EUROPEAN GAS PRICES UP AGAIN

BLOOMBERG- June 17, 2022 - European natural gas prices headed for the biggest weekly gain since Russia began its war on Ukraine as Moscow’s supply cuts deepen the region’s energy crisis.

Benchmark futures rose 8.4%, taking this week’s gain to more than 60%. Eni SpA will receive just half of its requested gas volumes from Russia’s Gazprom PJSC on Friday, compared with about two-thirds the previous day. The cuts have hit others including Engie SA and Uniper SE, and could come as a blow to industries at a time when the region is already struggling with surging inflation.

Flows through the Nord Stream pipeline -- the biggest link from Russia to the European Union -- have been cut by about 60%. It’s raised tensions as Italian Prime Minister Mario Draghi said Moscow’s statements that the reductions are due to technical reasons were lies, while Germany has called the move “politically motivated” and aimed at unsettling markets.

In contrast, Austria’s energy regulator backed Moscow’s explanation of the cuts, saying they were understandable and transparent. The Kremlin said on Thursday that the move was “not deliberate.”

Europe has been fearing the reductions since the war started and Russia was put under stringent sanctions. The region has boosted liquefied natural gas imports to meet any shortfall and also fill storage sites in time for next winter when demand for heating increases. But that’s also been made harder as an US LNG plant remains shut for longer than initially anticipated, following a fire last week.

“Storage was filling up at a good pace,” said Warren Patterson, head of commodities strategy at ING Bank. “However, this has changed abruptly this week,” he said, adding that the Nord Stream reduction “is significant” for Europe.

Missing Volumes

All eyes are now on whether European buyers will be able to replace the missing volumes from other sources. Storage sites across Europe are 52% full, after getting a boost of injections in recent weeks. But levels have started declining again, with buyers rushing to fill the gap created by Russia.

“The biggest challenge facing the market is assessing the impact of the resulting slowdown on storage injections,” said Arun Toora, analyst at BloombergNEF, in a note on Friday.

BNEF reduced its base-case estimate for gas going into storage by 10 billion cubic meters from an earlier forecast in May on the likelihood of further Russian gas curtailments. If supply from Moscow stops, European stockpiles could go below the threshold required to survive the winter, according to Toora.

Dutch front-month gas futures, the European benchmark, were 7.6% higher at 133.80 euros per megawatt-hour as of 10:17 a.m. in Amsterdam, reversing an earlier decline. The UK equivalent gained 9.2%.

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