Bloomberg News

Europe’s Russia Gas Flows Jump to Month High as Buyers Hoard (3)

March 06, 2014

European utilities boosted imports of natural gas from Russia to the most in almost a month, even as storage remains at record-high levels amid the mildest winter since 2007.

Russia shipped 505 million cubic meters of gas to Europe, excluding the Baltic States, on March 4, the highest level since Feb. 7, Energy Ministry data show. Storage sites in the region are 48 percent full, 13 percentage points above the same time last year and the highest since at least 2008, according to Gas Infrastructure Europe, the Brussels-based lobby group.

U.K. gas prices jumped the most in 29 months on March 3 as Russia took control of the Crimean peninsula in Ukraine, which transits about 15 percent of Europe’s use, before paring gains the next day after President Vladimir Putin said there was no immediate need for military action. Crimean lawmakers today called a referendum to split away from Ukraine and join Russia, which Ukrainian Prime Minister Arseniy Yatsenyuk said has no legal grounds. Bulgaria and Serbia, which suffered shortages in the past decade amid disputes between Russia and Ukraine, are pumping gas into storage.

“Everyone is concerned about possible disruptions to transit from Russia, and especially to supply from Russia to Ukraine, as Ukraine then may divert the fuel for domestic demand,” Julian Lee, a senior analyst at the Centre for Global Energy Studies in London, said today by phone. “European buyers are building up stocks to cope with that eventuality.”

Import Reliance

Higher volumes may be flowing to countries such as Bulgaria, Romania and Serbia, which are dependent on Russian imports via Ukraine, Thierry Bros, a senior analyst at Societe Generale SA, said yesterday by e-mail from Paris.

Bulgaria, whose industry was “in collapse” when Russian gas flows via Ukraine were cut in January 2009, is hoarding the fuel, Prime Minister Plamen Oresharski said yesterday.

“We are exploring all options to avoid surprises,” Oresharski told lawmakers in Sofia. “Our analyses show there is a low probability for gas supplies to be cut. Combined with our own gas production and rational use of the fuel, we will have supplies for about two months.”

Serbia is stepping up imports to shield reserves because of events in Ukraine, its Energy Ministry said March 4. There’s no reason for concern as the European Union has “gas reserves everywhere,” Energy Commissioner Guenther Oettinger said the same day. An OAO Gazprom spokeswoman, who asked not to be identified citing policy, declined to comment on reasons for the increased supplies when reached yesterday by phone.

Discount Scrapped

“It is also in interests of Gazprom to ensure that the stocks are full,” Lee said.

Gazprom, the Moscow-based gas exporter, said it decided to cancel a price discount to Ukraine from the second quarter, while seeking about $2 billion form NAK Naftogaz Ukrainy, the country’s national energy company, in debts for past supplies. Ukraine, which depends on Russian gas for about half of its demand, is seeking ways to diversify supply and plans to buy more fuel from the European Union.

Gas price disputes between Russia and Ukraine caused supply disruptions to Europe in 2006 and 2009. As disputes escalated, Gazprom cut flows to Ukraine and accused its western neighbor of siphoning off Europe-bound gas for its own use, a charge the country denied.

Exports from Russia to Ukraine totaled 34 million cubic meters on March 4, compared with a 10-day average of 32 million cubic meters, according to the energy ministry’s CDU-TEK unit.

Temperature Norms

Europe is entering a fourth milder-than-usual month, according to six meteorologists polled by Bloomberg. Temperatures have been above seasonal norms since the start of the month, according to data from WSI Corp. on Bloomberg. This winter is the third-warmest since 1981 and the hottest since that of 2006-07, according to MDA Information Systems LLC.

“High inventory levels only provide a limited buffer and stocks will have to build for next winter too,” analysts at Bank of America Corp. said March 4 in a report.

U.K. gas for next winter may climb above 80 pence a therm ($13.38 per million British thermal units), if Russian supplies through Ukraine are shut for a prolonged period of time, the bank said. The contract gained 0.9 percent to 67 pence on the ICE Futures Europe exchange at 4:58 p.m. in London.

Gas for next-month delivery jumped 9.9 percent to 61.7 pence on March 3. The contract rose today for the first time in three sessions to trade at 58.5 pence. It dropped 15 percent this year.

‘Catastrophic Scenarios’

“For the time being, there’s no real major issue,” Paolo Scaroni, Eni SpA (ENI)’s chief executive officer said March 4 in an interview with CNN. “But it is always a possibility and we always have to prepare for catastrophic scenarios, of course.”

European utilities are diversifying gas supplies as domestic production declines. Utilities including Centrica Plc are contracting liquefied natural gas from the U.S., which overtook Russia as the biggest producer of the fuel thanks to advances extracting shale gas. U.K. net imports last year exceeded half of gas available at terminals for the first time, according to preliminary data from the Department of Energy and Climate Change.

Russia’s intervention in Ukraine will boost LNG demand from European countries eager to diversify supplies, according to Sveinung Stoehle, the chief executive officer of Hoegh LNG Holdings Ltd., which will deliver the first LNG import terminal in the former Soviet Union to Lithuania in August.

Energy Independence

“It will create an extra push in demand,” he said yesterday. “It will put even more focus on energy independence, especially on gas. The only way you can be independent on gas is to import LNG.”

The U.S. will begin LNG exports next year from Cheniere Energy Inc. (LNG:US)’s Sabine Pass facility in Louisiana, the first of six Energy Department approvals since 2010. There are at least 24 more projects pending clearance. The U.S. should “dramatically” expedite the approval of its gas exports to global markets, House Speaker John Boehner, an Ohio Republican, said March 4.

“There could be competition in Europe between Russian pipeline gas and LNG coming from the U.S. and potentially East Africa,” Birger Balteskard, manager for global LNG marketing at ConocoPhillips, said last month at the International Petroleum Week conference in London.

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

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net


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