European Gas Prices Fall as Russia Finally Increases Supplies
European natural gas prices slumped to the lowest in more than a week as Russian supplies gradually increased before trimming losses as optimism of a significant boost in shipments waned.
Benchmark Dutch futures fell as gas flows to Europe via Ukraine and Poland edged higher Wednesday. But the capacity that Gazprom PJSC booked on the Ukrainian-Slovakian border only brings that route’s supply to levels already agreed under an existing long-term transit agreement. With colder weather forecast, there’s concern that what is eventually delivered won’t fully ease Europe’s energy crunch.
Any extra supply is welcome after Europe started its heating season with the lowest inventories in more than a decade. Russian President Vladimir Putin said late last month that Gazprom would refill its European storage facilities after finishing Russia’s domestic stockpiling campaign on Monday.
The resumption of Russian gas flows “have calmed traders’ nerves and prices after a week of volatility,“ said Emily McClain, senior gas markets analyst at Rystad Energy. “Price risks are skewed to the upside if volumes from Russia turn out to be inconsistent. However, this risk may be limited if additional volumes indeed materialize.”
Traders are watching every move by Europe’s top supplier, focusing on how much gas is delivered beyond contracted volumes. Auctions of pipeline capacity for December run next Monday, which will cast a light on whether extra shipments could materialize. Additional bookings may be likely if Gazprom sees progress in the certification of the contentious Nord Stream 2 pipeline, analysts have said.
Russian deliveries remain much lower than normal for the time of the year and the increases this week come after a recent slump.
“Gazprom is not helping. We do not see significant additional volumes,” according to Sergiy Makogon, head of the Gas Transmission System Operator of Ukraine. “Transit via Ukraine is significantly below last year.”
The Russian gas giant first decreased daily transit from 124 million cubic meters to just 54 million cubic meters. It has now returned to 109 million cubic meters, “and promote it as significant increase of supplies to EU,” Makogon said.
Russian flows via Poland and Ukraine on Wednesday were at the maximum level possible within a booking Gazprom made on those routes for November. Yet early nominations for capacity on Thursday signaled supplies through Ukraine may decrease again to about 84 million cubic meters, grid data show.
Benchmark European next-month gas futures fell 3.4% to settle at 70.12 euros a megawatt-hour in Amsterdam. The U.K. equivalent dropped 3.9% to 179.98 pence a therm.
The weaker gas prices weighed on power. Benchmark year-ahead German electricity futures dropped 2.8% to 111 euros a megawatt-hour. But colder weather is seen in Europe at the end of the month and that’s limiting the bearishness, Energi Danmark said in a note on the website.
Gazprom booked 19 million cubic meters of gas pipeline capacity for Wednesday through Ukraine to Europe, according to Makogon. The results of the day-ahead auction on Tuesday mean total supplies are now about 109 mcm/d, in line with a transit agreement that runs to 2024. The same amount was booked on the Velke Kapusany point on the Ukrainian-Slovakian border for Thursday.
Russian flows into Germany’s Mallnow, a key access point to the European market via a pipeline that runs through Poland, also increased for a second day, but still remain just above a third of normal levels.
Meanwhile, Russia is boosting gas production, with a full-year output forecast at 777 billion cubic meters, up 12% from 2020, Energy Minister Nikolay Shulginov said Wednesday.
©2021 Bloomberg L.P.