Oil & Gas

Ukraine crisis could spark North Sea gas demand increase

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The Ukraine crisis could lead to higher energy bills for UK consumers and increased demand for North Sea gas.

Russia is Europe’s biggest gas supplier, providing about a quarter of the continent’s supply – and two-thirds of it is piped through Ukraine.

Oil prices surged by about 2% to above $104 a barrel yesterday, as fears grew that supplies to the west could be affected by the turmoil in the region.

Professor Alex Kemp, director of Aberdeen University’s Centre for Research in Energy Economics and Finance, said that although the UK was not dependent on Russian gas in the same way as other parts of Europe, the crisis could still impact on British families and the North Sea offshore sector.

“A big gas supply goes through Ukraine, supplying Ukraine but also on to Europe,” he said.

“If there was a prolonged conflict then there must be a possibility that this very large gas pipeline would be disrupted.

“That in itself would be sufficient to raise the gas price in Europe. That would have a knock-on effect on British gas prices because they are linked through inter-connectors.”

Asked if consumer bills could rise, Prof Kemp said: “That would be correct, because wholesale prices, which is what we’re talking about, would soon be reflected in retail prices. Consumers would be affected. Who knows how big that could be.”

He did not believe that Russia would deliberately turn off supplies, because of the cost to its own economy. The academic predicted that if prices increased, industry would put pressure on politicians to further roll back environmental levies.

Shares in oil giant BP, which holds a large stake in Russian oil company Rosneft, were down by more than 1% yesterday.

The flight from risk by investors meant the price of gold – a traditional safe haven – was up by 2%.

Joe Conlan, an energy trader at Inenco, which buys £1.6billion worth of gas and electricity annually on behalf of Britain’s biggest businesses, said the summer contract for gas delivery jumped by as much as 9.4% yesterday.

He added: “This morning’s rise has eradicated three weeks of constant falls. Should this continue, prices are likely to carry on rising in the medium term.”

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