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U.K. Gas Jumps After Attack on Russian Convoy in Ukraine

Aug. 15 (Bloomberg) -- U.K. spot natural gas jumped to the highest level in almost two months as a drop in wind-power generation strengthened demand for the fuel. Later-dated contracts rallied as Ukraine attacked an armed Russian convoy.

Gas for the next working day climbed as much as 6.5 percent to the highest since June 16, according to broker data compiled by Bloomberg. The front-month contract gained as much as 4.5 percent on the ICE Futures Europe exchange in London. Winds will slow during much of next week, according to forecasters at MDA Weather Services, leaving power generators relying on gas as nuclear reactors and coal plants close for maintenance.

Ukraine said its troops attacked and partially destroyed a column of armed vehicles that had crossed the border from Russian territory, while Russia said it was concerned about an attack on another convoy carrying aid. The conflict is fueling concern Russian gas supplies through Ukraine, which meet about 15 percent of Europe’s demand, will be disrupted this winter.

“The conflict has escalated to a whole new level in my opinion,” Moses Rahnama, an analyst at consultants Energy Aspects Ltd. in London, said by e-mail today. “So far the Russia-Ukraine confrontation had been through the rebels, but now it’s becoming direct military engagement. It looks less likely that any resolution can be achieved soon.”

Day-ahead gas in the U.K., Europe’s biggest market, rose to 44 pence a therm ($7.34 a million British thermal units) on the National Balancing Point before trading at 43.9 pence at 5:05 p.m. in London, broker data showed. Front-month gas jumped to 45 pence a therm on ICE, the highest since June 16, while the fuel for winter delivery rallied as much as 2.6 percent to 63.4 pence a therm.

Subsiding Winds

Winds that will exceed 20 miles per hour (32 kilometers per hour) on Aug. 17 and produce more than four gigawatts throughout the day will subside next week, Bradley Harvey, a meteorologist at MDA, said by e-mail Aug. 13. Temperatures in the U.K., Germany and France are forecast to be as much as 4 degrees below normal through Aug. 24, Reading, England-based forecaster Metraweather said today in an e-mailed report.

Electricite de France SA halted four U.K. nuclear reactors for maintenance lasting about eight weeks, the company said Aug. 11. The units have the capacity to produce about 2.4 gigawatts of electricity. Two in three of the U.K.’s coal-fired power plants weren’t generating as of 7:30 a.m. London time, according to data from National Grid Plc, the network operator.

“Tight intraday supplies have pushed prompt contracts further up,” wholesaler Wingas U.K. Ltd. said today in an e-mailed report. Gas demand for electricity remains high, with “ongoing outages at coal and nuclear sites increasing the requirement for gas generation.”

Ukraine Attack

Ukrainian troops attacked the Russian vehicles that had arrived overnight through a rebel-held section of the border, Andriy Lysenko, a spokesman for the country’s military, told reporters in Kiev today. Russia’s Foreign Ministry said it was concerned about potential attempts to disrupt a separate convoy carrying humanitarian aid to Ukraine eastern regions.

Dutch gas for September delivery on the Title Transfer Facility hub rose 3.4 percent to 19 euros ($25.43) a megawatt-hour, while the equivalent contract on NetConnect Germany advanced 4.6 percent to 19.30 euros a megawatt-hour, according to broker data. Germany depends on Russia to meet 37 percent of its gas needs, according to Eurogas, a lobby group.

“Uncertainty around future gas supply via Ukraine kept the bears away in TTF trading during the last two sessions,” Gazprom Energy said in a report posted on its website today before the news of the attack.

Terminal Maintenance

Front-month gas prices in the U.K. and the Netherlands will probably rise next week, according to a Bloomberg survey of traders, brokers and analysts. This was the first time traders were bullish since the survey started five weeks ago.

U.K gas for within-day delivery jumped as much as 9.2 percent to 45 pence a therm, the highest since May 28, before trading at 44.75 pence a therm as outages in the North Sea helped reduce supplies falling short of demand by about 11 million cubic meters, National Grid data showed.

Royal Dutch Shell Plc’s St. Fergus gas plant in Scotland starting maintenance today. Norway’s Kollsness gas processing plant is halted for maintenance until Aug. 21 and Norwegian supplies via the Flags pipeline to the Shell Esso Gas and Liquids terminal in St. Fergus will be reduced by 18 million cubic meters a day for works from today to Aug. 25. Total SA’s St. Fergus terminal will have a planned outage tomorrow, halting flows for 11 hours.

“Current day wind generation levels dropped as gas-fired continues to handle half of the U.K.’s power generation,” Gazprom Energy said in a separate report on its website today. Summer maintenance is reducing supply from Norway and the U.K. Continental Shelf, it said.

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 Rob Verdonck, Dan Weeks

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