Why isn’t Putin’s move to cut off natural-gas shipments to Poland and Bulgaria causing a bigger spike in prices?
Elias Stein
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Vladimir Putin’s move to cut off natural-gas shipments to Poland and Bulgaria after they refused to pay in rubles is a big deal. The price of European natural gas spiked as much as 24% after the news, only to fall back near its prior levels by the next day.
Putin still has power over European energy, but it has declined since the Ukraine war began. Last year, 40% of European gas came from Russia. Natural gas is particularly crucial in winter for heating homes. In early March, Dutch-traded gas futures spiked above 200 euros ($210) per megawatt hour. On Wednesday, they traded at €107.
Why isn’t the shut-off causing a bigger spike? First, gas demand has fallen as the weather has warmed. If Putin had cut off gas in February, the impact would have been larger. Second, Poland and Bulgaria aren’t Russia’s biggest customers. Germany, Italy, and Turkey import much more Russian gas by volume; cutting them off would inflict real pain on Europe—and squeeze Russian revenue. “A full interruption of Russian flows to Germany would potentially lift European gas prices to over €200 per megawatt hour this summer,” says Goldman Sachs analyst Samantha Dart.
Third, Europe is better prepared than it was two months ago. Europe has found new sources of gas, including a new pipeline expected to open between Norway and Poland this fall. And U.S. shipments of liquefied natural gas, or LNG, have helped some European Union countries refill storage tanks for next winter. The U.S. plans to ship over 60% more LNG to Europe in 2022 than it did in 2021.
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Write to Avi Salzman at [email protected]
Source: https://www.barrons.com/articles/russia-putin-natural-gas-poland-bulgaria-51651275084?siteid=yhoof2&yptr=yahoo