U.K. Gas Extends Declines as Ample Supplies Offset Ukraine Risk

Jul 21, 2014 11:51 am ET

July 21 (Bloomberg) -- U.K. natural gas fell for a second day as arrivals of the liquefied fuel helped top up supply, reducing immediate risks posed by the escalating Ukraine crisis.

The August contract in the U.K., Europe’s biggest market, declined as much as 2.1 percent after closing 4 percent down on July 18, according to broker data compiled by Bloomberg. The contract gained 6.9 percent the day earlier, the most since April 7, after the downing of flight MH17 over rebel-controlled territory in eastern Ukraine threatened to escalate tensions between the West and Russia, Europe’s biggest gas supplier.

Inventories in the European Union’s 28 member states were 76 percent full as of yesterday, compared with 53 percent a year earlier, according to Gas Infrastructure Europe, a lobby group in Brussels. The South Hook LNG terminal was supplying 25 percent of total flows into the U.K. after the Shagra tanker arrived at the facility in Wales on July 19.

“A rise in LNG send outs from South Hook toward recent averages following the docking of the Shagra on Saturday, together with lower storage injections, are leaving the system well supplied,” wholesaler Wingas U.K. Ltd. said in an e-mailed report. “The high levels of storage stocks across Europe continue to pressure prices, with increased likelihood that these will be filled over the coming weeks.”

U.K. gas for delivery in August fell 2 percent to 37.32 pence a therm ($6.35 a million British thermal units) by 3:59 p.m. London time on the National Balancing Point hub after touching 37.31 pence a therm, broker data showed. Winter gas, for delivery in the six months from October, declined 1.7 percent to 57.5 pence a therm, according to the data.

LNG Tankers

Four LNG tankers were set to arrive at U.K. ports from July 23 to July 28, according to port authorities and ship-tracking data compiled by Bloomberg. Russian gas flows through Ukraine, which meet about 15 percent of Europe’s needs, have been flowing normally since OAO Gazprom cut supplies to the eastern European nation. Similar price disputes between the two countries cut flows to Europe in 2006 and 2009.

“The main Russian gas supply risk remains the underlying contractual dispute between Gazprom and the Ukraine, with any supply disruption coming from this likely to be focused on the winter months,” consultants Energy Aspects Ltd. said in a report e-mailed today. “While events are unfolding, the EU does not appear ready to impose sanctions on gas imports from Russia.”

Sanctions Extended

The EU and the U.S. extended sanctions on Russia last week, with targeted companies including OAO Rosneft, Russia’s largest oil driller, gas producer OAO Novatek and OAO Gazprombank, the nation’s third-largest lender. OAO Gazprom wasn’t included. The actions came after travel bans and asset freezes aimed at President Vladimir Putin’s inner circle failed to force Russia to end support for separatists in Ukraine’s east.

Within-day gas rose 1.3 percent to 38 pence a therm, reversing earlier losses of as much as 0.7 percent as supplies from the U.K. continental shelf declined. Flows into Shell’s St. Fergus terminal were at 11.7 million cubic meters a day, down from about 23 million cubic meters earlier today, according to data from National Grid Plc, the network operator.

Total flows into the U.K. are at 160 million cubic meters, compared with forecast demand of 175 million cubic meters, according to grid data. Supplies were forecast to fall short of demand by 8.6 million cubic meters by 6 a.m. tomorrow.

Temperatures in northwest Europe and the U.K. are forecast at 20.9 degrees Celsius (70 Fahrenheit) tomorrow, compared with a seasonal norm of 18.9C, according to WSI Corp. data using the GFS model at 11:39 a.m. Gas has been the preferred fuel choice in power generation this summer, with 48 percent of electricity output today coming from gas-fired plants, compared with 22 percent for nuclear and 20 percent for coal-fired plants.