U.K. natural gas fell the most in two weeks as Russian President Vladimir Putin outlined a peace plan for Ukraine, reducing risks the conflict will disrupt flows to Europe as the heating season nears.
Winter gas in the U.K. dropped as much as 3 percent, the most since Aug. 18, on the ICE Futures Europe exchange in London. The contract, for delivery in the six months from October, gained 9.2 percent from this year’s low in July as fighting between government forces and separatist rebels in eastern Ukraine intensified amid claims of Russian military involvement, which Russia has repeatedly denied.
Putin called for an end to the rebels’ offensive in Ukraine’s eastern regions and urged the withdrawal of Ukrainian military from residential areas as part of a seven-point proposal he presented in Ulaanbaatar, Mongolia. A final agreement may be reached at a Sept. 5 meeting, he said. Europe depends on Russian gas for about 30 percent of its needs, half of which flows via Ukraine.
“If Putin is truly signed up for an end to the hostilities, it does hold out hope that the tensions could begin to ease but it still feels a long way from a final resolution,” Trevor Sikorski, head of natural gas, coal and carbon at consultant Energy Aspects Ltd. in London, said by e-mail today. “So, some good news but there are lots of unanswered questions that should lead to a cautious response. It certainly does not end winter supply risks.”
Winter gas fell as low as 58.15 pence a therm ($9.59 a million British thermal units) on ICE before paring losses to 59.8 pence at 4:27 p.m. London time. Front-month futures weakened as much as 4.4 percent to 49 pence a therm before trading at 50.8 pence. The volume of all futures traded was 49 percent higher than the 100-day average for the time of day.
Ukrainian President Petro Poroshenko said Putin agreed on a “cease-fire regime” and the steps toward peace. A lasting truce would be the biggest breakthrough yet in the conflict that has raged for more than five months and has killed about 2,600 people, according to the United Nations. Disputes between the countries disrupted gas supplies to Europe in 2006 and 2009.
The Russian-Ukraine standoff sent winter prices up in August for a second month, ICE data showed.
In the absence of any near-term disruption, “the current rally looks overdone,” Citigroup Inc. said in a report e-mailed today, citing full European gas storage sites. The 28 European Union member states had 71.3 billion cubic meters (2.5 billion cubic feet) of gas in storage, the most since at least 2009, according to Gas Infrastructure Europe, a Brussels-based lobby group.
Higher Norwegian flows following the completion of a test at the Easington terminal in northeast England today helped push down prices for prompt delivery. Total flows into the U.K. system were at 172 million cubic meters a day, compared with a 10-day average of 169 million cubic meters, according to National Grid Plc data.
Gas for within-day delivery lost as much as 5.6 percent to 46.75 pence a therm before trading at 48.1 pence a therm, broker data compiled by Bloomberg showed. The day-ahead contract dropped as much as 2.5 percent to 47 pence.
The European Commission, the EU’s regulatory arm, adopted proposals to expand sanctions against Russia for its support of separatists in eastern Ukraine. Possible further curbs include access to capital markets, defense, dual-use goods and sensitive technologies, according to an e-mailed statement.
“While this is very positive for the stability in the region, I think the gas market will continue to reflect the geopolitical uncertainty,” Craig Lowrey, a consultant at UX Energy Services in Ipswich, England, said by phone.