FILE PHOTO: A gas worker walks between pipes in a compressor and distribution station of the Urengoy-Pomary-Uzhgorod gas pipeline, some 30 km (19 miles) from the south western Russian city of Kursk January 4, 2006. REUTERS/Sergei Karpukhin/File Photo
LONDON: European natural gas prices posted a third consecutive weekly gain as the market grapples with declining stockpiles and tighter supplies after the loss of Russian flows via Ukraine.
Benchmark futures ended the week 4% higher, after paring an earlier advance.
Prices are near a 14-month high, around US$51 per megawatt-hour.
The halt on New Year’s Day to Russian gas deliveries across Ukraine came as storage facilities fall at the fastest rate since before the energy crisis of 2022.
The weather is also turning colder, which could spur further withdrawals.
The region’s vast underground facilities are now about 72% full compared with 86% at the same time last year.
While there’s little risk of an immediate shortfall in Europe, the tight supply picture this winter is set to make stockpiling more challenging ahead of the next heating season.
“Higher demand for gas to be put into storage will keep markets elevated in the coming months,” said Rabobank European energy strategist Florence Schmit.
The continent is now increasingly exposed to market volatility as it becomes even more reliant on global liquefied natural gas to replace the shortfall left by the end of Russian gas flows via Ukraine.
The price moves coincide with an outage at Norway’s Hammerfest liquefied natural gas (LNG) plant, which halted operations until Jan 9 due to a compressor failure.
Any disruptions at global LNG export plants may increase prices swings.
“The global gas balance remains tight with little flexibility to absorb any significant market tightening effects so it is possible to see prices rise substantially in the coming weeks,” said Energy Aspects European gas and global LNG head James Waddell.
Dutch front-month futures, Europe’s gas benchmark, settled 1.29% lower on Friday at US$51.09 a megawatt-hour at 6pm in Amsterdam.
In the longer term, prices should ease further as more supply comes to the market – including the potentially a resumption in flows via Ukraine, according to Citigroup Inc strategists including Anthony Yuen.
“We are mindful of the unpredictability of the negotiation outcome, particularly when politics, geopolitics and the relationship between Russia and Ukraine are involved, but economic incentives suggest an eventual resumption of supply,” the strategists wrote in a note. — Bloomberg
