European Gas Swings With One Week Left on Key Transit Deal

(Bloomberg) — European natural gas prices fluctuated above €45 a megawatt-hour amid persistent supply concerns, with just a week left until a key transit deal between Russia and Ukraine expires. 

Benchmark futures advanced as much as 2.4% Tuesday before steadying. Prices are up more than 10% in four sessions, highlighting a jittery market as year-end approaches.

The looming end of the transit deal coincides with forecasts for colder weather across much of Europe, which may increase demand for gas just as stockpiles deplete faster than normal. The tight market makes it challenging for traders to secure enough gas for next year as they vie with Asia for seaborne supplies.

“The current prices are already reflecting the end to transit, and the market will surely see a brief spike once January comes and the transit actually stops,” said Florence Schmit, a European energy strategist at Rabobank.

Ukrainian President Volodymyr Zelenskiy last week indicated his country won’t transit Russian-origin gas unless he has assurances the Kremlin won’t benefit financially while the war continues. A halt to flows would particularly hurt nations such as Slovakia, which has been pushing for an alternative arrangement and warning of possible financial damage should supplies stop. 

Europe as a whole has made efforts to wean itself off piped Russian gas since the invasion, but a handful of countries still rely on deliveries from Moscow. A halt may increase demand for liquefied natural gas, intensifying competition with Asia for shipments just as a number of LNG expansion projects face delays.

Dutch front-month futures, Europe’s gas benchmark, were up 0.450% at €45.75 a megawatt-hour as of 1:54 p.m. in Amsterdam. 

–With assistance from Anna Shiryaevskaya.

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