Europe Gas Falls as Mild Weather Tempers Russian Supply Concerns

(Bloomberg) --

European natural gas prices fell, paring earlier gains, as forecasts for milder weather helped ease fears of disruptions to Russian supplies.

Gas futures declined after French President Emmanuel Macron said he received assurances from his Russian counterpart Vladimir Putin that Moscow wouldn’t further escalate tensions over Ukraine. 

However, an official in Macron’s office later said the French president’s remark that Russia wouldn’t escalate military activity further was not a firm commitment, but rather conditional on his view of the evolving situation. A Kremlin spokesperson also cast doubt over the comments.

While Russian gas flows piped across Ukraine to Slovakia have fallen, unseasonably mild temperatures across Europe forecast for next week are expected to limit demand. 

Dutch front-month gas futures fell as much as 1.2% to 78.68 euros a megawatt-hour, after earlier surging 4.3% following comments made by U.S. President Joe Biden on the Nord Stream 2 pipeline. Benchmark prices in the U.K. declined as much as 1.5%.

Europe is grappling with an energy crisis, largely due to limited supplies compounded with increasing demand, which has left the region’s gas inventories at historically low levels and kept prices volatile.

The situation has been exacerbated by reduced flows from Russia while geopolitical tensions surrounding Ukraine intensify.

Traders are on edge with the prospect that Europe will not be able to count on the controversial Nord Stream 2 link to alleviate the continent’s energy crunch. The pipeline, which would bring more gas directly from Russia to Germany, may be stopped if Putin orders an invasion of Ukraine, Biden said Monday.

While Russia has amassed more than 100,000 troops along the Ukrainian border, Putin has repeatedly said there are no plans for an invasion. Nord Stream 2 is currently under regulatory review. 

Why World Frets Over Russian Nord Stream 2 Pipeline: QuickTake

Russia, Europe’s biggest gas supplier, curbed flows to the continent via a route crossing Ukraine on Tuesday, according to data from grid operator Eustream. There are still no volumes traveling through the important Yamal-Europe pipeline to Germany. 

Meanwhile, LNG shipments at U.K. terminals have jumped 15% so far this month. 

While warmer weather is expected to curb demand from next week, Britain’s current cold snap along with low wind generation is boosting day-ahead prices, Inspired Energy wrote in a note. U.K. day-ahead prices are up 1.1% to 184 pence a therm.

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