Amyy
Russia’s recent attack on Ukraine has rattled global commodity markets and raised concerns about how the ongoing crisis could prolong Europe’s energy crisis as the West continues to impose sanctions on Moscow. While the impact on energy markets has yet to be determined, wholesale prices increased 30% on Thursday, February 24, and continue to rise.
Russia is one of the world’s leading exporters of coal, wheat, palladium, and ammonium nitrate, as well as many other resources. Russia is also the second-largest producer of gas and the third-largest producer of oil in the world.
The UK only depends on Russia for 3% of its gas, which is much less than Germany and Italy, which are much more dependent. If the conflict drags on and Russia reduces or even stops gas supplies through Nord Stream 1 or other pipelines, this could have a devastating impact on energy prices.
How much will prices go up?
Consumers are already paying high prices for energy and fuel, and demand has increased following the easing of COVID restrictions. The impact of this has seen 28 energy providers go out of business by the end of 2021. The UK’s inflation rate is 5.5%, the highest in 30 years. Although the UK is not heavily dependent on Russia for gas and energy, there are concerns that sanctions could restrict supply and drive up prices around the world. The price of UK natural gas futures soared nearly 30% on Thursday.
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Ukraine And Russia war Affect Energy Market Discount Hub
Investec said the conflict, coupled with rising global demand, had caused gas and electricity to soar. However, Investec said prices had risen further following the Russian invasion of Ukraine and would remain high for months.
The Kremlin’s latest decision to deploy forces to Donetsk and Lugansk, two breakaway regions in eastern Ukraine, has triggered market shocks and spikes in commodity prices. This week, the price of crude oil reached the highest price since June 2014, reaching almost $125 (£94) per barrel, coal and energy prices soared. Energy experts say oil prices could easily raise another $20 a barrel if Putin seeks to occupy more or all of Ukraine. Such an outcome would also cause huge problems for Western oil companies doing business with Russia. customers are that the primary media focus is on immediate energy prices and national energy price cap increases, which could put light on the reality of the cost increases that companies could face. With 99% of UK businesses (and 60% of employment) being in the SME sector, it is critical that these customers are supported and educated to make informed decisions.
Businesses should remember that they are not covered by the national cap and that the current plan proposed by the government to support the domestic market is simply a loan scheme to help clients’ short-term finances (will recover in later years) . With this in mind, support for the commercial sector is highly unlikely.
Like many industry parties before Christmas, companies hope that the European conflict will be resolved and prices will fall. While they might drop slightly, there is also a real risk that they could rise exponentially to new all-time highs.
If tensions with Russia subside, questions remain over whether and when Russia will increase non-contracted gas flows to Europe, or whether it will continue to withhold gas to push for approval of the Nord-Stream 2 pipeline to Germany.
Nord Stream pipelines
Nord Stream 1 has been transporting 55 billion m3 of gas to Germany via the Baltic Sea from Russia since 2012. This pipeline has a huge impact on Europe’s gas infrastructure and if Russia stops this pipeline anyway, it could cause serious problems for Europe and the UK.
The Nord Stream 2 would have transported 110 billion m3 of gas under the Baltic Sea between Germany and Russia each year, but Biden has imposed sanctions on this controversial project. Germany has decided to stop the certification of the new gas pipeline, which causes further tension in the energy market.
Questions come to mind in this war-like situation
So should companies be buying?
Unlike the domestic sector (which is currently uncompetitive due to the price cap), there is value in price-seeking companies. While some providers have reduced their activity in the market, others that have positioned themselves well are using this as an opportunity to acquire new clients.
The time has come for companies to plan for future costs?
Most importantly, companies need to understand what their future costs will be now. While you can choose not to sign a new contract just yet, I absolutely recommend companies find out now what their future prices will be based on today. Energy contracts can be secured up to two years in advance, and while you’re unlikely to find savings, securing a contract now could prevent your business from growing any further.
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