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The Russia-Ukraine crisis could trigger increases in Europe’s gas prices

Growing tensions between Russia and Ukraine have cast a shadow over energy markets, and uncertainty could mean a longer period of high gas prices for Europe, analysts say.

"It's a very tight gas market ... and there's no doubt that this sense of imminent crisis building with Russia and Ukraine is also hanging over the market, especially as Russia supplies about 35% of Europe's gas," said energy expert Dan Yergin. CNBC Monday.

If the crisis escalates, gas prices in Europe - which rose to highs last year - could rise further, the research firm Capital Economics warned in a note over the weekend.

William Jackson, chief economist for emerging markets at Capital Economics, pointed out that in addition to Europe's dependence on Russia for gas, stocks are also low right now.

"If sanctions were to be imposed on Russia's energy exports, or if Russia used gas exports as a tool for leverage, European natural gas prices would probably rise," he said.

Tensions between Russia and Ukraine have risen in recent months amid several reports that Russian troops have gathered at the border with Ukraine.

The development prompted speculation that Russia was preparing to invade the country and sparked fears of a repeat of Moscow's illegal annexation and occupation of Crimea in 2014. Moscow has repeatedly denied these allegations.

Ukrainian Territorial Defense Forces, the military reserve of the Ukrainian Armed Forces, which holds wooden copies of Kalashnikov rifles, is participating in a military exercise near Kiev on December 25, 2021.

Sergei Supinsky | AFP | Getty Images

Talks aimed at ending the crisis ended last week without any breakthrough.

US representatives and NATO members emerged from several days of heated discussions with Russian top officials without any decision - but with warnings that the situation along Ukraine's border is actually getting worse.

The impending crisis has sparked talk that the United States could impose sanctions on Russia to stop the Kremlin from invading Ukraine.

If that happens, European gas prices, according to Capital Economics, are likely to exceed the £ 180 per capita peak. MWh, which was seen at the end of last year.

"And some states that are very heavily dependent on Russian gas, especially in Eastern Europe, may be forced to ration power," Jackson added.

A massive gas crisis in Europe in the third quarter of last year led to European electricity prices rising to several years' heights.

As it is, gas supplies from Russia were already lower than normal, Jefferies pointed out in a note Sunday.

Imports of gas from Russia to northwestern Europe from August to December fell by 38% compared to the same period in 2018, according to the US Investment Bank.

Gas stocks in Europe are also lower than average - and have fallen by 21% per year. January 12, relative to the five-year average, the company said.

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"We expect the period of high natural gas prices to be prolonged. Gas flows from Russia will remain low as we enter the 2021/22 heating season with record low stocks," Jefferies said.

"There was this trend when this crisis started at the end of last year, to say 'oh, it's a stand-alone'," Yergin said, referring to the European gas crisis of 2021. "But if you look at the demand trends, the level of investment , you could see this repeating itself. "

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