Ukraine Supply Concern Sets EU Gas for First Monthly Gain in ’14

Jul 31, 2014 11:50 am ET

July 31 (Bloomberg) -- Natural gas prices in Europe are headed for the first monthly gain this year amid mounting concerns that winter gas supplies may be disrupted due to the worsening crisis between Russia and Ukraine.

Front-month gas in the U.K., Europe’s biggest market, rose 2.9 percent this month, while Dutch and German prices also posted their first monthly advances this year, according to broker data compiled by Bloomberg. The European Union this week extended sanctions against Russia after the downing of a Malaysian Airlines passenger jet over Ukraine, which transits about half of Russia’s gas supplies to Europe.

While gas has been flowing normally since Russia cut supplies to Ukraine, disputes between the two nations disrupted flows to Europe in 2006 and 2009. The strain between the EU, Russia and Ukraine makes it harder to resolve the supply dispute between OAO Gazprom and NAK Naftogaz Ukrainy, consultants Energy Aspects Ltd. said in a July 28 report. Citigroup Inc. sees little prospect for a deal before winter.

The gain in Dutch gas prices “during the past two weeks could have been the result of some profit-taking on recent price declines under the guise of geopolitical tensions,” Hans van Cleef, an analyst at ABN Amro Bank NV, said in an e-mailed report. “After the downing of a commercial airplane in Ukraine, market tensions increased even further.”

Gains Pared

U.K. gas for next-month delivery fell 0.3 percent today to 39.55 pence a therm ($6.67 a million British thermal units), 1.2 pence more than at the end of last month, broker data showed.

Dutch gas for August on the TTF hub dropped 0.4 percent today to 17.35 euros ($23.21) a megawatt-hour, paring this month’s gain to 4.2 percent. The fuel on NetConnect Germany fell 1.8 percent to 17.48 euros a megawatt-hour. The month-ahead German contract rose 1.2 percent this month.

Gas prices fell more than 30 percent in Europe this year as the continent’s mildest winter in seven years cut demand for the fuel used in heating. Storage facilities in the 28 EU member states were 79 percent full as of yesterday, the highest level for this time of year since 2011, according to data from Brussels-based lobby group Gas Infrastructure Europe.

“There’s still weak demand and European inventories are almost completely filled,” van Cleef said, forecasting Dutch gas prices at an average 21 euros a megawatt-hour in the third and fourth quarters. “Due to the mutual interest of energy trade between Russia and the EU, gas flows between Russia and Europe are not likely to be hindered in the near term.”

A prolonged Russian supply cut could create shortages in the winter as Ukrainian storages were only 46 percent full as of July 25, according to Gas Infrastructure Europe. The amount of fuel pumped into inventory in Ukraine fell to 134.7 million cubic meters in the week ended July 25, from 877.3 million cubic meters on June 13, the week before the Russian cut.

At the current rate of injections, Ukraine facilities will only be 52 percent filled at the start of the withdrawal season, according to Energy Aspects in London. Russian gas exports to Europe are also falling and will probably be below 12 billion cubic meters in July, the lowest monthly level this year, Citigroup said in an e-mailed report dated July 29.