What impact is Russian gas supply having on UK prices?

Understandably, many energy users are concerned about what the tensions between Russia, Ukraine and the rest of the world could mean for their energy prices. Around 87% of all gas supply in Europe is imported, and Russian gas supply accounts for approximately 31% of the total European supply. With sanctions against Russia in place, UK prices are expected to rise as a result.

Although the UK only gets 5% of its gas supply from Russian sources, the volatility caused in the global market has a knock on effect to virtually every country.

The Oxford Institute for Energy Studies (OIES) recently published a report exploring the potential impacts of disruption in Russian gas supplies to Europe, and what this could mean for UK energy prices. Although published before Russia’s invasion into the Ukraine on Thursday 24^th February, the report still offers a useful insight into the possible consequences of a disruption to Russian gas supply.

The Oxford Institute for Energy Studies report on Russian gas supplies in Europe paints a concerning picture

The report from the OIES explores numerous potential parameters surrounding Russian gas supply disruption, including:

• European and US sanctions against Russian gas exports
• Russia suspending the sale of Russian gas to Western-Europe
• Direct conflict between the Ukraine and Russia.

The report also acknowledges the UK’s interconnection with Europe. Gas generally flows to Europe for the summer and the UK for the winter, and as of December 2021, interconnectors were already flowing at full capacity from the UK to continental Europe.

Because of these limitations, the OIES states that any disruption to Russian supply would need to be met with Liquefied Natural Gas (LNG) cargoes. The only way to deliver more gas to the regional market in this situation would be to import LNG in the UK and re-export it to wider Europe, but UK LNG facilities were already operating at 80% of their capacity at the start of 2022. This plan would also be dependent on both global LNG cargo availability and the UK’s export ability, which could become bottlenecked by interconnector capacity.

The paper takes all of this into account and concludes that any level of disruption to Russian gas supply will likely result in energy price spikes across Europe, including the UK. This is something we’ve already seen in action, with day-ahead gas prices soaring 83p/th higher than the previous day on the morning of 24^th February.

Is there any need for organisations to panic?

While there is no doubt that the recent conflict in Ukraine has the potential to cause significant volatility in the energy market, businesses shouldn’t feel a sense of panic. Rather, it is important for organisations to simply take control of energy usage, supply and current billing to understand their requirements and tolerance for price fluctuation.

It is also prudent to take steps to improve energy efficiency and look at opportunities to reduce consumption – reducing dependence on global energy markets as a result.

Making sense of your business’ energy bills and usage can be hard, especially in these uncertain times. If you aren’t sure where to begin and would like expert advice on where your business could be making improvements, please contact us to discuss.

Get in touch with the team at Consultiv Utilities today.