U.K. Gas Rebounds From Lowest Since 2010 as Ukraine Defies Putin

U.K. natural gas jumped the most in almost three weeks, rebounding from the lowest close since 2010, as tensions between Russia and Ukraine escalated amid talks to resolve a pricing dispute between the two nations.

Front-month gas in the U.K., a European benchmark, gained as much as 3 percent on the ICE Futures Europe exchange, the biggest jump since April 14. Ukraine sent armored vehicles and artillery to retake Slovyansk, a stronghold for pro-separatist forces, defying President Vladimir Putin’s demand to pull back troops with Russia’s army massed across the border.

European Union, Russian and Ukrainian energy officials met today in Warsaw for their first three-way talks to resolve a natural gas pricing dispute after Gazprom last month raised prices for Ukraine by 81 percent. Similar disputes between the eastern European neighbors halted supply in 2006 and 2009 to the EU, which meets about 15 percent of its gas needs with Russian fuel shipped through Ukraine.

“Clearly, any resolution will have to include some adjustment to prices,” Michael Hsueh, an analyst at Deutsche Bank AG in London, said today by e-mail. “Europe does have enough gas to last a few weeks without too much trouble. Beyond that it starts to be a problem.”

Front-month gas rose as high as 47.4 pence a therm ($7.98 a million British thermal units) on ICE. The contract traded at 47.25 pence as of 4:59 p.m. in London. Futures trading volume was 9 percent above the 100-day average for the time of the day. Dutch gas for June delivery on the Title Transfer Facility hub climbed as much as 3.3 percent to 20.15 euros ($27.93) a megawatt-hour, according to broker data compiled by Bloomberg.

Prepaid Gas

Russia will move to prepayment for supplies to Ukraine and OAO Gazprom will have the right to limit flows if payment for June deliveries isn’t made by May 31, Russian Energy Minister Alexander Novak said in Warsaw. Ukraine owes Gazprom about $3.5 billion for prior deliveries, he said.

Negotiators from Russia, Ukraine and the EU agreed to guarantee no disruptions in supply of gas through the end of May, EU Energy Commissioner Guenther Oettinger said in Warsaw.

The International Monetary Fund approved a $17 billion loan to Ukraine with an immediate disbursement of $3.2 billion to help the country pay its debts and warned more may be needed.

“While this could theoretically go toward paying down Ukraine’s debt for already-delivered gas, Ukraine’s refusal to pay hinges on sharply higher gas prices now being charged,” Hsueh said in an e-mailed report. “Since this remains a bone of contention and a resolution seems still some ways off, payment may yet be withheld, with increasing risks for continued supply to both Ukraine and Europe.”

Seasonal Spreads

Fears of supply disruptions stemming from the Ukrainian conflict boosted U.K. gas seasonal spreads. The premium of winter gas, for delivery in the six months from October, to the next-day contract rose to 16.75 pence a therm on the National Balancing Point hub, the highest since June, broker data showed.

“The anxiety level remains high regarding the Russia-Ukraine gas dispute,” Hsueh said in the report. “Russian gas sold to Ukraine now exceeds the Winter 14-15 contract on the German NCG hub” which was at 24.95 euros a megawatt-hour, according to broker data compiled by Bloomberg.

U.K. day-ahead gas advanced 2.6 percent to 47.50 pence a therm, broker data showed. Europe is forecast to get “much cooler” weather this weekend, MDA Weather Services in Gaithersburg, Maryland, said in a report e-mailed today. Temperatures in the Baltic states, eastern Scandinavia and much of the European plains will be more than 5 degrees Celsius (9 Fahrenheit) below normal next week.

Flows into the U.K. network were at 205 million cubic meters (7.2 billion cubic feet) a day, compared with a 10-day average of 208 million cubic meters, National Grid Plc data show. Supply from Norway, Britain’s biggest foreign supplier, was at 61 million cubic meters, higher than the 10-day average of 54 million, Gassco AS data show. Three liquefied natural gas tankers are scheduled to arrive in the U.K. from today to May 7, ship-tracking and port data on Bloomberg show.

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