European gas prices fell the most in 11 months as President Vladimir Putin stepped back from an escalation of the crisis in Ukraine, easing concern that tensions with Russia may disrupt flows.
U.K. natural gas for next month, the regional benchmark, fell as much as 6.2 percent on ICE futures Europe in London, the biggest drop since March 28 last year. The Dutch contract declined 6.4 percent, the most since April, and German gas retreated 4.5 percent, the biggest decline since April, according to broker data compiled by Bloomberg.
The mildest winter since 2007 has left the region with enough gas in storage to cover any potential disruption in flows from Ukraine for about 45 days, according to Sanford C. Bernstein & Co. European gas prices jumped the most since September 2011 yesterday on concerns that flows from Ukraine, which transits 16 percent of the region’s demand, may halt because of the conflict.
“The market is purely following the political news,” Frank van Doorn, head of gas trading at Vattenfall Energy Trading in Amsterdam, said today by phone. “Yesterday it went up quite a bit. And then some more relaxing news came out and that’s why the market has dropped a bit, but as far as we can see the physical situation with gas flows hasn’t really changed.”
The U.K. next-month contract fell to as low as 57.88 pence a therm ($9.64 per million British thermal units), and traded at 58.25 pence at 4:50 p.m. in London. Dutch gas for April dropped 1.50 euros to 23.90 euros a megawatt hour ($9.62 per million British thermal units). The German next-month contract fell 4.5 percent to 24.40 euros a megawatt hour.
Trading in U.K. gas rose to a record yesterday on ICE, with 118,145 contracts changing hands, the company said in a statement. That compares with a previous record from Jan. 13 of 70,690 contracts.
“The record volume in ICE U.K. NBP Natural Gas futures follows recent geopolitical events in Ukraine, with market participants using ICE U.K. NBP Natural Gas futures to hedge their price risk,” the exchange said.
Ukrainian national pipeline manager Ukrtransgaz and OAO Gazprom, Europe’s biggest supplier, said today that the transit flows have not been disrupted.
Russian gas exports to western Europe jumped to 474.4 million cubic meters a day on March 2, compared with 410 million cubic meters a week earlier, according to data on Bloomberg from CDU-TEK, the energy ministry’s unit.
Daily shipments from Russia to Europe via Ukraine were at 197.8 million cubic meters as of March 2 compared with 198.6 million a day before and 213.7 million cubic meters a year earlier, a Ukrtransgaz spokesman said today, citing warmer weather for the year-on-year decline.
European gas storage was about 49 percent full on March 2, compared with 37 percent a earlier earlier, according to Gas Infrastructure Europe, a lobby group of pipeline operators in Brussels. Europe faces above-normal temperatures for a fourth month in March, the last month of the winter heating season, according to six weather forecasters surveyed by Bloomberg.
“We are past the peak winter demand period,” Michael Hsueh, an analyst at Deutsche Bank AG in London, wrote yesterday in a report. “Factors which will moderate the potential impact are the fact that gas storage levels across Europe are at unusually high levels.”
For the coming week, western Europe is expected to be warmer than normal, with 6 percent fewer heating days than the five-year trend, and the U.K. is expected to have 17 percent fewer heating days than the five-year norm, Trevor Sikorski, head of natural gas, coal and carbon at Energy Aspects Ltd. in London, said in an e-mailed report.
Total gas flows into the U.K. are at about 270 million cubic meters today, in line with the 7-day average, according to National Grid Plc data. Flows from Norway, Europe’s biggest supplier after Russia, dropped to 300 million cubic meters, below the 7-day average, after supply from the Troll and Ormen Lange fields was cut.
Norway has capacity to raise gas exports by 10 percent depending on unhindered operations at fields and pipelines, while no extraordinary measures are being taken to raise exports, Kjell Larsen, a spokesman for the nation’s pipeline operator Gassco AS based in Haugesund, said today by phone.
Russia justified its intervention in the Crimea as a legitimate response to a request from Ukraine’s ousted president Viktor Yanukovych amid threats posed by extremists, while western leaders sought to keep the standoff from spiraling into war. Putin said today he’d only send soldiers to the country in an extreme case and that the deposed president had asked for military protection of ethnic Russians.
Ukraine has mobilized its army and requested foreign observers after Russian forces took control of the peninsula, where Russia keeps its Black Sea fleet at Sevastopol.
“It is very difficult to make a prediction what’s going to happen,” Vattenfall’s van Doorn said. “You have to make a call on the political developments. It was also a bit of an overreaction yesterday.”