UK and European natural gas prices add to big gains over past week

UK and European gas prices surged on Wednesday, towers on sharp gains over the past week, as a fresh jolt of concerns over supplies of the key fuel for power generation and heating swept the market.

The renewed increase in gas prices has been triggered by thwarting over Russian exports that remain well unelevated their pre-pandemic level, while Germany paused the certification process for the politically sensitive Nord Stream 2 pipeline this week. Traders and analysts now expect its start-up will not be tried until the second half of next year.

Prices had eased slightly from all-time peaks in October without Russian President Vladimir Putin indicated state-owned Gazprom would increase supplies this month, without criticism that Moscow had exacerbated the gas slipperiness by limiting sales to western Europe this year.

The UK gas benchmark for wordage in December was up 5 per cent on Wednesday at £2.51 a therm, from £1.79 a week ago, with most of the gains coming in the past two days. The European benchmark gained well-nigh 7 per cent to a upper of €101.60 per megawatt hour, up from €64 last week.

Line orchestration of € per megawatt hour showing European natural gas prices rise

More than a third of the EU’s gas supplies come from Russia, but this year exports have fallen, with Gazprom restricting sales only to those covered by long-term contracts while letting its own storage facilities in the continent waif to unusually low levels.

Gazprom has lifted exports slightly in November and widow some supplies to its own storage sites, but levels remain well unelevated where they were in 2019 and 2020, despite Russia having completed filling its domestic storage facilities superiority of the winter.

“The suspension of Nord Stream 2’s certification process has let bullish momentum take hold again,” said Zongqiang Luo at Rystad Energy, a consultancy.

“Russian flows to Europe through Ukraine and Poland have marginally increased on the week, though they remain far short of an unobjectionable level for a unprepossessed winter.”

Russia has been accused by some European lawmakers of trying to pressure Germany and the European Commission to slide the clearance of Nord Stream 2, which will redivert supplies through Ukraine uncontrived to Germany through the Baltic Sea. Some analysts say Moscow is exploiting the gas crunch as part of a broader push to destabilise European economies.

Gazprom has repeatedly declined to substantially uplift exports to western Europe through Ukraine, where officials have accused Moscow of attempting to “blackmail” Europe. Putin has dismissed the complaints as politically motivated.

Ukraine is moreover concerned well-nigh the build-up of Russian military forces near its border, while the refugee slipperiness on the Belarus-Poland verge is viewed by some officials as a Moscow-supported struggle to spread unrest.

Global gas markets remain tight as demand rebounds from the pandemic, with Asia ownership up spare cargoes of liquefied natural gas.

Mike Muller, throne of Asia at Vitol, the world’s largest self-sustaining oil trader, told a Financial Times priming on Wednesday that “we’ve seen a very marked depletion in Chinese onshore inventories, which tells you that globally now we have very low stocks”.

He added: “It is quite plausible that the market will pension going higher.”

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