European Gas Extends Slump With Focus on Russia-Ukraine Talks

(Bloomberg) -- European natural gas prices extended last week�s drop as Russian and Ukrainian negotiators are set to continue talks.

Russia�s invasion of the neighboring country roiled commodity markets from gas to grains, with sanctions aimed at isolating Moscow putting traders on edge. A fourth day of negotiations between Ukraine and Russia paused on Monday, but that was made so each side could take stock.�

�Any progress in peace talks will likely see more risk premium fall out of gas pricing,� consultant Inspired Energy Plc said in a report.

Benchmark gas futures fell as much as 16%, while power prices in northwest Europe also plunged. Gas flows from Russia were at normal levels both via Ukraine and on other routes, just as demand may also ease because of milder weather arriving. �

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The European Union plans to curb gas imports from Russia by two-thirds this year, and member states are tapping all resources they have to help meet that target. The Dutch government will determine before April 1 how much gas will come from the giant Groningen field, which may still be shut down within the next two years because of earthquakes.�

Yet, Russian volumes, which meet about 40% of EU�s gas demand, are badly needed to replenish the region�s depleted underground storage sites before next winter. So Europe�s traders are focusing on every step in the peace negotiations as there�s still a real risk of a supply crunch.

German Finance Minister Christian Lindner said shutting down energy supplies from Russia might not work as a last-resort tool to stop the invasion. �All options are on the table, but we have to seriously consider which means put pressure on Putin and which means could harm ourselves more,� he said.

Eased Pressure�

For now, weather forecasts are helping keep price levels in check, pointing to milder than average temperatures in northwest Europe in the coming week. More vessels with liquefied natural gas arriving at European ports will also boost supplies.�

�The milder weather comes as welcome news,� said Michael Yip, an LNG analyst at BloombergNEF, in a report on Monday. That has �eased pressure on European gas storage levels,� which have inched back into the five-year average range, he said. European reservoirs were 26% full as of March 12.�

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Dutch month-ahead gas futures, the European benchmark, closed 13% lower at 114.52 euros per megawatt-hour. They slumped 32% last week.�

�But the outlook is murky,� Kaushal Ramesh, a senior analyst at Rystad Energy, said in a note. �The stability of Russian exports to Europe is far from guaranteed.�

Next-month power in Germany, the region�s biggest market, dropped for a fifth day, sliding as much as 16% to 237 euros per megawatt-hour.�

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