European Gas Prices Tumble as Russia Boosts Flows Via Ukraine

(Bloomberg) --

European natural gas prices plunged after Russian shipments via a key route crossing Ukraine rebounded.

Benchmark futures slumped the most in two weeks, closing 10% lower, as fuel deliveries into Slovakia through the Velke Kapusany entry point returned to normal, grid data showed. Higher Russian supply is weighing on prices just as mild weather curbs demand and wind output surges in Germany and Britain, taking pressure off gas-fired plants. 

“A significant increase in Russian flows, warmer weather and good wind generation are all driving prices downwards,” Gazprom Energy, a U.K. unit of the Russian gas giant, said in a daily market note.

Benchmark Dutch front-month gas settled at 76.17 euros a megawatt-hour, the lowest since Jan. 20. The equivalent U.K. contract sank 11% to 180.79 pence a therm. 

“February should be warmer than average, especially in the northern side of Europe, and windier,” said Carlo Cafaro, a senior research analyst and meteorologist at Marex. “This is already happening, with windstorms affecting north of the U.K. and Germany, among the other countries.”

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Russian supplies through Ukraine are set to remain fairly stable on Wednesday, based on gas orders published by the Ukrainian network operator. Still, flows via Poland into Germany remain suspended for the past six weeks, and geopolitical tensions over Ukraine are still running high. 

While diplomatic efforts to ease the crisis continue, U.S. Secretary of State Antony Blinken and Russian Foreign Minister Sergei Lavrov showed little sign of a breakthrough in a call on Tuesday. 

No Blinken-Lavrov Breakthrough in Waiting Game: Ukraine Update

Meanwhile, the European Union has been consulting its other gas suppliers, from the U.S. and Qatar to Azerbaijan, on the potential for emergency shipments should flows be disrupted. Poland's PGNiG has bought a U.S. cargo of liquefied natural gas for Ukraine, which doesn't have direct access to any LNG import terminal.

“The potential conflict between Russia and Ukraine has led to heightened sensitivity of European gas supplies, with about 30% of the continent's gas coming from Russia,” RBC Capital Markets wrote in a note. “Diplomatic efforts to drive more gas into Europe from other sources are ongoing; however, short-term prices remain highly exposed to small shifts in the supply-demand balance.”

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