Bloomberg News

Europe Gas Storage Seen Enough for 45-Day Ukraine Supply Cut (2)

March 04, 2014

Storage Tank at Power Station

An employee climbs a staircase on the outside of a storage tank at the EON AG gas fired power station on the Isle of Grain, U.K. Photographer: Chris Ratcliffe/Bloomberg

Europe’s mildest winter since 2007 has left the region with enough natural gas in storage to cover any future disruption in flows from Ukraine for about 45 days.

European inventories were 49 percent full as of March 2, from 37 percent a year ago, according to Gas Infrastructure Europe, a lobby group of pipeline operators in Brussels. That’s equal to about 1 1/2 months of imports from pipelines running through Ukraine, said Oswald Clint, a senior analyst at Sanford C. Bernstein & Co. in London.

“It isn’t very cold, there is gas in storage, I wouldn’t panic,” said Karen Sund, founder of Sund Energy AS, which has advised the International Energy Agency and Centrica Plc on gas markets. “Power generators don’t want it anyway.”

Ukraine, a transit point for gas accounting for about 16 percent of European demand, mobilized its army and called for foreign observers after Russian forces took control of the Crimea peninsula over the weekend. Russian President Vladimir Putin said today there is no immediate need to send troops to Ukraine and he isn’t considering adding Crimea to Russia, easing concerns that the crisis may escalate.

The European Union has adequate gas reserves and there is no reason for concern at the moment, the bloc’s Energy Commissioner Guenther Oettinger said today. The EU hasn’t received any signals from Russia as part of the early-warning mechanism, he said.

Gas Prices

U.K. gas, a regional benchmark, fell as much as 6.2 percent today after surging 9.9 percent yesterday, the most since September 2011, on concern that the mounting tensions between Ukraine and Russia may disrupt supplies.

Europe faces above-normal temperatures for a fourth month in March with Atlantic airflow displacing colder air, according to six weather forecasters surveyed by Bloomberg. This winter is the third-warmest since 1981 and the hottest since that of 2006-2007, according to MDA Information Systems LLC.

The U.K. next-month contract fell to as low as 57.88 pence a therm ($9.66 per million British thermal units), and traded at 58.17 pence on ICE Futures Europe at 4:52 p.m. in London.

Russian gas flows to Europe via Ukraine have been disrupted twice in freezing temperatures in the past decade because of disputes over prices and terms of supply. OAO Gazprom, the Moscow-based gas-pipeline export monopoly, has since built Nord Stream, a pipeline along the Baltic Sea directly to Germany that can ship as much as 55 billion cubic meters a year.

The pipeline is about 30 percent utilized, offering “a new opportunity for Russia and Western Europe to circumvent Ukraine if necessary,” UBS AG analysts wrote yesterday in a report.

Supplies Normal

Russian gas supplies are passing through the network as normal, Ukrainian national pipeline manager Ukrtransgaz and Gazprom said today. Flows at Velke Kapusany at the Slovakia-Ukraine border, the biggest gas compressor station in the European Union, were at 1,115 gigawatt-hours on March 2, compared with 1,109 gigawatt-hours a year earlier, according to data from Genscape Inc., based in Louisville, Kentucky.

Last year, 11 percent of European power was generated by gas-fired plants, the lowest level since at least 2009, according to Genscape, which tracks power output in 13 European countries. The market share has been 9 percent so far this year, the company estimates.

Austria, Poland

Austria, which gets about 55 percent of its gas via Ukraine, has “sufficient inventory” until the heating season ends on March 31, Bettina Ometzberger, a spokeswoman for E-Control, the national energy regulator, said yesterday.

Gaz-System, Poland’s gas pipeline operator, can redirect imports of Russian gas via Belarus if needed, Malgorzata Polkowska, a company spokeswoman based in Warsaw, said yesterday.

“We haven’t seen any real physical moves on behalf of Gazprom to materially cut the supply of gas to Ukraine,” said Trevor Sikorski, the head of natural gas, coal and carbon at Energy Aspects Ltd. in London. “Supply disruptions at this time of year won’t be that painful.”

U.K. gas inventories were 55 percent full on March 2, the highest for the time of year since at least 2008, according to data from Gas Infrastructure Europe. Inventories in Germany were 60 percent full, also the most since at least 2008, while Italian stores were at 51 percent, the highest since 2011.

European inventories are 8.2 billion cubic meters (0.3 trillion cubic feet) above normal, equivalent to about 1 1/2 months of the region’s gas imports via Ukraine, according to Clint at Sanford C. Bernstein.

Other Suppliers

Europe, which depended on Russia for 30 percent of its total gas needs last year, also gets the fuel from domestic suppliers such as Norway, the Netherlands and the U.K. North Africa nations and shippers of liquefied natural gas such as Qatar are also suppliers.

Norway, Europe’s second-biggest gas supplier, has capacity to raise exports by 10 percent, Kjell Larsen, spokesman for Gassco AS, the country’s network operator, said today by phone.

LNG imports to Europe slumped to 46 billion cubic meters last year from 65 billion in 2012, with lower supplies into the U.K., Spain and Italy because of diversions to costlier markets in Asia, Jesco von Kistowski, managing director of EconGas GmbH, said at a conference in Vienna in January.

The liquid fuel, shipped by tankers, may find its way back to Europe if concerns over the supply via Ukraine escalate, according to Sund.

“If people are starting to panic, there is some LNG around the world which could be diverted,” she said. “On the fundamental practical level I would not panic at least for a good while.”

To contact the reporter on this story: Anna Shiryaevskaya in London at ashiryaevska@bloomberg.net

To contact the editors responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net Rob Verdonck, Dan Weeks


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