability to sell energy and other commodities.
Russia’s invasion has triggered one of the worst security crises in Europe since World War II, and puts gas supplies in Europe, which is already suffering a major energy crunch, at further risk. The continent depends on Russia for around 40 percent of its gas supply, and low inventories in the region’s storage facilities, as well as reduced flows from Russian supplier state-owned Gazprom PJSC since the second half of last year, have sent prices to record levels over the past 12 months.
Russia said on Feb. 22 it aims to keep its gas supplies abroad “uninterrupted,” according to a Bloomberg report citing Russia’s Energy Minister Nikolay Shulginov. But according to European Commission President Ursula von der Leyon, speaking at a conference of security-focused energy policy makers on Feb. 19, as cited by a Washington Post article, Gazprom was delivering “the bare minimum” of gas to Europe this winter.
Gazprom reported on Feb. 24 that its gas flows to Europe via Ukraine were “normal.” Ukraine’s gas transit operator also said earlier in the day it was operating normally and there had been no accidents as of 10 a.m. local time, according to the report.
Austrian oil refiner OMV AG, and majority owner of Austrian polyolefins and fertilizers major Borealis AG, said on Feb. 24 that supplies of natural gas from Russia have continued in line with the company’s contracts with Gazprom.
But Bloomberg cited a professor at the Paris Institute of Political Studies, Thierry Bros, as saying on Feb. 24 that Europe has to be prepared for Russian gas to flow only to selected E.U. countries, which, he said, would put further stress on the energy side as well as the diplomatic side.
Yara International ASA told Green Markets on Feb. 24 it had made no decision to close plants. “High prices and high volatility have been a challenge for the food industry in Europe in recent months, a situation which in turn negatively impacts global food security. The events currently unfolding in Ukraine are already further impacting market developments for fertilizers, food, and a number of raw materials linked to these,” a spokesperson for the company said.
She said given “the high uncertainty and complexity” of the situation, it is too early for the company to assess the overall impact on its operation and industry.
“But it is clear that this situation will put further pressure on an already strained food system,” the spokesperson said.
However, Yara said it would do “its utmost” to maintain supply to its customers, and to avoid a further escalating food crisis in the world.
According to sources speaking with Green Markets on Feb. 24, the new break-even production cost for ammonia in Europe is up to $1,200/mt due to the gas price increase, which is put at $900/mt during the last couple of weeks. It is worth noting that gas currently being used by ammonia producers in Europe is based on prices from a few weeks ago, when gas prices were lower. Most participants expect to see higher gas prices “seriously” affect the industry by mid-March at the latest.
Germany earlier this week suspended its certification of the Nord Stream 2 pipeline that runs between Russia and Germany – completed in December – and would ship Russian gas directly to Europe. The U.S. on Feb. 23 added the project to its sanctions on Russia.
According to Germany’s Vice Chancellor Robert Habeck, speaking on Feb. 24, as cited by Bloomberg, the pipeline is unlikely to start “in the medium term” because of the Russian military attack on Ukraine.
After years of European dependence on Russian energy, the Russia-Ukraine crisis is forcing a change in E.U. strategy, driving the bloc to make plans for a permanent break from Russian oil and gas supplies, according to a Washington Post article, citing European policymakers.
The strategy to split from Russian energy, which aims to accelerate a move to renewable energy, is expected to be announced by the European Commission next week. However, it likely would take years to implement.