U.K. natural gas prices fell to their lowest level in more than three years as rising inventories in Europe improve the region’s ability to cope with potential supply disruptions via Ukraine.
Front-month gas in the U.K., a European benchmark, tumbled 1.8 percent on the ICE Futures Europe exchange to the lowest since Sept. 28, 2010. Europe can cope with a 90-day disruption to Ukrainian transit gas flows provided there’s cooperation between countries, stockpiles are “reasonably high” and Russian gas supplies through other routes are flowing normally, consultants Poeyry Oyj said today in an e-mailed report.
Storage facilities in Europe were 53 percent full as of yesterday as the mildest winter in seven years cut demand for the fuel, according to data from Gas Infrastructure Europe, a Brussels-based lobby group. That’s the highest level for this time of the year since at least 2007. Higher-than-normal temperatures forecast for this month and arrivals of liquefied natural gas at U.K. ports are also helping cap prices.
“With the geopolitical risk rising, the softening of June prices does little but point to a very well-supplied system, with more LNG expected to arrive, and expectations that any supply disruptions from this crisis will be limited and short-lived,” Trevor Sikorski, head of natural gas, coal and carbon at Energy Aspects Ltd., said yesterday in a report.
Front-month U.K. gas fell to as low as 44.91 pence a therm ($7.62 a million British thermal units) on ICE and was trading 1.3 percent lower at 45.15 pence at 11:47 a.m. in London.
Dutch gas for June delivery on the Title Transfer Facility hub slid 1 percent to 19.27 euros ($26.83) a megawatt-hour, according to broker data compiled by Bloomberg.
Europe, which gets 15 percent of its gas needs from supplies via Ukraine, could lose 12.5 billion cubic meters of gas if Russia curbs supplies to the eastern European nation for the three coldest months of the winter, Poeyry said. The continent could compensate a potential curb using gas in storage, LNG, supplies via the Nord Stream pipeline from Russia to Germany under the Baltic Sea and “small” volumes of Central Asian gas through Russian pipelines, it said.
Flows into the U.K. network were at 203 million cubic meters (7.1 billion cubic feet) a day, compared with a 10-day average of 212 million cubic meters, National Grid Plc (NG/) data show. Supply from Norway, Britain’s biggest foreign supplier, was at 53 million cubic meters, in line with the 10-day average of 57 million, Gassco AS data show.
Two LNG tankers are scheduled to dock at British ports this week, ship-tracking data on Bloomberg and information from port authorities showed. Two tankers unloaded this month and another nine in April.
Winter gas, or fuel for delivery in the six months from October, fell 1.2 percent to 61.85 pence a therm on ICE. The premium winter gas commands over the day-ahead contract was at 16.22 pence a therm, up from 11.95 pence a month ago, according to broker data compiled by Bloomberg. While a risk premium is building on the U.K. gas curve, a supply disruption in June certainly cannot be ruled out, Sikorski said.
The Group of Seven nations agreed at a meeting in Rome yesterday to find new sources of energy to prevent Russia from using its oil and gas reserves as a “political weapon,” said German Economy and Energy Minister Sigmar Gabriel. The world’s top economies will expand their gas infrastructure, increase efforts to save energy and use renewable power, he said.
The International Monetary Fund, which approved a $17 billion loan to Ukraine, said the nation can use the bailout to repay its gas debt. It received a first tranche of $3.2 billion yesterday. Russia’s pipeline-gas export monopoly OAO Gazprom (GAZP) says the country owes about $3.5 billion for prior deliveries.
Russia will move to prepayment for supplies to Ukraine if it isn’t paid on time, Russian Energy Minister Alexander Novak said at a meeting in Warsaw on May 2.
“President Putin has raised the commodity stakes in Russia’s conflict with Ukraine by explicitly threatening to cut off Russia’s flow of natural gas through Ukraine unless Kiev pays arrears for already delivered gas supplies,” Colin Fenton, head of commodities research at JPMorgan Chase & Co., wrote in a report e-mailed yesterday. “These actions are causing longer-duration energy market risks to tilt strongly against Russia and in favor of the energy consuming nations of Europe and Asia, as well as the U.S.”
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