U.K. natural gas for winter delivery fell to the lowest level in more than a month after Russian President Vladimir Putin said he had pulled back troops from the Ukrainian border, potentially reducing the risk of supply cuts.
U.K. gas for delivery in the six months from October declined as much as 2.9 percent on the ICE Futures Europe exchange to the lowest since April 4. Putin also called on separatists in southern and eastern Ukraine to postpone plebiscites over regional autonomy to help “create the necessary conditions for dialog,” he said at a meeting in Moscow with Didier Burkhalter, chairman of the Organization for Security and Cooperation in Europe.
“In light of Putin’s latest comments, U.K. winter gas fell rapidly, reflecting risk and position re-adjustment,” Tobias Davis, a gas broker at GFI Securities Ltd. in London, said today by e-mail. “Perhaps some are interpreting it as the first sign of a change in rhetoric.”
U.K. winter gas dropped as low as 60.83 pence a therm ($10.31 a million British thermal units) on ICE before trading 2.1 percent lower at 61.3 pence at 4:50 p.m. in London. Dutch winter gas slipped as much as 2.6 percent to 24.10 euros ($33.54) a megawatt-hour, the lowest since April 7, according to broker data compiled by Bloomberg.
Europe, which gets 15 percent of its needs from supplies via Ukraine, can cope with a 90-day disruption to transit gas provided there’s cooperation between member states, stockpiles are “reasonably high” and Russian gas supplies through other routes are flowing normally, consultants Poeyry Oyj said today in an e-mailed report. The continent could lose 12.5 billion cubic meters of gas if Russia curbs supplies to Ukraine for the three coldest months of the winter, it said.
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.
Front-month gas in the U.K., a European benchmark, tumbled as much as 2.3 percent on ICE Futures to 44.7 pence a therm, the lowest since Sept. 28, 2010, before trading at 45.15 pence. The premium winter gas commands over the day-ahead contract was at 15.8 pence a therm, the lowest since April 23, according to broker data compiled by Bloomberg.
“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.
Flows into the U.K. network were at 215 million cubic meters (7.6 billion cubic feet) a day, compared with a 10-day average of 212 million cubic meters, National Grid Plc data show. Supply from Norway, Britain’s biggest foreign supplier, was at 54 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.
The Ukrainian regions of Donetsk and Luhansk should delay the May 11 referendums, Putin said. While separatists want to hold the ballots, the Kiev-backed regional administrations oppose the votes. The pro-Russian organizers don’t have access to the electoral register and other voting infrastructure. A May 25 presidential election “will be important for solidifying the current Ukrainian government’s legitimacy,” JPMorgan Chase & Co. said in a report e-mailed yesterday.
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.
Europe will struggle to eliminate its dependence on Russian gas, with existing projects and anticipated future supply suggesting the region’s reliance can drop to 25 percent by the end of the decade, from 30 percent now, estimates Wood Mackenzie Ltd. That’s about the same proportion as in 2011. While Europe has 12 options for replacing Russian gas, they would require $215 billion of infrastructure and boost annual costs by $37 billion, Sanford C. Bernstein said last month.
“In the short-term, there isn’t really a whole lot they can do,” Thomas Pugh, a commodities economist at Capital Economics in London, said by phone yesterday. “There’s not a whole lot they can do apart from trying to use more coal, really, which goes against the renewable push.”