Energy Price Volatility Driven by Russia’s Invasion of Ukraine
Following Russia’s invasion of Ukraine, leading energy consultants Utility Team have composed a useful list of FAQs, exploring what could happen to energy prices and how businesses can avoid large price hikes during this volatile period.
After weeks of speculation and denials from Vladimir Putin, we woke to the news that Russian forces have launched an invasion into Ukraine. This is a clear breach of international law and will lead to the West taking action. Currently, we do not know how the West will react; however, EU leaders have previously stated that they will impose serious sanctions on Russia, including freezing its assets and halting its banks’ access to the European financial markets. President Joe Biden declared that the world will “hold Russia accountable,” and the UK Prime Minister, Boris Johnson, has stated that “the UK and our allies will respond decisively.”
Russia is a major global exporter of natural gas, LNG (liquefied natural gas), coal and oil. Any curbs on exports of these products will have far-reaching consequences on energy markets. As an organisation, you will want to know how this could impact your business; this article will explore what could happen now that Russia has invaded Ukraine.
What would this do to energy prices if there is a large-scale war?
The invasion has immediately led to suppliers halting pricing as they wait to see what actions the West take and what the impact on the markets will be. It is widely expected that when suppliers begin pricing again that there will be another increase in energy prices. As previously suggested, this would most likely stem from the systemic impact of sanctions.
Europe receives over 40% of its gas from Russia, meaning that the EU may be keen to steer clear from overly restrictive penalties in this area. However, Germany has previously stated that the newly completed Nord Stream 2 would be subject to sanctions if Ukraine’s borders are violated. Any escalation in tensions between the major powers may question whether the pipeline will ever become active.
Another major impact could be market fears that a prolonged conflict leads to supply disruptions or that Russia decides to cut down gas supply to European markets as a reaction to the sanctions imposed on them. Russian gas flows into Europe have already been declining throughout winter, although Gazprom has been keen to emphasise that they have continued to honour their long-term contractual commitments. Any further falls would place greater reliance on European markets for global LNG, with any shortages making it hard to replenish European gas storage levels this summer.
Oil prices are another area that will undoubtedly be impacted, with global supply already struggling to meet the pick-up in demand following the height of COVID restrictions. Oil prices are already pushing $100 per barrel on the news overnight, the highest they have been since 2014. Oil has a sentimental linkage with European gas prices, given the existence of oil indexation on some European gas contracts.
What can my business do to ensure we are not affected?
The first step is to review your current energy contracts and identify when your renewal is due. If your business has a fixed price contract that is due for renewal in the next six months, you may wish to look into securing your contract now in order to protect your business from any further price spikes in the coming months. If you are on a flexible contract, with open positions for this summer and winter, we would advise ensuring a proportion of this risk is covered off as soon as possible.
We would also encourage all businesses to look at what energy efficiency solutions they can implement, as the less energy your business uses, the less you will be impacted by the rising energy prices and any potential shortages created by a drawn-out conflict. We have recently shared an article on why there has never been a better time to invest in energy efficiency technologies; you can read the article here.
How can Utility Team help?
With the conflict unlikely to end quickly, we expect energy market volatility to continue for a sustained period. At Utility Team, we are energy experts and track the energy markets in real-time. Our knowledge and experience can help you navigate the recent surge in price volatility and take advantage of any potential market price falls through our risk-managed services.
Our team will guide you through various energy supply strategies, helping you to implement the correct one for your business, minimising the impact created by the volatility of the current energy market.
We can also help you quickly identify energy waste in your current operation by deploying our Smart Meter solution MY ZeERO. Using the data and insights from MY ZeERO, our energy efficiency team will identify and implement the best energy efficiency solutions to bring down your energy consumption. With the average UK business wasting up to 20% of the energy it purchases, MY ZeERO and our energy efficiency solutions can help bring down your energy bills.
To find out how we can help, please contact us at enquiries@utilityteam.co.uk or call us on 02476 997901.
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