Current Events – January 2025
In 2025, Westlark Advisors is adding a new feature to our blog. We will be doing brief reviews of current events that have the ability to impact the global energy markets.
Ukraine Halts Flow of Russian Gas to Several European Countries
To kick off this new feature, we wanted to look at a decision made right at the end of 2024. CNBC.com characterized the event with this opening sentence: “Ukraine halted the flow of Russian gas to several European countries on New Year’s Day, bringing an end to Moscow’s decades-long dominance over Europe’s energy markets.”
What is Behind that Statement?
To understand what is going on in this situation, it is important to recognize some basic elements that were not expressed in that first statement. First, this event actually marked the end of an existing agreement and neither nation had wanted to renegotiate the transaction in the midst of an ongoing war.
The second point to consider comes from another article from CNN. The news outlet reported that Gasprom, the Russian natural gas firm, “will lose close to $5 billion in gas sales” and they had “recorded a $6.9 billion loss, its first in more than 20 years” in 2024. The economic implications of this for Russia could be profound.
Third and finally, three of the nations that could be severely impacted by this move are Slovakia, Austria, and Moldova. Austria has already stated they have other options while Slovakia and Moldova could experience more dire impacts.
Why didn’t this happen sooner?
After hearing the cancellation news, the most often considered question was “why didn’t this happen sooner?” We don’t profess to know the thought process of other nations but do consider that Ukraine may have been allowing other nations to find alternative methods of supply.
What does this mean for the global energy markets?
First, look for European LNG prices to rise. Dutch TTF natural gas prices have been trading near JKM (Far East LNG) prices over the prior couple of weeks. While we do not expect LNG prices to experience the spikes that occurred in 2022, they may have a general trend higher.
Higher international prices will in turn support domestic United States natural gas prices. U.S. natural gas prices are currently only 25 – 30% of international values. Lacking the liquefication processes and export capability, these prices will struggle to move closer to those higher European and Asian values.
However, that wide price difference between the Europe and the U.S. provides support for both infrastructure and natural gas production investments. Higher natural gas production brings more natural gas liquids (NGLs). Propane, a major NGL, will therefore keep growing in supply. The U.S. already leads the globe in propane exports and further expansion of natural gas production will only help to further cement this position.
Another major impact from this New Year’s Eve decision will also have strong impacts on Russia. The CNN article above already outlined the economic impact while the CNBC.com article touched on the long-term market impact. “Russian is losing markets, it will suffer financial losses. . . Europe has already decided to abandon Russian gas,” was the viewpoint expressed by the Ukrainian Energy Minister. Whether this will take place or not is yet to be determined. Losing market share via violence that forces your end customers to make other investments is a challenging hurdle to overcome.
Conclusion
It may not have received the press coverage of the initial Russian invasion of Ukraine in 2022, but this decision to cease Russian gas flows could have ramifications in both the natural gas and propane markets around the globe for years to come. Which means our Westlark Advisors team will be watching this “current event” item for the rest of this year.
For more information about how your business can navigate the effects of current events like this contact a Westlark Advisors team member!
Current Events – January 2025
By JD Buss
