Gas prices have soared after Russia further cut gas supplies to Germany and other central European countries after threatening cuts from the start of this week.
European gas prices are up almost 2% trading above an earlier all-time high price after Russia invaded Ukraine. Critics accused the Russian government of using gas as a political weapon.
Russia began cutting flows through the Nord Stream 1 pipeline to Germany, with it now operating at less than a fifth of its normal capacity. Germany imports about 55% of its gas from Russia and most of it comes through Nord Stream 1 pipeline, with the rest coming from land-based pipelines. Russian energy firm, Gazprom, justified the latest cut, saying that it needed to allow maintenance work on a turbine. The German government, however, said there is no technical reason for it to limit the supply.
Ukraine Point Fingers
Ukraine accused Moscow of waging a “gas war” against Europe and cutting supplies to inflict “terror” on people. The UK would not be directly impacted by gas supply disruption, as it imports less than 5% of its gas from Russia. However, it would be affected by prices rising in the global markets as demand in Europe will increase.
UK gas prices shot up by 7% on Wednesday, July 27, 2022, and as a result, the price is now more than six times higher than a year ago (2021). However, it is still well below the peak seen in the aftermath of Russia’s invasion of Ukraine. UK energy bills increased by about £700 in April 2022, and are expected to rise again with one management consultancy warning that a typical energy bill could hit £3,850 a year by January 2022, which will be much higher than forecasts earlier this month (July 2022).
BFY (a leading Energy Retail and Utilities management consultancy) said its forecast reflected the increase in wholesale prices over the past few weeks with the ongoing tensions with Russia sparking concerns over winter supplies.
Mounting Pressure on EU Countries
The latest reduction in flows puts pressure on European Union (EU) countries to reduce their dependence on Russian gas even further, and will likely make it more difficult for them to replenish their gas supplies ahead of winter.
Since the invasion of Ukraine, European leaders have held talks over how to reduce its dependence on Russian fossil fuels. On Tuesday, July 26, 2022, the European Union agreed to cut gas use in case Russia halts supplies but some countries will have exemptions to avoid rationing. EU members also agreed to voluntarily reduce 15% of gas use between August 2022 and March 2023.
However, the deal was watered down after previously not having exemptions. The EU said its aim of the deal is to make savings and store gas ahead of winter, warning that Russia is “continuously using energy supplies as a weapon”. The voluntary agreement would become mandatory if supplies reach crisis levels. The EU agreed in May 2022 to ban all Russian oil imports which came in by sea by the end of this year (2022), but a deal over gas bans has taken longer. Since Russia invaded Ukraine on Thursday, February 24, 2022, the price of wholesale gas soared, with a knock-on impact on consumer energy bills across the globe.
Meanwhile, the Kremlin blamed the price hike on Western sanctions, insisting that it is a reliable energy partner and not responsible for the recent disruption to gas supplies.
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