Even Warning of Full-Out War in Ukraine Can’t Faze Gas Traders

Russia-Ukraine Tensions Spill Over Into Markets
  • Winter gas, front-month gas in U.K. continue weekly slide
  • Poroshenko warns of escalation of conflict with Russia

How can you tell there’s a gas glut in Europe? When even the threat of a full-scale invasion into the continent’s largest gas transit country by its largest outside supplier can’t raise prices.

After Ukrainian President Petro Poroshenko warned on Thursday its conflict with Russia could escalate further amid building violence in Crimea, saying he didn’t rule out a complete war, European natural gas prices continued their weekly decline without interruption. As much as 40 percent of Europe’s supplies flow from Russia via Ukraine.

Gas in storage is less than 5 percent below the five-year average for this time of year, according to data from Gas Infrastructure Europe. Flows from Russia and Norway, Europe’s two biggest gas suppliers, are set to reach record levels. Liquefied natural gas export projects that have started in Australia and the U.S., have added to security of supply.

“It’s rather simple -- the storage situation in Europe is extremely comfortable and the amount of gas that is currently landing in Europe is surely at all time high,” said Daniele Corti, a Zurich-based senior gas trader at Axpo Trading AG. “Hence the gas market is not pricing any kind of risk due to Russia.”

Front-month gas in the U.K. is headed for its third straight weekly decline. Prices fell 1.8 percent yesterday to 30.84 pence a therm and moved downward almost all day, including before and after Poroshenko’s comments. Gas for winter delivery declined 0.8 percent yesterday to 42.4 pence a therm, according to broker data. They continued their slide on Friday.

Past Spikes

The conflict between the two countries has caused price spikes in the past. Europe has experienced shortages twice in the last decade during freezing temperatures because of disputes between Ukraine and Russia. The relative calm following the latest warnings of invasions and worsening violence show traders have become accustomed to the tough talk.

“The markets are looking at what’s happening in Ukraine as mostly political posturing, not believing any flows will be affected,” said Pierluigi Frison, a gas trader at Green Network U.K. “Considering that Russia hasn’t started direct confrontation yet, even though the Crimea incident and Donbass escalation has been on the news since early last week, means to me that nothing physical will happen.”

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