swift indeed
The situation with European gas imports from Russia is comical to me. It's also something I have warned about more than once.
To be certain, negotiating contracts over long term gas prices in winter is frankly foolish, but that's a lesson for the Ukranians to learn. The bigger issue of course is that Russia is willing to simply shut off such a huge amount of gas to Europe over such a small amount to the Ukraine. Clearly there are other options (a contract for differences securitized by the EU comes to mind), which goes to show this is of course exactly what Russia wants.
I will also point out that locking in prices on the front end of recession/depression is usually not such a great idea. Nothing in this situation calls for it. The Ukraine could instead opt for a shorter term contract and renegotiate for a longer contract in the future.
In looking for some support for where pricing should be I found a relatively interesting article here. (I am a bit confused as to why you need to first divide by 6 then multiply by 35.3 instead of just multiplying by 6, but hey - whatever magic you use to get your ballpark I guess).
All of this of course goes back to the main point of this post - that Russia is perfectly content not selling gas to the majority of its customers in order to "punish" one of them. There's clearly some wiggle room on the European side with storage, but that ain't gonna last forever. More importantly, if delivery of gas is subject to uncertainty due to political factors such as this, should there not be a discount to the ultimate value of a Russian gas contract?
Energy geopolitics being the original source of inspiration for this discussion (one of many sources I suppose) I will just wrap up with this little guess about the market on a forward going basis:
In areas where the natural gas market can be significantly disrupted by a single player I would expect to see prices trend toward LNG margins over time. I have to spend more time thinking about what this means relative to a diverse generation portfolio, especially in light of a carbon tax.
To be certain, negotiating contracts over long term gas prices in winter is frankly foolish, but that's a lesson for the Ukranians to learn. The bigger issue of course is that Russia is willing to simply shut off such a huge amount of gas to Europe over such a small amount to the Ukraine. Clearly there are other options (a contract for differences securitized by the EU comes to mind), which goes to show this is of course exactly what Russia wants.
I will also point out that locking in prices on the front end of recession/depression is usually not such a great idea. Nothing in this situation calls for it. The Ukraine could instead opt for a shorter term contract and renegotiate for a longer contract in the future.
In looking for some support for where pricing should be I found a relatively interesting article here. (I am a bit confused as to why you need to first divide by 6 then multiply by 35.3 instead of just multiplying by 6, but hey - whatever magic you use to get your ballpark I guess).
All of this of course goes back to the main point of this post - that Russia is perfectly content not selling gas to the majority of its customers in order to "punish" one of them. There's clearly some wiggle room on the European side with storage, but that ain't gonna last forever. More importantly, if delivery of gas is subject to uncertainty due to political factors such as this, should there not be a discount to the ultimate value of a Russian gas contract?
Energy geopolitics being the original source of inspiration for this discussion (one of many sources I suppose) I will just wrap up with this little guess about the market on a forward going basis:
In areas where the natural gas market can be significantly disrupted by a single player I would expect to see prices trend toward LNG margins over time. I have to spend more time thinking about what this means relative to a diverse generation portfolio, especially in light of a carbon tax.
posted by aram shumavon at 9:20 AM
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