Gazprom supply jitters roil gas market facing freeze

MOSCOW (Bloomberg) -- European gas traders are once again focusing on exports from its biggest supplier as freezing weather is set to return to the region.

Moscow-based Gazprom PJSC said on Wednesday that it reduced shipments through the Opal pipeline in Germany, which delivered about 15% of Russia’s gas exports outside the former Soviet Union last month, following a legal challenge led by Poland. The relatively minor cut rekindled memories of shutoffs during freezing weather eight years ago and helped to push prices to the highest in almost two years.

While the reductions along Opal are equal to just 5% of Russia’s overall supplies to the 28-nation European Union, they come as the region faces depleting inventories and the return of a winter cold snap. While Gazprom is able to boost deliveries through Ukraine, the cuts helped heating prices in Europe, according to analysts including BMI Research.

“People react jumpy to Gazprom reducing supplies all the time, often with a valid reason,” said Sijbren de Jong, a strategic analyst at The Hague Center for Strategic Studies. “But here it’s difficult to determine if something more is going on.”

Day-ahead gas on the Title Transfer Facility in the Netherlands, Europe’s biggest market for the fuel, rose 17% last week, the biggest gain since April, according to broker data compiled by Bloomberg. The close at 23 euros a megawatt-hour ($7.25/MMbtu) was the highest since April 2015.

Gazprom only increased flows through Opal in December after the European Commission eased some limits after years of disputes on the use of the pipeline, which is seen as a threat by transit nations including Poland and Ukraine because it can bypass their roles in transit to western Europe. Poland successfully challenged the commission’s decision and Gazprom returned to using about half of Opal’s capacity from Feb. 1.

Some traders may face a cut in Gazprom supplies down to contractual volumes if they increased orders now, Russia’s Kommersant newspaper reported Thursday, citing people with knowledge of the matter it didn’t identify. The company’s press service declined to comment.

While there’s no substantial risk to Russian gas shipments, or European gas supply as a whole, prices “could rise more aggressively if the weather turns cold over February,” said Christopher Haines, head of oil and gas at BMI Research.

After the worst cold blast in a decade and a warmer than usual start to February, temperatures are expected to fall below the seasonal average throughout Europe. The northwest European average is forecast to be 0.4°C next week (33°F), compared with a 10-year mean of 3.3°C.

European gas storage levels have been drained below 5-year averages after January’s abnormally chilly temperatures. Meanwhile, there has been a dearth of liquefied natural gas imports, with the UK, Netherlands and Belgium receiving just four cargoes in 2017 through Friday, compared with 13 in the same period last year.