U.K. Gas Reaches April High as Ukraine Halts Imports From Russia

Apr 09, 2014 12:52 pm ET

April 9 (Bloomberg) -- U.K. natural gas rose to this month’s high as Ukraine said it will halt imports from Russia at a time when flows are near the lowest in almost six months amid reduced output in Norway, Britain’s top foreign supplier.

Front-month gas rallied as much as 5.4 percent to the highest since March 28 on the ICE Futures Europe exchange in London. Ukraine will stop buying Russian gas this month until the nations agree on a price, Energy Minister Yuri Prodan said in Kiev today. Ukraine is key to Europe’s energy security because pipelines crossing the country carry Russian gas making up about 15 percent of the region’s supply.

Gas flows into the U.K. fell as low as 178 million cubic meters a day, near the lowest since Oct. 30, according to National Grid Plc, the network operator. Supplies from Norway were 42 percent lower than the 10-day average, data from Gassco AS, the country’s gas-pipeline operator, showed. Reduced flows are adding to tensions in Ukraine just as MDA Weather Services said temperatures in central and northern Europe are falling back to seasonal norms.

“Ukraine doesn’t have a lot of gas in storage at this point that it can draw upon if it stops buying gas for its own needs, so that raises the risk of siphoning gas meant for transit,” Andrew Neff, an analyst at IHS Inc. in Moscow, said by e-mail. That “will mean interruptions in gas supplies to Europe and will surely aggravate the situation with Gazprom.”

Winter Demand

Ukraine needs about 18 billion cubic meters of gas in underground storage for future winter demand to ensure uninterrupted transit of Russian fuel to Europe, OAO Gazprom Deputy Chief Executive Officer Vitaly Markelov said at a government meeting outside Moscow. Ukraine has 6.5 billion cubic meters stored now, he said.

Front-month gas climbed as high as 53.14 pence a therm ($8.90 a million British thermal units) on ICE and rose 1.3 percent to 51.10 pence a therm by 5:15 p.m. in London. Day-ahead gas on the U.K.’s NBP increased 1.4 percent to 51.70 pence a therm, while Dutch supplies for May on the TTF hub advanced 1.1 percent to 21.07 euros a megawatt-hour ($8.53 a million British thermal units), paring a gain of as much as 3.8 percent.

U.K. gas for May slumped 7.9 percent last week, the biggest weekly loss for a front-month contract since 2009, as warmer- than-usual weather reduced demand for the fuel used in heating. Conditions have turned cooler, with much of central and northern Europe forecast to have seasonal weather over the next five days, MDA said in a report e-mailed today.

Nordstream Flows

“Colder weather forecasts and increasing Russia-Ukraine tensions have helped lift NBP prices,” Citigroup Inc. analysts including Seth Kleinman said in a report e-mailed yesterday. “Norway has started to turn down flows, yet flows from Gazprom, particularly along Nordstream, remain robust.”

Norwegian gas output will drop by 24 million cubic meters a day from April 11 to 13 in “preparation of new well,” according to Gassco. Annual maintenance at Heimdal Riser from April 22 to May 19 will cut supplies to the St. Fergus terminal in southern Wales by 10 million cubic meters a day, Gassco said.

“It was always going to be something of a tight day, with the Norwegians drilling a new well,” Nick Campbell, an analyst at Inspired Energy Plc in Kirkham, England, said by e-mail today. That “has combined with slightly cool temperatures to support the bullish sentiment seen by ongoing tensions in the east of Ukraine.”

Gazprom, Russia’s pipeline gas-export monopoly, raised prices to Ukraine by more than 80 percent in April, a move that Ukrainian Prime Minister Arseniy Yatsenyuk last week called “aggression” against his nation. Gas shipments to Europe were disrupted at least twice since 2006 when Russia cut Ukraine’s supplies. U.K. gas jumped the most since September 2011 on March 3 after Russia’s invasion of Ukraine.

“Europe is better able to cope with a gas outage than it was in 2009, with more reverse flow capacity, more gas in storage,” IHS’s Neff said. Interruptions to supplies at the end of the heating season are “far less problematic than a complete stop to gas volumes in January, as in the January 2009 gas war.”