The price of gas is once again rising, increasing from $5.50 in early July to near the decade high of $9.30 set last month.
After some sideways at $6, gas spiked, reaching $8.77 after Russia’s decision to reduce supplies to Europe by 70%.
An emergency EU meeting is now expected to lead to an agreement for a 15% reduction in gas consumption to increase reserves for winter.
While on the supply side, Shell has decided to invest in the Jackdaw gas field in UK’s North Sea, France’s TotalEnergies has restarted a long delayed Nigerian gas project in the Ikike field, Turkey is re-starting Mediterranean explorations, and in Algeria three discoveries holding gas have been revealed, the biggest being in the Illizi basin.
In the more immediate term, an agreement has been reached with Azerbaijan to double its gas supply to Europe through Turkey, Greece, Albania and Italy.
Yet these developments appear to be insufficient to cool the speculating gas markets, with no immediate response from traders to the expected 15% reduction in demand in Europe.
An expected Fed hike of 0.75% tomorrow, however, might lead to traders taking a different view as both oil and gas have previously responded to such rises in interest rates.
The 15% reduction in demand, moreover, should have an effect once it is put into practice as speculation can only go so far with futures long bets in gas rising to their highest level since April.
This may have affected bitcoin, which dropped to $21,000, in addition to stocks with Nasdaq futures suggesting a bit of further red, down 0.5%.
Yet Russia’s president Vladimir Putin, who is being blamed for this gas reduction, does not have many further moves on energy now.
Europe itself was trying to move away from Russian reliance, with the transition placing the continent on a stronger footing as its energy security will no longer be at the whims of a confrontational power.
Russia will also have less freedom to engage in things like FSB handlers for the Wirecard’s mastermind, allegedly anyway.
And Germany might be less constrained when considering assistance to Ukraine, making this decoupling a lot more managed and orderly than it might seem because it was Europe’s intention to move off Russian gas anyway.
The two still have oil trade. Both will now have to move carefully because there isn’t much of a proxy front left on the economy.
Putin for his part has left open the option of turning on gas by blaming some technical issue for the reduction in capacity, but he appears unwilling to leave open the option of finding some sort of solution in Ukraine.
We still assume however, and perhaps will keep doing so in full denial or even delusion, that the war will be quarantined to Donbas.
As Ukraine is now a European candidate country, a bolder Europe could even force the matter by sending two torch carrying German soldiers to delignate the line between war and non-war, the Donbas line.
Beyond it, Russians and Ukrainians can fight all they want, but the rest is European peace.
This doesn’t have to be formal. It can be an implicit understanding as it just makes sense, the understanding being that Russia will find far more resistance from the European public if it seriously moves beyond Donbas.
The energy transition moreover seems to have strengthened European institutions with the President of the European Commission, Ursula von der Leyen, stating:
“We have set up a joint gas storage… We set up an EU Energy Platform for joint purchase. We have proposed our REPowerEU plan. And you know that it is two pillars: The first one is on supply; increase the supply from other trustworthy sources than the Russian one. And the second pillar is on reducing the demand on gas overall.”
The continent therefore is moving as one on energy, and that increases the chequebook from billions to potentially even trillions.
That can be enough to will gas out of thin air. The price spikes during this energy transition therefore may well be temporary and we may even see a double top in gas prices as demand is reduced while supply from other sources is increased.