-
Europe imports 50% of its diesel from Russia. We are seeing how interconnected we actually are. Diesel prices have spiked, just as oil prices have, because diesel runs the world. Diesel runs the shipping lanes, the trains, the cars—everything. Diesel is probably the one we have the most exposure to, in terms of sharp price movements.[1]
Dr Sen agreed and told us that diesel use “tends to be more inelastic, because there is a lot of trucking”.[2]
- We queried whether sanctions on Russian gas would affect the UK. Dr Sen told us that even though the UK produces significant amounts of domestic gas, it was “not isolated” and that “you are ultimately linked to what’s going on in Europe”.[3] Mr Piper told us that “while oil is a global market, gas is a regional market”[4] and that “the import price sets the gas price in Europe and in Asia”.[5]
- If the UK or the EU were to look to reduce their dependency on Russian gas, it is not
clear where the replacement supply would be sourced from. Dr Sen told us that “Asia was
not going to give its gas contracts away”.[6] Stored gas would also not be able to offer an
alternative supply to Russian gas in winter because storage levels were currently very low.[7]
Logistically, gas is harder to transport around the world than oil. Mr Piper said that the
infrastructure to replace Russian gas in the European region did not yet exist:
Europe does not have the LNG [Liquefied Natural Gas] import infrastructure—the terminals where you can land LNG vessels and offload the gas to fill those storage facilities. It does not have the capacity of those terminals to replace the Russian volumes.[8]
- Mr Piper explained that even before the Russian invasion of Ukraine gas prices were
already at a historically high level:
Fundamentally, Europe and Asia are short of gas. We do not produce enough of our own gas. Europe is 70% dependent, and the UK is 50% dependent on imports. There was less wind than expected [in 2021]. [ ... ] Coal-fired power is being closed down and because nuclear has been closed down, gas is the only back-up, so gas demand was increased as well.[9]
- Mr Piper told us that as a result of the tight supply in the European gas market, the impact on UK household gas and electricity bills would be significant:
