Gas prices may soar over Russia, Ukraine tension

The cost of gas, both for cooking and gas-to-power, may soar in Nigeria and other export dependent countries, as tension between Russia and Ukraine pose fresh challenges for the already tense market.

While plants have been struggling to perform due to gas-related challenges, Nigeria, despite huge gas resources, currently hovering around 206 trillion standard cubic feet, relies on the United States, Algeria, Equatorial Guinea and others to buy Liquefied Petroleum Gas (LPG). About 85, 264.803 metric tonnes of the cooking gas was imported to Nigeria in late 2021.

Tension of war has been rising between Ukraine and Russia, a major producer and exporter of gas.

Russia supplied 168 billion cubic metres (Bcm) of gas to Europe in 2021, down from 191 Bcm in 2019 but still met around one-third of demand. A bulk of the supply, about 40 billion cubic metre is transported through Ukraine.

This is coming at a time when the Nord Stream 2 pipeline project, which will allow Russia to transport gas without needing Ukraine, remains a mirage.

With prices already rising to record high, the International Energy Agency had earlier stated that Russia was withholding gas to help to drive prices to record levels and put pressure on Europe to approve the Nord Stream 2 pipeline.

Coming ahead of a possible winter storm, which may affect production in major countries, natural gas was already selling close to $5.50 per million British thermal units (BTU). Reportedly, natural gas futures have spiked 55 per cent since sinking to $3.56 on December 30.

As prices hike at the international market, the import-dependent nature of Nigeria also increases the price locally, especially for Liquefied Petroleum Gas, which has surged by above 100 per cent in recent times along with rising exchange rate.

Speaking on the rising tension between Russia and Ukraine, Chief Analyst at Wood Mackenzie, Simon Flowers, noted that the threat of military escalation in Ukraine was ramping up the pressure in gas market.

“The chances of Russia intentionally cutting its exports are remote. But any disruption to pipeline volumes could lead to energy chaos in Europe and ripple out into global gas and power markets,” Flowers noted.

WoodMac had, in a note, stated that imports have doubled over the last few years and contributed 20 per cent to Europe’s supply in 2021.

Although the world leverages gas as transition fuel to exit from using fossil fuels, WoodMac said warmer temperatures in Asia prompted LNG traders to reroute cargoes to take advantage of higher prices in Europe, temporarily reducing European buyers’ requirements of Russian imports, adding that has now reversed with the arrival of cold weather lifting Asian spot LNG prices.

According to experts at the research body, defusing military tension will quickly lead to lower prices as the winter ends, though it is hard to imagine the market could go back to pre-crisis levels with no risk premium after everything that’s happened.

“Any other scenario and the initial reaction would see prices go through the roof. The likelihood is that Europe faces elevated prices compared with a year ago for some years until new supply, mainly from Qatar and the US, becomes available in the middle of the decade,” it noted.

Globally, the experts said Russia’s apparently strong position with its European customers may not be what it seems, adding that Russia also has a lot to lose – not least its reputation as a reliable supplier of gas; and Nord Stream 2, which is in danger of becoming a white elephant.

“Should Europe choose to wean itself off Russian gas it’s a bullish signal to LNG developers in the US, Qatar and beyond.

“Secondly, there’s the impact of soaring prices and supply uncertainty on gas demand, in Europe and elsewhere. Europe might use the crisis to push even harder on its plans for net zero.

“Growth in the global market longer term is all about Asia, with gas displacing coal to meet rising energy demand and reduce emissions. High prices and volatility do no good at all,” the company said.