U.K. Gas Erases Gain From Ukraine Cutoff on Swollen Inventories

U.K. natural gas fell the most in more than three months, erasing gains triggered yesterday when Russia cut supplies to Ukraine, as the biggest European Union inventories in three years shield the bloc from disruptions.

Front-month gas in the U.K., Europe’s biggest market, slid as much as 5.8 percent on ICE Futures Europe in London, the biggest decline since March 4. Prices jumped as much as 8.8 percent yesterday, the deadline for Ukraine to pay Russian pipeline-gas export monopoly OAO Gazprom for past supplies.

Storage units in the EU were 65 percent full yesterday, the highest for this time of year since 2011, according to Gas Infrastructure Europe, a lobby group in Brussels. Ukraine can go “quite long” without signing another gas-supply accord with Russia, Andriy Kobolyev, chief executive officer of energy company Naftogaz Ukrainy, said today on Bloomberg Television.

“The market is realizing that Ukraine has enough gas in storage to cover several months, and there is also the possibility that they can receive gas from Europe,” Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen, said by e-mail today. “It’s still status quo in the European gas market, and the price is giving back most of the gains seen up until and just after the deadline was passed.”

The front-month U.K. gas contract fell to the day’s low of 40.15 pence a therm ($6.82 per million British thermal units) on ICE before paring losses to 41 pence a therm by 4:31 p.m. in London after a fire broke out on a gas transit pipeline in Ukraine. Prices climbed to a high of 45.55 pence yesterday before closing 1.8 percent up at 42.61 pence a therm.

Dutch gas for July slid as much as 7.1 percent today to 17 euros ($23) a megawatt-hour on the Title Transfer Facility hub, before trading at 17.77 euros a megawatt-hour, according to broker data compiled by Bloomberg.

Better Prepared

Ukraine failed to pay a debt of more than $4.4 billion for deliveries in November, December, April and May, Gazprom said yesterday. Pipelines running through the nation carry Russian gas that meets about 15 percent of the EU’s needs. The cutoff echoed similar disputes that interrupted shipments to the bloc during freezing weather in 2006 and 2009.

There’s been no reduction in gas flows from Ukraine, Slovak pipeline operator Eustream said today on its website. Russian transit to Europe through Ukrainian pipelines is proceeding normally at a rate of about 180 million cubic meters a day, a Gazprom official said today by telephone, asking not to be identified in line with company policy.

“If you get a couple of weeks and the talks continue to fail and then it looks like it’s going to be something that doesn’t get resolved during the summer, then that does start to have a few implications,” Trevor Sikorski, head of gas, coal and carbon at consultants Energy Aspects Ltd. in London said by phone yesterday. “We still have loads and loads of gas into storage, so you can go for a month or something.”

Ample Stockpiles

The EU is better prepared now to cope with disruptions as gas stockpiles are ample and the bloc can get fuel from other sources including liquefied natural gas and the Nord Stream pipeline directly from Russia to Germany. Flows can also be reversed to supply Ukraine by carrying gas east.

“It’s possible that all imports necessary to supply Ukrainian consumers can be replaced from Europe,” Kobolyev said. “It will be quite a complicated job if we do not find sufficient supplies in Europe.”

Ukraine is sending a delegation for talks with European Union officials aimed at securing gas supplies. The nation can get 15 billion cubic meters of gas from the EU, Prime Minister Arseniy Yatsenyuk said today in parliament in Kiev. RWE AG, Germany’s second-biggest utility, started sending gas to Ukraine from Poland in April. Slovakia and Hungary also can supply Ukraine using so-called reverse flows.

Ukraine’s domestic production and reverse supply from the European Union “is sufficient to supply the summer demand, but that is not going to be sufficient to fill the Ukrainian gas storage,” Laszlo Varro, head of gas, coal and power division at the International Energy Agency, said in an interview in Paris today. “Energy efficiency in the country is very bad and they will need a lot of gas for winter heating.”

(An earlier version of this story was corrected because it contained an incorrect quote by the CEO of Naftogaz.)

Before it's here, it's on the Bloomberg Terminal.