European Gas Reverses Biggest Drop Since 2009 on Ukraine

August 20, 2014

European natural gas prices are reversing their biggest slump in five years as concern mounts that tension between Russia and Ukraine will again disrupt flows to the region.

Gas for next-month delivery in the U.K. rallied 18 percent over the past six weeks as Ukraine said it may ban OAO Gazprom, Europe’s biggest supplier, from shipping the fuel across its territory because of Russia’s support of separatists. The Moscow-based company, which meets 15 percent of European gas demand through Soviet-era pipelines across Ukraine, halted supplies to its neighbor on June 16 in a debt and price dispute.

Gas storage in Ukraine is less than half full and the nation began this month to limit domestic use to conserve fuel. U.K. prices, the regional benchmark, fell to their lowest since 2010 last month after a mild winter left storage sites across the 28-nation European Union at their fullest for this time of year since 2008. Wholesale costs next quarter will be 11 percent higher than what companies are paying for that period now, according to a forecast by Societe Generale SA in Paris.

Copyright, Bloomberg, 2014.