Azernews.Az

By Bloomberg

European natural gas inventories are falling at the fastest pace on record, with traders counting on a summer price slump to replenish them. That’s raising the risk of a supply shock should conflict in Ukraine disrupt the Russian supplies the region relies on.

European Union stockpiles were 35.6 percent full Sunday, the lowest level for this time of year since 2009, according to Gas Infrastructure Europe, a lobby group in Brussels. That’s a 39.1 percentage-point drop since the start of the year, the most in data going back to 2007. Cold spells accelerated the contraction, according to Inenco Group Ltd., a Lytham, England- based energy broker and consultant.

Ukraine said last week that Russia is failing to supply the full amount of gas ordered. Russia meets about a third of Europe’s gas needs, 40 percent of which travels through Ukraine’s pipelines, and similar disputes disrupted flows to Europe in 2006 and 2009. Europe’s stockpiles also are contracting just as the Netherlands caps output at the region’s biggest gas field because of safety concerns.

“Frequent cold snaps across the U.K. and Europe this winter and expectations of filling up storages with cheaper gas in the summer have facilitated storage withdrawals,” Dorian Lucas, an analyst at Inenco, said by e-mail Friday. “This poses significant concerns for supply going forward. Should European gas transit from Russia be disrupted this summer, this may impact the ability to adequately replenish inventories.”

The 28 European Union countries had 32.7 billion cubic meters (1.2 trillion cubic feet) of gas in storage as of Sunday, according to data from GIE in Brussels. Europe had record inventories in October after the mildest year ever reduced demand in 2014. Ukraine had 8.2 billion cubic meters in its sites. Inventories are usually filled during the summer months, when gas is cheaper, for consumption in winter.

Oil Link

European gas contracts had their first monthly gain since November last month as concerns about supply from Ukraine added to the Dutch production limits. Month-ahead gas in the U.K., the region’s biggest traded market, rose 8.9 percent in February, according to broker data compiled by Bloomberg.

EU stockpiles are falling faster than normal as traders wait for the decline in oil prices to filter into their gas- purchase contracts with countries including Russia to order more of the fuel. About 50 percent of Europe’s long-term gas contracts are linked to the price of crude with a six- to nine- month lag.

OAO Gazprom shipped 11.1 billion cubic meters to Europe and Turkey last month, 30 percent less than a year earlier, according to data from the state-run exporter and the Energy Ministry’s CDU TEK unit. Flows also dropped 29 percent in December and 25 percent in November.

Dutch Limit

“Volume take in many contracts is currently being minimized in the first quarter in anticipation of higher contract-volume take at lower oil-indexed prices across the remainder of the year,” Timera Energy, which advises companies from Statoil ASA to EON Energy Trading, said on its website on Feb. 23. “The sharp oil price declines of the fourth quarter of 2014 and the fist quarter of 2015 are yet to fully flow through.”

European stockpiles are falling at a time the Netherlands decided to limit production at the field in Groningen operated by Royal Dutch Shell Plc and Exxon Mobil Corp. due to tremors in the region. Output will be capped at 16.5 billion cubic meters in the first half of the year and the government will decide in July on cutting full-year production by 11 percent to 35 billion cubic meters.

Ukraine Payment

NAK Naftogaz Ukrainy said Friday it paid Gazprom $15 million for gas supplies it would order through March 5. That would cover 45.6 million cubic meters under the EU-brokered accord, or about one day of the volumes Ukraine got from Russia last week. While a temporary cut to gas flows to Ukraine is expected, Europe will probably escape disruptions, Eurasia Group analyst Emily Stromquist said in a report on Thursday.

“Any disruption to supplies from Russia would undoubtedly cause European gas prices to jump, but the impact may not be as dire as appears at first glance,” Thomas Pugh, a commodities economist at London-based Capital Economics, said in a report e- mailed Friday. “There are a number of other pipelines which can supply Europe, such as those from Norway or Algeria, and LNG shipments could be increased.”