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Gas price falls to lowest since late 2021 and paves the way for EU to veto purchases from Russia

CE Noticias Financieras  


    The price of gas is returning to its usual fluctuation band before the Russian invasion of Ukraine blew everything out of the water. The Dutch TTF market, the European benchmark, has in recent days settled below the E30 per megawatt hour (MWh) threshold for the first time in a year and a half, a drop that has multiple implications: It lowers inflationary pressure at a time when the CPI has become a leading economic indicator, makes it possible to fill the tanks for next winter at much more affordable prices and paves the way for the EU and - in general - the West to definitively cut their ties with liquefied natural gas (LNG, the one that arrives by sea) of Russian origin.

    The EU-27 have been balancing for months between what their bodies are asking for - breaking off completely with Russia, as they have already done in other areas - and avoiding shooting themselves in the foot with measures that could complicate their already intricate supply matrix. Russian crude oil, as well as oil derivatives from that country, have been banned for months on EU soil, which has increased purchases from other suppliers to fill the gap. In the case of gas, however, caution has prevailed. If pipeline arrivals are minimal today, it is due to Moscow's unilateral decision: if it were up to Europe, the gas would continue to flow underground. Even in the case of gas arriving by ship, the Community partners have not dared to make a clean break with Russia, one of the world's major exporters.

    The steady decline in prices, however, is an argumentative impetus for the growing calls to stop buying Russian LNG. It is because, ultimately, prices are a true reflection of how tight or tight the market is: how much supply is available and whether or not it is enough to meet demand. And, in a way, it is also a thermometer of how things will be in a few months' time, when winter comes knocking on the door again and gas is once again the king of European heating fuels. When prices fall, they do so because operators are discounting fewer supply problems both now and in the future.

    More informationGNL: the three letters that have forever changed the European energy paradigm

    One of the first official voices to verbalize that the end of Russian LNG purchases is only a matter of time has been the Spanish third vice-president and minister for Ecological Transition, Teresa Ribera, who last week let slip that the EU would ban the import of this product "sooner rather than later". "If we want to be coherent, we have to say that we are not going to accept more Russian LNG. We would feel much more comfortable in that scenario," he stressed in an interview with Reuters. "As time goes on, it will become easier and easier to make this decision." In recent weeks, there had been speculation that the G7 would put the issue on the packed agenda of the Hiroshima summit, but in the end this was not the case.

    At the end of March, after learning of the high volumes of LNG from the Eurasian giant - in 2022 these imports doubled, to over 56,000 gigawatt hours (GWh) - Ribera herself already urged Spanish energy companies to stop importing Russian gas. Days later, the EU authorities began to look for legal options to make this possible. But it will not be easy: the problem is that these contracts - such as Naturgy's contract with Yamal LNG, the largest of those involving Spain and Russia - are multi-year and oblige the buyer to pay for the gas whether it is received or not, so breaking them would entail significant losses for European companies. Furthermore, unlike the gas that Russia sells by pipe, whose income goes entirely to Gazprom's accounts and therefore to the Kremlin, Yamal LNG is a consortium led by the private Russian gas company Novatek (50%) and in which the French TotalEnergies (20%), the Chinese CNPC (20%) and the Silk Road Fund, also Chinese (20%) also participate.

    "Right now, Europe is receiving around 20 bcm [billion cubic meters] of Russian LNG and another 20 per pipe, when previously a total of 170 bcm were coming in: 20 and 150, respectively," calculates Javier Revuelta, a specialist at energy consultancy Afry. "The level of seasonal storage is very good, at record levels, but Europe will continue to need permanent deliveries of LNG, especially for industry, and there is still not enough availability to cover all possible demand." Although the situation is "more comfortable than expected a few months ago", the European "structural deficit" - he warns - "will not be closed until 2026 or 2027 and next winter we will continue to fight for gas with other countries. This is not a situation in which we should be throwing caution to the wind".

    When the European disconnection of Russian LNG becomes a fact, the most likely outcome will be a triangulation similar to what happened with gasoline and, above all, with diesel: the gas from Yamal (in the Russian Arctic) that used to reach Europe will end up in third countries that are not shy about buying energy from the Eurasian giant, and the LNG tankers that used to go to those destinations will end up in the Old Continent.

    Changing destination on the fly will not be a problem: years ago the oceans became something like a bazaar where the highest bidder ends up taking the gas that travels in a ship regardless of how close it is to its final destination. All, of course, at a higher cost, both economically and in terms of emissions, because of the longer distances they have to travel. "If Europe decides not to buy LNG, the situation would not change much by redistribution of flows: Russian gas will be bought by others and, in exchange, ships from more distant countries will arrive in Europe," Revuelta concludes.

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