EON SE, GDF Suez SA and A2A SpA are among European utility companies that would benefit from a prolonged disruption of Russian natural gas supplies to Europe via Ukraine, according to Moody’s Investors Service.
Higher gas prices would lift power costs in nations where gas is the “marginal fuel,” such as the U.K. and Italy, Moody’s analysts Paul Marty and Monica Merli in London said in a report e-mailed today. That would aid companies with unhedged power generation in those markets, they said. Companies able to handle the fuel in liquefied form also would gain, Moody’s said.
“European utilities with gas infrastructure assets such as unregulated gas storage, interconnection capacity and LNG regasification plants would benefit from the need to seek alternative sources of supply and to potentially reverse flows within Europe,” the analysts said. “Power companies in markets where gas sets the price would benefit as well.”
Russian gas meets about 30 percent of Europe’s demand and pipelines crossing Ukraine carry half of that supply. OAO Gazprom, Russia’s monopoly pipeline-gas exporter, billed Ukraine for 114 million cubic meters of the fuel a day in June, or about $1.66 billion, assuming a price of $485 per 1,000 cubic meters charged since April. Supplies will stop on June 3 unless some payment is made by the prior day, according to Sergei Kupriyanov, a Gazprom spokesman. Previous disputes between the two nations disrupted flows to Europe in 2006 and 2009.
Higher prices would help GDF Suez’s global gas and LNG business, generating 16 percent of earnings before interest, taxes, depreciation and amortization, Moody’s said. Interrupted flows would aid its French storage and LNG unit, accounting for 5 percent of Ebitda, the report showed. The Courbevoie, France-based company owns Europe’s largest gas network.
The exploration and production business of EON, the biggest European utility, would benefit along with the Dusseldorf, Germany-based company’s infrastructure unit and U.K. power generation, it said. Centrica Plc (CNA), the largest energy supplier to U.K. households, also would gain along with Dong Energy A/S, Ireland’s Electricity Supply Board, Brescia, A2A in Brescia, Italy, and Infinis Energy Plc would also be positively affected, according to Moody’s.
While the probability of disrupted Russian gas supply is “very low,” a 12-month cutoff of flows via Ukraine would leave the European Union short of 56 billion cubic meters of the fuel, or about 12 percent of consumption, Moody’s estimated. A disturbance of up to six months would have little impact due to lower demand, high inventories and reduced reliance on Ukraine as a route to transport Russian fuel, according to the report.
“As of 30 April 2014, gas inventories in the EU amounted to around 40 billion cubic meters, equivalent to one full month of gas consumption,” Marty and Merli said. “In the event of a disruption of Ukrainian transit volumes, these stocks together with ongoing other supply sources could cover EU consumption for up to eight months.”
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