Days before the Russian invasion of Ukraine, the International Energy Agency released its gas market report for the first quarter of 2022. We review the report and ask Bjørn Inge Vik, Insight by Volue analyst, to forecast the gas market following the invasion.
Mar 4, 2022
The gas market report by the International Energy Agency (IAE) examines last year's highlights in the sector and offers a market update as well as a forecast for the short term.
“The invasion of Ukraine has changed the picture and tightened the screws on a market already in agony,” says Volue's Bjørn Inge Vik, market analyst specialising in LNG and carbon.
“Gas is the fuel most directly affected by the invasion due to Europe’s reliance on Russian pipeline exports. Roughly 40 per cent of Europe’s gas consumption is covered by Russia.”
The TTF April contract increased from €88/MWh on the day before the invasion to €174/MWh at the time of writing.
“In response to the Russian aggression, Germany has halted the approval process for Nord Stream 2 and the pipeline could very well be permanently scrapped. There’s also considerable general uncertainty about future Russian exports via existing routes.”
According to Bjørn Inge Vik, this drives market risk and volatility.
“It is clear that Gazprom has already held back on pipeline supplies to Europe for some months, but flows have actually increased slightly since the invasion. Fear of further escalation of the conflict, sanctions and the response by Russia are key drivers for what is to come for the gas market.”
A complete halt of Russian exports would mean that Europe won’t be able to replace lost gas with other sources and we will see a reduction in demand – consumption, would likely drop because there would perhaps be rationing or curtailments in the industry sector, and private households and companies would use gas more sparingly due to the high prices.
We can expect continued high prices in the midterm.
“Europe’s reliance on LNG will be cemented going forward, intensifying the price competition with Asia at times of high demand. Longer-term developments depend on the outcome of the conflict and if and when Nord Stream 2 goes live.”