U.K. gas declines most in six weeks after Russia-Ukraine accord
By Bloomberg
U.K. natural gas prices fell the most in six weeks after Russia agreed to restore flows to Ukraine after a four-month halt, reducing the risk of supply disruptions to Europe during the peak demand winter season.
The December contract slid as much as 2.7 percent on the ICE Futures Europe exchange, the biggest decline for a next- month contract since Sept. 19. Societe Generale SA cut its price forecast for this quarter by 13 percent after Russia agreed yesterday to terms for restoring gas exports to Ukraine in talks brokered by the European Union.
The 28 EU nations sought to avoid a repeat of 2006 and 2009, when disputes between the former Soviet republics over gas debts disrupted supplies to Europe amid freezing weather. Russia meets about 30 percent of Europe's gas needs, half of which travel through pipelines crossing Ukraine. OAO Gazprom cut supplies to NAK Naftogaz Ukrainy June 16 and flows will resume after Ukraine makes the first tranche of debt repayment and upfront payments for future deliveries.
"With the heating season ready to start, failure to get any Russian gas supply for Ukraine would have left downstream Europe with considerable supply disruption risks," said Trevor Sikorski, head of gas, coal and carbon at consultants Energy Aspects Ltd. in London. The deal "reduces the risk of a supply disruption without removing it."
U.K. gas for December delivery, a European benchmark, fell as low as 54.08 pence a therm ($8.64 a million British thermal units) on ICE. Futures were trading at 54.65 pence a therm by 9:43 a.m. London time. The volume of all futures traded was 66 percent below the 100-day average for the time of day.
Fuel for delivery in the first quarter fell as much as 2.1 percent to 55.65 pence a therm, the lowest for that contract since trading started Dec. 30, 2011.
Debt Payment
Ukraine agreed to pay $3.1 billion to Russia by the end of the year. That partially covers Naftogaz's debt of $5.3 billion, according to Russian exporter Gazprom. The first $1.45 billion will be paid "in the coming days," Russian Energy Minister Alexander Novak said. Ukraine has funds to pay for 4 billion cubic meters of gas purchases in November and December, according to Energy Minister Yuri Prodan.
"The 4 billion-cubic-meter agreement still leaves a 6 billion-cubic-meter winter supply gap for Ukraine to need to close after it uses up its storage," Sikorski said.
Ukraine will pay $378 per thousand cubic meters of gas this quarter, Russian Energy Minister Alexander Novak said in Brussels yesterday. That will fall to $365 in the first three months of 2015, his Ukrainian counterpart Yuri Prodan said.
Societe Generale cut its price forecast for U.K. gas for the fourth and first quarters. Prices will average 56 pence a therm in the last three months of the year and 62 pence a therm in January to March, 12 percent lower than the previous estimate, the bank said in a report e-mailed today.
"This deal that provides needed Russian gas to Ukraine, reduces the risk of transit interruption," said Thierry Bros, a Paris-based analyst at Societe Generale. "We still fear some possible disruption in the first quarter of 2015."