European Gas Eases Amid Mild Weather Outlook, Higher LNG Flows

(Bloomberg) -- Natural gas prices in Europe slid for a fourth day as uncertainty over future shipments from Russia countered a milder weather outlook and additional liquefied natural gas imports. 

Benchmark futures slipped 1.6% with a flotilla of LNG cargoes arriving in the region. Wind output is also high across Europe, curbing demand for the fuel. In addition, warmer than normal temperatures are seen expanding across the continent throughout next week.

Still, supplies from Russia, which are stable for the time being, remain in focus. The European Union will extend its debate on fresh sanctions against Russia into Thursday. The measures are set to target Russian coal, sparing oil and gas for now, according to people familiar with the matter. However, the block will likely need to target those sectors “sooner or later,” European Council President Charles Michel said Wednesday. 

Meanwhile, the U.K. also announced new penalties on Moscow, saying the country will end its dependency on Russian coal and oil by the end of this year, while imports of gas should stop “as soon as possible thereafter.”

Moscow's demand to EU buyers to pay for its gas in Russia's currency also adds to supply worries. Following last week's rejection from Orsted AS, Moscow said it's ready to cut off flows to Denmark if the next bill is not payed in rubles. The failure to comply will be “grounds for the end of Russian gas supplies,” newspaper Borsen reported, citing Russia's ambassador to the country.

Imposing an embargo on Russian oil would be difficult for the EU, while doing the same for gas would be near-impossible, Goldman Sachs Group Inc. head of commodities research Jeff Currie said in a Bloomberg TV interview. “Gas will be the very last energy that they would potentially boycott.”

Hungary, which is reliant on Russian gas and has been opposing sanctions on the supplies, said Wednesday it wouldn't have a problem paying in rubles. “If the Russians ask for it, we'll pay in rubles,” said newly re-elected Prime Minister Viktor Orban. 

Yet, most of Russia's major buyers are still assessing the implementation of the new mechanism. Payments for Russian gas shipped in April are due late this month or in May, depending on the contract. 

Dutch front-month gas, the European benchmark, fell to 106.791 euros a megawatt-hour. The U.K. equivalent contract declined 1.2%. 

“The end of winter will reduce gas demand for heating in Europe and North Asia,” BloombergNEF said in a report on Wednesday. “Yet, prices are likely to remain strong as Europe continues to attract LNG supply with enticing netbacks driven by Russian pipeline supply risks.”

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With assistance from Bloomberg