Right now, the tensions building on the Ukrainian-Russian border have put the world on a knife edge. It’s certainly not hyperbole to say that if conflict were to erupt, and Russia invaded Ukraine, it would be one of the biggest military incidents since the outbreak of WWII.
A scary prospect indeed, and one that is already having an impact on the UK and countries throughout Europe. The most obvious impact is on the ongoing energy crisis, which has seen prices for gas skyrocket to record levels.
How did these tensions arise though? And why is it impacting both the UK’s and Europe’s energy prices? We’ll explain everything you need to know about how the Russia-Ukraine tensions are affecting energy supply in the UK and Europe.
What is the conflict about?
It’s never going to be easy to summarise what is already an incredibly complicated situation, but briefly:
- After the fall of the Soviet Union (USSR), Russia lost access to the highly strategic Crimea region when Ukraine declared its independence.
- Losing the Crimea meant losing access to the city of Sevastopol, which with its ports controls access to the Black Sea. Russia has wanted a warm-water port for many years.
- Putin has long argued that NATO (the North Atlantic Treaty Organization) is attempting to surround Russia. In his eyes, if the Crimea were to be occupied by NATO forces and armaments, Russia’s southern flank would be vulnerable to NATO attacks.
- In 2013, protests erupted in Ukraine when the then President, Viktor Yanukovych rejected a deal for greater economic integration with the European Union. He fled the country in February 2014 after a violent crackdown on protesters caused more protesters to join.
- Then, in March 2014, Russian troops took control of the Crimean region, before officially annexing it after Crimeans voted to join the Russian Federation in a disputed local referendum.
- Since the annexation, ongoing conflicts between Russian-backed separatist forces and the Ukrainian military have resulted in the deaths of an estimated 13,300 people, with nearly 30,000 injured. Now, Russia appears poised to invade Ukraine, despite Russian President Vladimir Putin insisting otherwise.
As you can see, it’s a messy situation that is frankly causing a lot of the world to panic.
Bullet-ridden building in the Donbas region of Ukraine
Is the UK reliant on Russian gas?
The UK isn’t completely reliant on Russian gas. In fact, the UK sources less than 5% of its gas from Russia, typically in the form of LNG (liquefied natural gas).
The UK’s ‘gas portfolio’ is actually pretty diverse, with around half of UK gas supplies coming straight from the North Sea. However, North Sea gas has declined in output since 2000, with gas demand continuing to increase.
The other 45% or so comes from a range of sources, including from Norwegian gas pipelines and LNG imports from countries such as the US and Qatar, with some from European countries including the Netherlands and Belgium.
What’s all the panic for then?
In an ideal world, you’d think if Russia were to restrict gas supplies in the wake of sanctions from the West, the UK would just increase its gas imports from elsewhere.
The problem however is that if Russia chooses to limit its gas exports, then all of a sudden you’d have a situation where countries more reliant on Russian gas will need to look elsewhere. This would have the nasty knock on effect of dramatically increasing the price of gas globally.
It certainly wouldn’t be any different in the UK, and if reports like this one on dwindling North Sea gas are correct, the UK will become far more reliant on imported gas. More reliance on imports in a world desperately buying gas from places other than Russia, will see the UK spending a lot more to buy it.
And of course, when this happens, UK citizens will see their gas bills increase. The UK government already knows the impact of fixed rates on gas prices, as is clear from the numerous energy suppliers going bust.
The UK government doesn’t seem too worried though, with a spokesperson saying the UK’s “diverse mix of nuclear, natural gas and renewable technologies” means that “the UK has one of the most reliable energy systems in the world”. There are still 23 million UK homes that still rely on gas! So renewable energy won’t fix the problem for these homes.
For the average UK homeowner, the promise of a diverse mix of energy means little if it doesn’t stop monthly bills from increasing.
How much will UK gas prices rise?
Predicting the exact amount is tough, but it’s almost impossible to picture a scenario where gas prices don’t rise.
For rises in the past few months, you only need to look back to December 20th 2021, where the price per therm (measurement of the amount of heat energy in natural gas) shot up to an astonishing 451p/th. This dipped to 188.75p/th by mid January 2022, but the escalating tensions of the past few days have seen it rise again to 205.1p/th.
To put this into perspective, the highest price per therm for gas in the past 25 years was 103p/th. Gas prices have typically fluctuated between 25-50p/th, so anything over that was considered highly unusual.
With the energy price cap rising by 51% in April this year, the prospect of also getting hit by massive gas price increases in the wake of Russia invading Ukraine is troubling.
How will other European countries be affected?
Europe might well be in a worse situation than the UK. The EU currently imports around 50% of its natural gas from Russia, so any threat of Russia turning off the pipes has an obviously massive impact on Europe.
Some countries will definitely feel the pinch more than others. Namely Germany and Italy, who collectively account for an astonishing 50% of all EU gas imports from Russia. Other European countries such as Finland and Slovakia also heavily rely on Russian gas (100% of their gas is Russian).
France too has recently warned that technical problems at a number of their nuclear reactors would cut the amount of electricity generated. The country exports more electricity to the UK and countries in Europe than any other European nation. This means gas-powered plants will likely have to run more than previously expected, further increasing gas consumption.
Which European countries are least likely to be affected and why?
Norway, for obvious reasons, will see no negative impact on Russia restricting gas. This is because they sit on around 66 trillion cubic feet of gas – around 1-2% of all the gas in the world.
Perhaps cynically, you could even argue that the Russia-Ukraine conflict might actually benefit Norway, as they’ll inevitably see increased demand for their gas. Equally though, if Russia were to turn off the gas completely, EU countries could demand reduced gas prices in return for Norway’s continued place in the EEA (European Economic Area).
Elsewhere, countries like the Netherlands and Romania import little of their total gas from Russia (11 and 10% respectively).
Has the UK experienced similar effects on energy supply in the past?
This isn’t the first time this has happened in the UK – just a quick glance at the history of the 20th century will show that time and time again, events far from UK shores (and sometimes within the UK) have impacted its energy supply. Here are some of the major events of the last 70 years:
- 1956 Suez Crisis – When Egypt nationalised the Suez Canal, it severely impacted oil imports to the UK. As a result, the UK launched programmes to better develop energy capacity.
- 1973 Oil Crisis – The price of oil quadrupled in the aftermath of the Arab-Israeli Yom Kippur war. This forced the UK into short-time working, where only three days a week were for work. It was this incident that caused the UK to start seriously thinking about investing in renewable energy.
- 2000 fuel protests – Whilst not strictly related to energy supply in the UK, the fuel protests of the 2000s showed that even a minor disruption of oil could bring a country to its knees. When oil rose from $10 a barrel to $30, fuel in the UK became far more expensive. Protests and blockades against the price rises shut down petrol stations and oil refineries, causing widespread panic.
Summary
It’s incidents like this that truly underpin how fragile the UK’s (and the world’s) energy supply is. At the very least, it makes it clear that more needs to be done to guarantee citizens aren’t left in the dark, and we firmly believe that a genuine shift to renewable, homegrown energy sources is the answer.
Proper investment in technology such as heat pumps, solar panels, and emerging tech like infrared heating, is key to avoiding energy supply catastrophes. Here’s hoping the Ukraine-Russia tensions are a wakeup call for the government.
