European gas retreats as traders weigh Russia’s next move

Natural gas prices in Europe fell after a rally sparked by disruptions to a key transit route through Ukraine and retaliatory measures by Moscow that curtailed supplies to Germany.

Enchmark futures fell as much as 5.3 percent.

Russian supplies through Ukraine fell this week but could remain broadly stable on Friday — near their lowest level since late April — based on data released late Thursday by Ukraine’s gas grid and a statement from Gazprom.

“If they stay at these levels, the market could assume that the situation is manageable” and avoid overbidding for supplies, EnergyScan, Engie SA’s market analysis division, said in a statement.

Developments over the past three days have wreaked havoc on the European energy market after a period of relative calm brought on by warm weather and a steady flow of liquefied natural gas (LNG).

Gas supplies to Europe via Ukraine were curtailed on Wednesday after a key cross-border entry point was shut down due to troop activity on the ground.

Moscow then imposed counter-sanctions in retaliation for Europe’s penalties over the war in Ukraine, which curtailed supplies to countries like Germany.

Moscow’s restrictions on a group of gas companies that Germany has removed from its control also threaten to disrupt the global LNG market, and a major supplier, Gazprom Marketing & Trading Ltd.

In addition, the sanctions targeted a pipeline crossing Poland, eliminating a potential backup route for European customers to receive Russian gas.

All of this comes just as payment deadlines for key European buyers are due this month under Russia’s new gas-for-ruble regime.

This has been the biggest concern for the market in recent weeks as Poland and Bulgaria have been cut off for failing to meet new payment requests. But a solution for others seemed to be on the horizon.

Companies, including German giant Uniper SE, were increasingly confident they could continue buying Russian supplies without violating sanctions.

Italy’s Eni SpA has yet to set up a ruble account, people familiar with the matter said, but the company is preparing legal work to set one up if necessary.

Dutch front month gas, the European benchmark, was 4.9 percent lower at €101.50 per megawatt hour at 10:51 a.m. in Amsterdam.

The UK equivalent fell 14 percent.

Both Poland and Germany have said they can partially deal with the recent disruptions by securing alternatives.

But this week’s events have revived fears of a supply crunch next winter.

While many European countries are poised to cut gas consumption this year, part of their plan to reduce reliance on Russian fuel could come at a cost given increased competition.

“The silver lining is that EU buyers are not caught completely off guard,” Rystad Energy senior analyst Kaushal Ramesh said in a note. “But the prospects for winter 2022 supply are now much more pessimistic.”

According to Goldman Sachs, Russian supply disruptions require near-term benchmark prices around €110 to offset lower flows and maintain the “healthy” outlook for gas supplies that Europe will need for the coming heating season. And “the risk of major disruptions remains,” it said in a statement. European gas retreats as traders weigh Russia’s next move

Fry Electronics Team

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