European energy prices surge amid fears Russia-Ukraine conflict will disrupt supplies

Gas prices rise as much as 41% while oil tops $100 a barrel

A pump station on the Druzhba gas pipeline in Belarus. The Russian invasion of Ukraine is making European leaders think hard about energy security. AP

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European energy markets rose steeply on Thursday while oil prices surged past the $100-a-barrel threshold amid fears Russia’s conflict with Ukraine would disrupt energy supplies to Europe.

Benchmark European gas prices increased by as much as 41 per cent to €125 ($141.6) a megawatt-hour on their fourth consecutive day of gains after Russian forces attacked targets across Ukraine in an effort to demilitarise the country, with the West vowing to impose further sanctions.

Meanwhile, oil prices topped $105 a barrel, a surge of 8.7 per cent, with expectations it will rise even further as sanctions could constrict supplies.

“The surge in the oil price is terrible news for businesses and consumers, and fundamentally this clarifies one of the key impacts of the Russia-Ukraine war — it will serve to further stoke inflation,” said Russ Mould, investment director at AJ Bell.

“Not only will energy bills keep going up, but food prices look set to jump even higher. Ukraine and Russia are both big food suppliers and any disruption to supplies will force buyers to seek alternative sources, which could jack up prices.”

Russia supplies 10 per cent of the world's oil and a third of Europe's gas, with significant volumes heading to the continent through Ukraine, mainly to countries such as Austria, Italy and Slovakia, as well Germany and Poland.

The latest crisis is a heavy blow to the security of the global energy industry, which is also striving to clean up its operations as the world advances towards a net zero goal by 2050.

Patrick Pouyanne, chairman and chief executive of French energy company TotalEnergies told delegates at International Energy Week in London that a secure supply is vital for Europe.

“While it is imperative to speak about climate when thinking about energy, the quality of energy is to be reliable, affordable and clean, and the events which are unfortunately happening today will remind many people, in particular in Europe, that the security of supply” and its reliability is one of the fundamentals customers expect from governments, he said.

As a result, Mr Pouyanne said it will also be key for Europe to invest in access to gas to protect itself from volatility.

It is possible Russia could suspend sales of gas to Europe in retaliation for any sanctions imposed by the West, or that military conflict could damage one of the pipelines that carries gas to Europe via Ukraine, analysts at the Oxford Institute for Energy Studies said.

Patrick Pouyanné of TotalEnergies is "convinced" Russia does not want to use natural gas as a weapon in its conflict with Ukraine. Satish Kumar / The National

However, Mr Pouyanne said he was “convinced” Russia does not want to use natural gas as a weapon in its conflict with Ukraine.

TotalEnergies' operations in Russia, which include stakes in liquefied natural gas plants, have not been affected by the conflict so far, he said.

While Britain only sources 6 per cent of crude oil and 5 per cent of its gas from Russia, Europe relies on the country for about 40 per cent of its natural gas.

Most comes through pipelines including Yamal-Europe, which crosses Belarus and Poland to Germany, Nord Stream 1, which goes directly to Germany, and via Ukraine.

Earlier this week, German Chancellor Olaf Scholz put certification plans for the Nord Stream 2 gas pipeline from Russia to Germany — which is designed to double the amount of gas flowing from Russia to Germany, bypassing Ukraine — on hold.