European natural gas injections may accelerate as warmer-than-usual weather and fears of disruptions via Ukraine make it more profitable to store the heating fuel, according to analysts.
The premium of gas for the six months from October to the next-day contract in the U.K., Europe’s biggest market, has risen to the widest since June and has been above 10 pence a therm ($16.84 a million British thermal units) since March 31, according to broker data compiled by Bloomberg. Injections become attractive above that level, according to Patrick Heather, a senior research fellow at the Oxford Institute of Energy Studies.
Milder-than-normal weather has weakened next-day gas prices about 5 percent this month to the lowest level for this time of year since 2010. The winter contract rose about 4 percent amid concern that supplies via Ukraine, which transits about 15 percent of the European Union’s gas demand, may be affected because of its dispute with Russia.
“The spread is probably a function of the Ukrainian fear factor and therefore wanting gas in storage as a buffer,” Nick Campbell, an analyst at Inspired Energy Plc (INSE) in Kirkham, England, said today by e-mail. “I think we will see heavier injections as the spot price is still so low.”
Winter gas traded at 64.9 pence a therm today, 16.1 pence more than than the day-ahead price, broker data showed. That’s the widest price gap for this time of year since 2009.
EU storage sites were more than 50 percent filled as of yesterday, the highest level for this time of the year since at least 2007, according to Gas Infrastructure Europe, a Brussels-based lobby group. In the U.K., facilities were 62 percent full, compared with 53 percent at the end of last month, according to the data.
European inventories may be full by August or September instead of in October if there are no supply disruptions, Campbell said.
March was 1.2 degrees Celsius (2.2 degrees Fahrenheit) warmer than the 1981-2010 average in the U.K., according to the Met Office. Most of western Europe will have temperatures above normal next month, Michael Thomas, a meteorologist at Commodity Weather Group LLC in Bethesda, Maryland, said today by e-mail.
“As the weather turned warmer across Europe over the past week, injection rates picked up again,” Trevor Sikorski, the head of natural gas, coal and carbon at Energy Aspects Ltd. in London, said today in a report. “Europe continues to maintain its strong storage position.”
The conflict between Russia and Ukraine is escalating, with the U.S. and the EU announcing new sanctions on President Vladimir Putin. Past disagreements between the eastern European neighbors led to reduced flows into Europe in 2006 and 2009.
Some European traders may opt to wait for spot prices to fall further before stepping up injections, Heather said.
“If storage is not absolutely full, but quite full and you could add a bit more, are you going to rush to do it today or are you going to wait another week?,” Heather said by phone on April 25. “If there’s a little bit of a pattern here, maybe it will go to 20 pence and you will make even more money.”
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