Sanctions on Russia bring fresh spike in gas prices

Concern among traders over the impact of economic sanctions on Russia brought a fresh spike in wholesale gas prices on Wednesday (2 March), which at one point hit 454 pence per therm (p/th).

ICIS said the price of front-month contracts at the National Balancing Point (NBP) eased off slightly by the end of the day but closed at 423p/th – a 45% increase over the previous close of 292p/th and the second highest it has ever seen after the record set on 21 December of 450p/th.

Alex Froley, LNG market analyst at the price reporting firm, said: “Broadly speaking, Russian pipeline flows to western Europe through Ukraine continue, but there is lots of uncertainty as European companies pull out of Russian projects and people may be trying to unwind contracts and positions.”

On Tuesday, the government announced another package of economic sanctions on Russia, including a ban on “any vessels owned or operated by anyone connected to Russia” from entering UK ports.

Froley said this would appear to rule out most liquefied natural gas (LNG) shipments from the plant on Russia’s Yamal peninsula. He said the UK received 33 cargoes from the facility in 2021, representing around 3 to 4% of the country’s total supplies last year.

“If Russian ships could deliver to Europe instead, traders could probably swap things around, but there may be a concern amongst traders whether other European countries copy the UK ban,” he added.

Foreign secretary Liz Truss told the House of Commons on Monday that the government is looking at sanctions specifically targeting Russia’s oil and gas industry in response to its ongoing invasion of Ukraine. She said this would help to end the “free world’s dependence” on Russian gas and deprive the country of a “key source of revenue” that is “funding Putin’s war machine.”

Shell and BP have both announced plans to dispose of their investments in the sector, whilst British Gas-owner Centrica has said it is cutting ties with Russian state-owned gas company Gazprom.

On Wednesday, the House of Lords Economic Affairs Committee was told by witnesses that Europe cannot rely on LNG imports from other countries to replace flows through Russian pipelines.

Investec recently warned that the rising wholesale gas prices could push the price cap on default tariffs to well over £3,000 in October. The estimate was based forward gas prices at the time, which have subsequently risen further.