U.K. Prompt Gas Advances Most in Two Weeks Amid Reduced Flows

U.K. prompt natural gas contracts jumped the most in two weeks as flows declined amid maintenance and continued elevated exports to Belgium.

Gas for within-day delivery rose as much as 9.7 percent and next-day fuel added as much as 8.8 percent, the most since Sept. 1 for both contracts, broker data on Bloomberg showed. Gas for delivery in October gained amid renewed fighting in eastern Ukraine. Pipelines crossing Ukraine carry Russian gas meeting about 15 percent of European Union demand.

Supply is forecast to remain 8 million cubic meters short of demand today as maintenance continues to restrict flows and nominated flows to Belgium at 25 million cubic meters keep exports higher than the 10-day average. Tension in Ukraine intensified amid reports of renewed fighting, unconfirmed contents of a Russian convoy and Ukrainian claims that Russia still has troops on its territory more than a week after a cease-fire was declared.

Prompt contracts advanced “on the back of an extremely undersupplied system,” Wingas U.K. said in a report. “With ample storage stock levels at present, such supply shortfalls can be met, and thus prices on the prompt are presently capped. However, the fragile cease-fire in Ukraine is still adding uncertainty to contracts further out.”

Flows Rebound

Flows rose to 186 million cubic meters from as low as 137 million earlier today, National Grid Plc data show. Supply is forecast at 164 million cubic meters, compared with estimated demand of 172 million cubic meters, the data show. U.K. pipelines were forecast to contain 324 million cubic meters of gas at 6 a.m. tomorrow, compared with 333 million cubic meters at the same time today. Flows into the Bacton Shell terminal in eastern England increased to 9.3 million cubic meters, while remaining below average volumes after weekend maintenance.

Same-day gas climbed as high as 49.6 pence a therm ($8.04 a million British thermal units) before trading at 49 pence by 5:13 p.m. in London, broker data showed. The next-day contract traded at 48.85 pence after touching 49 pence earlier today.

Exports to Belgium exceeded the 10-day average of 17.3 million cubic meters. That led to “tighter system dynamics,” Wingas said.

Front-month gas settled up 3.5 percent at 51.34 pence a therm on ICE Futures Europe in London. Winter gas, for delivery for the six months from October, added 1.1 percent to 60.718 pence a therm on ICE.

Eastern Ukraine

“Geopolitical drivers have been the main factor behind price movement and volatility in the two weeks, with prices -- particularly those for the coming winter -- increasing given the ongoing developments in eastern Ukraine,” Craig Lowrey, a consultant at Ipswich, England-based UX Energy Services, wrote in a note today.

The Donetsk airport in eastern Ukraine was being shelled all day while government troops continued to observe the cease-fire, military spokesman Andriy Lysenko said in Kiev. The U.S. is concerned about renewed fighting and has no details about the content of a Russian convoy that entered and left Ukraine over the weekend, a U.S. State Department official said.

With Ukraine receiving no Russian gas almost two weeks before the winter season starts, Russia warned Europe in a meeting of energy chiefs on Aug. 29 there’s a risk Ukraine might siphon off supplies if the former Soviet allies are unable to resolve a payment dispute that’s been brewing all summer. Russia won’t be able to take part in three-way gas talks in Berlin Sept. 20, as offered by the EU earlier, Olga Golant, a spokesman for the nation’s Energy Ministry, said by phone today.

Winter Demand

Disputes between Russia and Ukraine over gas prices disrupted EU-bound flows in periods of peak winter demand in 2006 and 2009.

Poland last week reported lower gas flows from Russia compared with its requests as Moscow-based OAO Gazprom said it was still injecting gas in domestic storage and would send as much fuel for exports as its available resources would permit. Two-week flows are “only slightly” below order, Polish Economy Minister Janusz Piechocinski said in Warsaw today.

Russia’s gas supplies to Europe were at about 365 million to 370 million cubic meters a day, with no cuts compared to average levels since the start of the month, Gazprom spokesman Sergei Kupriyanov said by phone today. Transit via Ukraine and Slovakia was decreasing today amid higher flows through the Yamal-Europe pipeline via Belarus and Poland, he said.

(An earlier version of this story corrected the date of the meeting at which Russia warned about siphoning risk.)

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