Gas Stores Seen Cushioning EU From Ukraine Supply Risk
Europe’s biggest stockpiles of natural gas since at least 2009 are damping the threat of any potential disruptions in supplies from Ukraine, the main transit route of Russian fuel to consumers in the west.
Storage of the fuel in the U.K., the region’s biggest market, is 25 percentage points above average for this time of year, while levels in the Netherlands are 19 points above the mean, data from National Grid Plc and Gas Infrastructure Europe show. Stores would last beyond the winter heating season even if flows were cut, Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, said today by phone.
The mildest weather since 2008 reduced demand for the fuel used for heating and to generate electricity and sent prices to their lowest level in two years. Wholesale costs jumped in January 2009 after Russian supplies to Europe via Ukraine halted amid a dispute over prices and transit terms between the two former Soviet nations.
“If we saw this event four years ago the spot price of gas would have spiked significantly across the continent,” Nick Campbell, an analyst at Inspired Energy Plc (INSE) in Kirkham, England, said today by e-mail. “Any potential bullish pressure has been mitigated as the continent is awash with gas.”
Lawmakers in Kiev are working on a coalition government after ousting Viktor Yanukovych from the presidency, while the U.S. and the European Union have pledged aid for a new cabinet. Yanukovych and others were placed on a wanted list for their role in violence that killed at least 82 people last week, according to acting Interior Minister Arsen Avakov.
U.K. next-month gas jumped 17 percent in the first two weeks of 2009, as the dispute between Russia and Ukraine caused shortages across parts of Eastern Europe amid freezing weather.
“There is no reason why the Russian government would stop sending gas now as Ukraine hasn’t formed a new government yet,” Weinberg said. “The Russian government may also work well with Yulia Tymoshenko,” the opposition leader who was released over the weekend.
Gas for next-month delivery at the Title Transfer Facility in the Netherlands dropped as much as 2.8 percent to 22.90 euros a megawatt-hour ($9.20 a million British thermal units), the lowest level since Feb. 14, 2012, and traded at 23.05 euros at 5:47 p.m. Amsterdam time, according to broker data compiled by Bloomberg. The contract has fallen 22 percent since Dec. 3.
Storage levels at all of the major European hubs bar Austria’s Baumgarten were above last year’s levels as of Feb. 22, Energy Aspects Ltd., a consultant in London, said today in an e-mailed report. Total European gas inventories are 6.24 billion cubic meters, or 19 percent, higher than a year ago, it said.
European gas demand in 2013 was at its lowest since 1999 and is set to drop further this year, erasing 16 years of growth, Societe Generale SA said Feb. 20, citing data from eight countries representing 63 percent of the 28-nation European Union’s consumption.
“Ukraine is still very reliant on energy from Russia and indeed Europe is heavily dependent on Russian oil and gas,” Leslie Holmes, professor of political science at the University of Melbourne, told Bloomberg Television’s “On the Move” with Rishaad Salamat. “So Russia still has a trump card up its sleeve.”
Ukraine is shipping the full volume of gas sold by Russia to European customers, a spokesman for OAO Gazprom said Feb. 24 by phone, asking not to be identified because of policy.
Gazprom started construction of a direct link to Germany in April 2010, circumventing Ukraine. The 55 billion cubic-meter-a-year, Nord Stream pipeline along the bottom of the Baltic Sea started supplies in November 2011.
Eastern European and Balkan countries plan “large, comprehensive” investments to improve interconnections of natural gas pipelines, partly to boost energy security, Hungarian Foreign Minister Janos Martonyi said today in Budapest.
The milder-than-normal temperatures in most of Europe will extend into March, the last month of the heating season, according to five out of six meteorologists surveyed by Bloomberg last week.
The warm weather in Europe is the milder counterpart of the polar vortex lashing the U.S. east coast, according to Kai Biermann, a Hamburg-based meteorologist at Deutscher Wetterdienst.
“The conflict won’t have any impact at all,” said Tobias Meyer, who buys and sells gas at Frankfurt-based Gas-Union GmbH. “The gas price is currently influenced by temperatures and storage levels. And both don’t favor demand right now.”
German gas for delivery next month on the NetConnect Germany gas hub may drop 5.6 percent to 22 euros a megawatt-hour by the end of February “if temperatures stay as elevated as they are right now,” he said.
Supply disruption risk is higher during winter than summer, with little chance of an interruption in the next few months as Russia assesses the attitude of the new Ukraine government, said Trevor Sikorski, a gas, coal and carbon analyst in London for Energy Aspects. The risk of cuts is “not that imminent.”
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