European Gas Prices Slump as Russia Finally Increases Supplies

By Bloomberg

Nov 10, 2021

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European natural gas prices slumped to the lowest in more than a week as Russia gradually delivers the boost in supplies that President Vladimir Putin promised.

(Bloomberg) --

European natural gas prices slumped to the lowest in more than a week as Russia gradually delivers the boost in supplies that President Vladimir Putin promised.

Benchmark Dutch futures fell more than 10% after flows to Europe via Ukraine and Poland edged higher Wednesday. Gazprom PJSC booked some pipeline capacity on the Ukrainian-Slovakian border for the day, bringing supplies through the route in line with Russia’s long-term transit agreement with its neighbor.

Putin said late last month that Gazprom would refill its European storage facilities after finishing Russia’s domestic stockpiling campaign, which ended Monday. Any extra supply is welcome, as Europe started its heating season with the lowest inventories in more than a decade.

Traders are watching every move by Europe’s top supplier, focusing on how much gas is delivered beyond contracted volumes. Auctions for December pipeline capacity run next Monday, which will cast light on whether extra shipments could materialize. Additional bookings may be unlikely unless Gazprom sees progress in the certification of the contentious Nord Stream 2 pipeline, some analysts said.

Benchmark European gas futures fell 6.6% to 67.80 euros a megawatt-hour by 10:25 a.m. in Amsterdam. The U.K. equivalent slid 7% to 174.01 pence a therm.

The weaker gas prices weighed on power. Benchmark year-ahead German electricity futures dropped 5.4% to 108 euros a megawatt-hour, the lowest since Nov. 2. German month-ahead prices fell as much as 10% amid forecasts for relatively mild weather for much of Europe in the coming week.

Gazprom booked 19 million cubic meters of gas pipeline capacity for Wednesday through Ukraine to Europe, according to Sergiy Makogon, head of the Gas Transmission System Operator of Ukraine. The results of the day-ahead auction on Tuesday mean total supplies are now about 109 mcm/d, in line with a transit agreement that runs to 2024.

Russian flows into Germany’s Mallnow, a key access point to the European market via a pipeline that runs through Poland, also increased for a second day.

Putin is due to hold a government meeting on protecting the Russian economy from negative effects of the energy crisis on Wednesday. The market tunes in for any possible comments the Russian leader may give on the current situation in the gas markets as prices tumbled when he intervened twice last month.

Meanwhile, Russia is boosting gas production, with a full-year output forecast at 777 billion cubic meters, up 12% from 2020, Energy Minister Nikolay Shulginov said Wednesday.

For now, Russian gas deliveries remain much lower than normal for the time of the year and the gains this week come after a recent slump. The bearishness is also limited by colder weather forecasts for large parts of Europe, Energi Danmark said in a note on the website.