Gas Price Swings Signal Ukraine Supply Threat: Chart of the Day

U.K. Natgas Volatility

Aug. 8 (Bloomberg) -- European natural gas traders are preparing for increased market risk from fuel disruptions this winter as Russia’s decision to shut off Ukrainian supplies has already led a Kiev utility to cut hot water to its customers.

The CHART OF THE DAY shows 60-day historical volatility, a measure of price swings, for U.K. next-day gas climbed to 46 percent yesterday, the highest since June last year, according to broker data compiled by Bloomberg. Volatility is climbing as gas pumped into storage in Ukraine, the transit country for about half of Russian flows to Europe, declined for a second week as of Aug. 1, Gas Infrastructure Europe data showed.

European and U.S. sanctions against Russia over its support of separatist rebels in Ukraine may make it harder to resolve the price dispute that led Russian gas exporter OAO Gazprom to cut supplies to NAK Naftogaz Ukrainy in June. While gas flows to Europe haven’t been affected yet, similar disputes between the two former Soviet nations disrupted supplies in 2006 and 2009.

“The volatility is partly the result of the tightening sanctions regime and threats by Russian officials that more sanctions will put upward pressure on energy prices, but also the result of the stalemate in the Gazprom-Naftogaz dispute,” said Andrew Neff, an analyst at IHS Inc. in Moscow. “This will not be resolved before heating season begins and storage injections through the mid-June cutoff won’t be nearly enough to get through the winter.”

The pace at which gas is pumped into Ukraine storage facilities every week has fallen about 84 percent from levels before June 16, when Gazprom cut supplies over an unpaid debt and disagreement on the price of future deliveries. At the current refill rate, the country’s storages will only be 51 percent full before the withdrawal season starts, according to consultant Energy Aspects Ltd. in London.

Utility Kyivenergo cut hot water supplies to consumers in Kiev following government orders to save gas for the winter, the company said Aug. 4.

To contact the reporter on this story: Isis Almeida in London at ialmeida3@bloomberg.net

To contact the editors responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net Andrew Reierson, Tony Barrett