Monday, 25 August 2014

The price for GAS Future started to raise long before winter this year. Why?

According to Bloomberg, gas future for September delivery rose in London at 21% over the past six weeks.

Usually in summer, Russian or Norwegian long-term contract gas is more expensive than spot market gas at average of 100 euros. However, when it gets colder gas price in the spot market begins to grow, and in winter, it is higher than long-term contract price. But this year at least two months before the heating season prices on the spot market have already started to grow. What is the reason?

The fact is that last month there was still a hope that the issue with Ukraine's gas debt to Gazprom would be solved by September. However, ongoing tensions between two countries do not leave us a chance that the gas crisis can be resolved before winter. Fears on gas crisis that can stop gas supplies from Russia to South-Eastern Europe make prices go up. If the gas crisis repeats in winter 2014-2015, spot market gas price can climb to unprecedented heights.

Unfortunately, Ukraine has been destructive in solving gas issue. Recently, Ukrainian parliament adopted a law on sanctions against Russia giving the government a right to stop the transit of Russian gas to Europe at any time.

Instead of taking a step forward to solve the gas crisis, Kiev is committed to escalate the conflict. When the European Commission is trying to develop mutual understanding between Ukraine and Russia, Kiev passes the law about the sanctions that makes ​​it clear that the conflict with Russia is getting even worse. This means that the likelihood of another gas crisis this winter is very high.

In case of gas transit problems Bulgaria and Greece will be seriously hurt. We in Austria, and people from Slovenia, Italy, Croatia and Hungary would also feel gas hunger. Slovakia and Czech Republic, by the way, are on a safer side as the get supply of Russian gas via "Nord Stream". But for countries in South-Eastern Europe there is no other way to get gas, except through Ukraine.

The existing threat of disruption of gas transit will continue to exert upward pressure on prices. Now, Ukraine gas storage facilities are only half filled. A country torn by internal conflicts, in August has already begun to limit the consumption of natural gas. We can only guess what will happen when the heating season starts.

Under these conditions, our European leaders should be more active in convincing all parties to negotiate. It is evident that the consequences of Ukrainian energy crisis are quite dangerous for some European countries. But we still hear our Euro politicians’ statements that repeat statements of US Department of State. It seems that it would be Americans to suffer without gas this winter and not Bulgarians or Greeks, for example.


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