Energy experts differ over effects of Russia gas supply cut

Russia has threatened to cut off gas supply to “unfriendly” countries that fail to pay in Russian currency (rubbles) in the latest retaliatory tactic to survive financial sanction by the European Union (EU), setting the stage that further constrains the already expensive liquid petroleum gas (LPG) sector.

The standoff brings two challenges; how to pay Russia gas without compromising EU sanctions and how to source alternative supplies to end dependence on Russia. Russia is the second leading producer of natural gas globally after the United States, supplying about 40 percent of gas needed by EU countries. 

Kenya, however, might not be affected directly as it imports cooking gas from gulf countries through the Tanzania and Mombasa facilities with local experts giving mixed reactions owed to the country’s unregulated LPG sector. 

Cutting off access to the vital Russia gas is expected to exacerbate gas shortage, piling pressure on gas prices as affected big economies scramble for the limited supply, argues John Kirimi, financial analyst at Sterling Investment. 

“If Russia withdraws its gas from the market, then the effect will be a global shortage and the current price hike is going to worsen,” says Kirimi.

Powell Maimba, an expert in the energy sector is, however, upbeat that the gas supply cut by Russia will not affect the Kenyan gas landed cost unless there is disruption of global gas production.

Supply system

“The Ukraine factor is already included in the current pricing. Even before the war there was a gas shortage that shot up the prices. So, the main cause of hiked prices is the global supply system and infrastructure, the demand and supply kind of a situation,” says Maimba.

Unlike Diesel, fuel, and Kerosene, LPG prices are not controlled by the Energy and Petroleum Regulatory Authority (EPRA), giving room for LPG monopoly that has left households heaving under hiked cooking gas prices. Linus Gitonga, an ex-commissioner at Energy and Regulatory Commission (now EPRA) concurs with Maimba, arguing that price volatility is not caused by a single driving force. 

“It is very difficult to pinpoint if one factor contributes to price changes. Despite the war, we are currently expecting the prices of cooking gas to start going down at the end of the month due to market forces,” says Gitonga.