The biggest natural gas inventories in Europe since at least 2010 are deflating the risk premium stemming from the crisis between Russia and Ukraine, sending prices for supplies during the winter to a four-year low.
The winter contract in the UK, the biggest European market, would drop 6.9% if the Ukraine crisis ended, according to the median of seven traders, brokers and analysts surveyed by Bloomberg July 3-7. Gas for the six months from October rose 6.5% on March 3, the first trading day after Russian President Vladimir Putin got approval to send troops into Ukraine, which carries about 15% of Europe’s needs.
Russia cut gas supplies to Ukraine on June 16 after OAO Gazprom and NAK Naftogaz Ukraine failed to agree on a price for future deliveries and on debt payments, echoing similar disputes that saw supplies to Europe reduced during freezing weather in 2006 and 2009. High European inventory levels mean capacity is limited this year and demand upside is “minimal,” Citigroup Inc. analysts including Seth Kleinman said in a July 7 report.
“The risk premium related to Ukraine has been partially absorbed so the reaction of winter gas prices on the face of an end to the crisis would be limited,” Lysu Paez-Cortez, a natural gas analyst at Natixis SA in Paris, said yesterday by e- mail. “High stocks across major European hubs and seasonal lower demand also dented the geopolitical related risks.”
Winter gas on the UK’s National Balancing Point hub would fall to 52 pence a therm ($8.90 a million British thermal units) if the crisis ended, from an average of 55.86 pence on July 3-7, according to the median of the survey. Responses ranged from 45 pence to 53 pence.
Prices for the fuel used for heating and power generation climbed for a second day today after six days of losses, rising 1.3 percent to 56.55 pence a therm at 8:39 a.m. London time, broker data showed. They are down 20% this year and reached 54.6 pence on July 7, the lowest for a next-winter contract since November 2010.
Countries in the European Union had 58 billion cubic meters (2 trillion cubic feet) of gas in storage yesterday, the highest for the time of year since at least 2010 and more than 72% of the total available, according to Gas Infrastructure Europe, a Brussels-based lobby group.
Facilities were filling up quicker than usual and were “two weeks ahead of schedule,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt. Storage capacity is limited across Europe except for France, Citigroup said. French facilities were 58% full compared with 79% in Germany, 81% in the UK and 98% in the Netherlands, the GIE data show.
“Any impact from the end of the crisis in Ukraine will be very limited and temporary,” Moses Rahnama, an analyst at consultants Energy Aspects Ltd., said yesterday by e-mail. “We don’t think the risk has been priced in that much.”
Recommended for you
