Fossil fuel prices have tumbled – helping balance oil’s rise – but Russia’s freezing cold will force demand down more
The Russian president Vladimir Putin took advantage of the country’s worst cold snap in decades to flaunt the country’s fossil fuel empire as a source of power and ammunition in his threats to those countries who want a greater say in his politics.
But while the fuel prices have tumbled and the car mileage has improved since Putin’s minders polished the 2013-14 gas crisis with lots of flip jokes from Ruslants magazine, Europe’s already precarious winter gas supply is in peril.
After another cold winter freeze, winter gas supplies to Europe will probably have to be cut in July, just three months before the end of the European Union’s heating season.
No one seems to know where the new supplies are coming from. Over 80% of Russia’s natural gas exports go to Europe, and most supplies pass through Ukraine, which the Kremlin and the western-leaning government in Kiev disagree over.
Ukraine is still in fragile financial health, and customers are facing higher prices after Russia lifted “protectionist” measures that limited transit exports last year.
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Its biggest customer in Europe, Poland, will get about a third of its winter gas supplies this summer, according to estimates by Polish media.
The question now is whether neighbouring Lithuania, which depends almost completely on Russian gas, and Slovakia, which gets two-thirds of its annual consumption from Russia, will be forced to turn to the International Monetary Fund to finance a third round of price cuts in four years.
“We will need significant doses of austerity,” said Polish central bank governor Adam Glapinski. “The government will have to make hard decisions. We need to cut public spending, especially in the energy sector,” said Glapinski, whose central bank cut its main interest rate by 25 basis points to 1.25% last week.
Russian gas companies cited the cold weather in the UK, Hungary and elsewhere to justify a sharp price drop at the end of April.
Britain’s gas price has collapsed from around £179 per million British thermal units (mmBtu) in January to £109 – helping to bring down the bill for foreign oil imports and putting at risk the construction of the controversial Hinkley Point C nuclear plant.
Russia’s supply woes will put European businesses and consumers in the firing line of any subsequent price spikes, especially in countries such as Germany which get 90% of their gas from Russia.
But with Russian president Vladimir Putin taking advantage of the country’s worst cold snap in decades to flaunt his country’s fossil fuel empire, Europe’s already precarious winter gas supply is in peril.