That concludes Nikos Tsafos in a tweet earlier this morning when comparing gas and oil prices. Yes, oil is now north of $100 per barrel, but in oil equivalent terms the gas price is more than three times as expensive at $340 per barrel.
As Tsafos further sets out in his tweet, “The prices are totally divorced from market fundamentals. Sooner or later, governments must step in.”
To an extent, that is what is happening already, with Germany now announcing the construction of two LNG terminals where it hadn’t any before and also legislating the extent to which gas storage has to be re-stocked before the next winter.
In a leaked EU document that was published on EUACTIV yesterday, the EU still expects prices to remain volatile until 2023 though, which is not a surprise. It also reads that the EU as a whole is intending to propose a legal requirement for EU countries to ensure a minimum level of gas storage by 30 September every year.
Further to that, the document is also stimulating a diversification of supply towards an increased amount of gas being shipped in as LNG.
However, as Thierry Bros from Science Po university in Paris says in the article, “The EU communication still fails to address the heart of the energy crisis: how Europe will get enough energy to satisfy its consumption needs.”
With the western majors withdrawing from Russia – for good reasons – the problem obviously does not disappear. At the root of the issue ultimately is the extent to which Europe is dependent on gas import. Even increased storage capacity is not a solution for that. It is the realisation that current domestic reserves are far too small and that what is left of exploration is only equivalent to let’s say one day of consumption. It doesn’t make much of a difference.
In that sense it may not be too much of a surprise to see that Dutch gas analyst Jilles van den Beukel argues for a reduced dependency of Russian gas – from 40% currently for the EU to 25-30% – but yet maintaining a trading relationship simply because the options to fully replace current import from other sources is unrealistic.
HENK KOMBRINK
