European energy prices soar after Russia attacks Ukrainian targets

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European energy prices soared after Russian forces attacked targets across Ukraine in a bid to demilitarize the country. The West promised new sanctions.

Benchmark Dutch futures gained as much as 41% in their fourth consecutive daily advance. German power for the month of March jumped 31%. Prices surged throughout the week as tensions over Ukraine escalated. Coal also surged.

Russia launched a barrage of missile attacks early Thursday, triggering Europe’s worst security crisis in decades. Ukraine’s Interior Ministry warned that the capital, Kyiv, was being targeted and urged citizens to go to shelters. Ukraine’s border guard said it was being shelled from five regions, including Crimea to the south and Belarus to the north.

In a nationally televised address ahead of the offensive, Putin said Russia did not plan to “occupy” its southern neighbor, but action was needed after the United States and its allies crossed the “line red” of Russia by enlarging the NATO alliance. US President Joe Biden called Putin’s decision “an unprovoked and unwarranted attack” and said “the world will hold Russia accountable.”

Biden said he would meet with his Group of Seven counterparts on Thursday and then speak to the American people to announce new sanctions that would be imposed on Moscow. Any sanctions limiting Russia’s access to foreign currency could upend markets for commodities, from oil and gas to metals and food.

“The whole picture will heavily depend on how Europe and the United States react,” said Hans van Cleef, senior energy economist at ABN Amro Bank NV. “Will they involve sanctions against the oil and gas sector or not?

If this sector is spared, the rally could soon run out of steam, he said. Brent prices jumped above $100 a barrel for the first time since 2014 amid the latest developments.

The crisis further endangers the fuel supply of Europe, which is already in the midst of an energy crisis. The continent depends on Russia for more than a third of its gas supply, and low fuel stocks last year pushed prices to record highs. Russia aims to keep gas supplies abroad “uninterrupted”, Energy Minister Nikolai Shulginov said earlier this week.

Fuel supplies

“If the West decided to cut Russia off from SWIFT, payments for Russian gas supply would become impossible,” said Katja Yafimava, senior researcher at the Oxford Institute for Energy Studies, referring to the messaging network used by the banks.

“It would be a cause of contractual force majeure leading to a halt in supply, with dramatic consequences for European consumers from the point of view of physical availability and prices,” she said.

From pipelines to ports, these are Ukraine’s main commodity locations

Germany has already suspended its certification of the Nord Stream 2 gas pipeline which would transport gas directly from Russia to Europe. The United States on Wednesday added the project to its sanctions against Russia. The pipeline is unlikely to start in the medium term due to the Russian attack, German Vice Chancellor Robert Habeck said on Thursday.

Amid heightened uncertainty over Russian gas flows, analysts from Goldman Sachs Group Inc. at Wood Mackenzie Ltd. and Rystad Energy AS expect the higher prices to last until the end of this year due to a shortfall in fuel used in power generation, industry and heating. . Russian flows have already been curbed since the second half of last year.

“After this gloomy morning, we have to be prepared that Russian gas will only be delivered to certain EU countries,” said Thierry Bros, professor at the Institute of Political Studies in Paris. “This will put even more pressure on the EU, both on the energy side and on the diplomatic side.”

Benchmark Dutch gas futures earlier hit 125 euros per megawatt-hour, the highest level since Dec. 23. They were trading up 19% to 106.11 euros per megawatt hour at 9:10 a.m. in Amsterdam. German electricity for March reached 260 euros per megawatt hour, the highest since January 7. European coal for next year gained up to 13% to $145 a tonne on ICE Futures Europe.

Ukrainian feeds

The European Union is planning an emergency in-person summit of the bloc’s leaders on Thursday to discuss the crisis. Europe will have to compete with Asia for liquefied natural gas if pipeline shipments from Russia are halted due to the crisis.

Russian gas exporter Gazprom PJSC said on Thursday that its transit to Europe via Ukraine was proceeding normally.

However, about a third of Russian gas to Europe typically passes through Ukraine, and analysts have said any escalation in the conflict could disrupt those flows.

“In the event of a prolonged disruption, gas stocks may not be replenished over the summer,” Kateryna Filippenko, senior analyst for Europe gas research at WoodMac, said in an emailed note on Wednesday. “We would face a catastrophic near-zero gas storage situation for next winter. The prices would be exorbitant. Industries should close. Inflation would skyrocket. The European energy crisis could very well trigger a global recession.

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