War in Ukraine has brought the issue of natural gas supply to the fore. Russia is a key exporter of natural gas. This trade flow brings significant revenues to the Russian state. Economic sanctions against Russia being imposed by many countries in response to Ukraine's invasion are attempting to restrict Russia’s revenue streams and limit its ability or willingness to continue funding the war.
So far sanctions have not targeted Russia’s natural gas exports. However, they continue to ramp up and there is a risk that at some point this may result in gas trade flows being curtailed from the demand side.
There is also a risk that the curtailment could happen from the supply side. Russia has already discussed its feelings about supplying “unfriendly countries” and demanded that payment for natural gas sales be made in roubles. Disagreement over this has already led to a halt in Russian natural gas supplies to Poland and Bulgaria.
In this context we have looked at the steel industry’s use of natural gas and whether possible curtailments in its supply could in turn constrain steel production. In the short term this is a risk. That said, steel is a very small direct natural gas consumer and, as such, may not be a key target for rationing where countries are looking to reduce their consumption. There are other longer term threats that revolve around elements like indirect exposure to natural gas via electricity and future business models based on DRI.
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CRU experts discussed the impact of the war in Ukraine on commodity markets in a recent webinar. Experts from all major commodity areas joined CRU’s Head of Economics and an energy specialist to appraise markets on the invasion of Ukraine. The webinar is available to watch on-demand here.
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