European gas prices rise as Russia limits supplies to Ukraine

By ISIS ALMEIDA and ANNA SHIRYAEVSKAYA
Bloomberg

European natural gas prices climbed after Ukraine’s state-owned gas company said Russia violated a European Union-brokered accord by limiting supplies to less than half the requested level.

UK front-month gas, a European benchmark, jumped as much as 3.7% on the ICE Futures Europe exchange in London, the most since Feb. 12. NAK Naftogaz Ukrainy asked Russia’s OAO Gazprom to explain why only 47 million cubic meters (1.7 billion cubic feet) of gas were delivered Feb. 22 against the 114 million requested, the Kiev-based company said Monday.

Russian supplies meet about a third of European gas usage, with about 40% flowing through Soviet-era pipelines crossing Ukraine. The yearlong conflict between Russia and Ukraine shows no sign of ending as fighting persists in eastern Ukraine, defying a cease-fire agreement this month.

Gas contracts for longer-dated deliveries were “supported by gathering uncertainty over European gas supplies as Naftogaz reports a failing in supply of prepaid gas from its Russian equivalent,” Dorian Lucas, an analyst at Inenco Group Ltd., said by e-mail Tuesday. “This comes only days after Moscow announced it was supplying areas of rebel-held eastern Ukraine.”

UK next-month gas rose as high as 50.1 pence/therm ($7.73/MMBtu) on ICE and was at 49.75 pence by 11:27 a.m. in London. The volume of contracts traded was 32% more than the daily average over the past three months.

The Dutch contract for next month climbed as much as 3.6% to 22.57 euros ($25.57) a megawatt-hour on the Title Transfer Facility hub, according to broker data compiled by Bloomberg.

Two Days

Ukraine’s prepayment for gas only covers two days of supplies if Gazprom delivers the requested 114 million cubic meters, “which creates serious risks for gas transit to Europe,” Alexey Miller, CEO of the Russian state-run gas company, said Tuesday in an e-mailed statement. Gazprom will have to stop shipments to Ukraine when advance payment runs out.

Russia cut gas flows to Ukraine for six months in June after a dispute over unpaid bills. A temporary deal brokered by the EU allowed supplies to be restored for the winter. There’s been little progress on a new deal for summer deliveries before the current accord expires March 31.

The European Commission “expects the full implementation of the winter package by both Russia and Ukraine,” commission spokeswoman Anna-Kaisa Itkonen said Tuesday in Brussels. “Gas flows to the EU are normal. We expect that gas transit to the EU will not be affected by the situation in the east of Ukraine.”

Pricing disputes disrupted Russian flows to Europe amid freezing weather in 2006 and 2009. Gazprom has since built a pipeline under the Baltic Sea to Germany to bypass Ukraine, reducing the risk of cuts for European consumers.

Falling liquefied natural gas (LNG) prices in Asia have also boosted the availability of the chilled fuel for Europe. Four LNG tankers are expected to arrive in the UK through March 3 and three are due in Belgium’s Zeebrugge by March 8, according to port authority and ship-tracking data on Bloomberg.

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