The mild weather and the relatively low demand for gas have caused the price to fall in recent weeks. That trend has now reversed. Putin uses Europe's reliance on gas as a means to boost the ruble's exchange rate. The European Union is hesitant to intervene directly in the event of high gas prices.
The trend of the past two weeks - of mainly falling gas prices - was broken on Wednesday, March 23. On Monday, March 21, natural gas was trading at €96,30 per MWh on the TTF futures market, the lowest level in three weeks. Today the futures market has risen sharply again. At the time of writing this article, the price is €118,38 per MWh, an increase of 20% compared to Tuesday, March 22 and the highest quotation since March 11.
Payment in rubles
The price increase can partly be explained by the Kremlin's measures against Western sanctions. Putin wants to pay for gas supplied to Europe in the Russian ruble. This is a direct response to the freezing of Russian assets abroad. By requiring gas to be paid for in rubles, Putin hopes to increase demand for the currency and thus raise its rate. In September 2021, of all gas exported by Gazprom, approximately 58% was paid for in euros and 39% in dollars.
The market is probably already preparing for additional sanctions, which will be more focused on the Russian energy sector. NATO will meet on Thursday, March 23. The agenda includes the consequences of the Russian invasion of Ukraine, China's role in the crisis and what defense and deterrence measures the alliance can take.
No price ceiling
The European Union on Wednesday called on member states to jointly purchase gas and ensure supply. The Commission proposes a similar model as for the joint purchasing of the corona vaccines. Capping wholesale gas prices, as advocated by Belgium and Spain, is seen as undesirable. If Member States take measures themselves and introduce a price ceiling, there may be a shift to countries that do not apply a maximum. This may cause delivery problems in certain areas.
Such measures also require a lot of money for a longer term. In addition, the Commission believes that intervention undermines sustainability ambitions. Fossil energy sources are artificially kept interesting from a commercial perspective by such measures, which inhibits investments in alternative energy sources.