Veteran natural gas trader Bill Perkins on Thursday warned of potentially “catastrophic prices” this winter if Russia’s move to cut gas supplies to Poland and Bulgaria ends in a full-blown energy blockade.
“It’s a tricky market right now,” Perkins, CEO and chief trader at Skylar Capital Management, told CNBC.
“We’re in hot-box button panic mode,” Perkins added. “If Russia shuts off gas and oil, Europe will struggle this winter to keep heating and just keep its economy going,” he said.
Russia’s Gazprom on Tuesday informed Poland’s and Bulgaria’s state-owned gas companies, PGNiG and Bulgargaz, that it would halt gas supplies after the two countries rejected President Vladimir Putin’s demands that supplies be paid for in Russian rubles.
The escalation sent the Dutch wholesale gas contract for the coming day, a benchmark for Europe, rising more than 20% on Wednesday. Dutch TTF natural gas futures are up nearly 60% year-to-date.
“Expect elevated price and lots of volatility over the next few years,” Perkins warned, describing his market outlook as “slightly bearish up front,” but “constructive and bullish over the long term.”
“Given current prices and LNG flows [liquefied natural gas] to north-western Europe it is actually a bearish situation unless the Russian gas is completely removed,” he said.
“All bets are on in the winter,” Perkins said. “Without Russian gas, which is about 40% of their gas supply or demand, it’s really difficult to see how the market is balanced without running out of gas.”
Workers walk under pipes leading to oil storage tanks at the central oil and gas processing plant at Salym Petroleum Development’s oil fields near the Bazhenov Shale Formation in Salym, Russia.
Andrei Rudakov | Bloomberg | Getty Images
According to a recent report by the International Energy Agency, the European Union imported 155 billion cubic meters of natural gas from Russia last year, accounting for around 45% of EU gas imports and almost 40% of its total gas consumption.
European politicians have rejected Putin’s demand, saying it violates existing contracts already agreed in dollars or euros. Europe is still considering a total ban on Russian imports, despite its extensive dependence on Russia for energy. According to a recent Reuters report, European energy ministers are expected to discuss next steps at a meeting in France next Monday.
The US and UK have moved to ban Russian energy imports, but European countries with a high reliance on Russian supplies, such as Germany, have been reluctant to follow suit. Germany has indicated it could be weaned from Russian oil by the end of the year.
“This is a clear escalation of risks in gas markets,” analysts at MUFG said in a research note on Thursday, describing the Russian ban as a “major inflection point for European gas markets.”
“We believe it is in the interests of both the EU and Russia to work out a solution that brings gas payments in line with EU legal requirements…given the unprecedented burden that stopping gas flows across the continent would have,” MUFG analysts said, warning that an “immediate disruption” to Russian flows to north-west Europe could push TTF prices above €200 per megawatt-hour “for an extended period”.