BAKU, Azerbaijan, April 12. The current situation of uncertainty and not knowing whether flows from Russia will be curtailed is the worst of all worlds, and is keeping prices high and, as a consequence, keeping Russian revenues from gas at record levels, Trend reports with reference to the Oxford Institute of Energy Studies (OIES).
OIES believes that the EU has only two options – full sanctions on Russian gas with an immediate impact on revenues or a clear statement that contracts will be fully abided by and contract volumes will continue to be nominated, increasing supply and significantly reducing prices – and revenues – to Russia.
“The latter course of action would not remove the uncertainty that Russia may choose to curtail flows, but it would at least provide certainty to the market from the perspective of the EU and European buyers. Additionally, if Russia cuts off European buyers, then any negative consequences can be laid firmly on President Putin, whereas if the EU stops the flows, with significant consequences for global gas prices, much of the world would be severely impacted, and the blame directed towards the EU,” the Institute said in its latest report.
OIES analysts believe that the complete curtailment of flows from Russia for a whole year would result in significant demand destruction – demand being unable to be met and industries having to close, alongside potential disruptions to power supplies.
“The EU plan to reduce imports from Russia by two-thirds relies on significant reductions in gas demand through increased efficiency, more wind and solar production and lowering thermostats, but mostly through obtaining increased supplies of gas from elsewhere, principally the diversion of LNG to Europe. The price consequences of these measures were not calculated by the EU but prices would undoubtedly become much higher. If the aim of reducing imports from Russia is to hit Russia’s revenues from gas sales, reducing flows and having prices shoot up is not the solution. If imports are reduced by two-thirds and the price triples then revenues remain the same,” says the report.
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