MOSCOW: European Union traders are betting Ukraine will reach a deal to keep natural gas supplies flowing from Russia when the nations meet EU representatives Tuesday.
Gas for delivery this winter in the U.K., Europe’s most traded market, fell to the lowest on record on the ICE Futures Europe exchange, signaling traders aren’t worried about supplies when the heating season starts in October. Russia approved Monday a new deal for Ukraine that will leave the price it pays OAO Gazprom unchanged in the third quarter, said Alexey Miller, chief executive officer of the Moscow-based company.
EU Energy Commissioner Maros Sefcovic, Russian Energy Minister Alexander Novak and his Ukrainian counterpart Vladimir Demchyshyn will meet in Vienna Tuesday to seek the extension of a winter package first signed Oct. 30. More than 10 percent of Europe’s gas needs travel through Ukraine from Russia and price disputes between Gazprom and NAK Naftogaz Ukrainy disrupted supplies to the continent in 2006 and 2009.
“If they get that deal done, it creates stability and less price volatility, which is positive for the European market that’s still looking to rebuild storage,” Emily Stromquist, a London-based analyst at Eurasia Group, said by phone Monday. “Ukraine will be able to buy gas for fairly cheap.”
U.K. gas for delivery in the six months starting in October fell as much as 0.7 percent to 47.15 pence a therm ($7.42 a million British thermal units) on ICE, the lowest since the contract started trading in 2010. It traded down 0.4 percent at 47.3 pence a therm by 2:48 p.m. London time.
Ukraine had 11.9 billion cubic meters (420 billion cubic feet) of gas in storage as of Sunday, compared with 14.4 billion a year earlier, according to data from Brussels-based lobby group Gas Infrastructure Europe. An extended deal would help Ukrainian storage sites reach the 19 to 20 billion cubic meters needed to last through the winter, according to Stromquist. Europe usually stockpiles gas in the summer, when demand is low, and withdraws during the winter.
The Russian government approved a discount of $40 per 1,000 cubic meters to the price Ukraine has under its disputed supply contract with Gazprom, Russian Prime Minister Dmitry Medvedev said in Moscow Monday. While that’s smaller than the previous discount of $100, it leaves the rate unchanged at about $247.20 for the third quarter, according to Gazprom’s Miller.
“There are some unresolved issues, but certainly if this is true and this gets rolled over and decided tomorrow, that creates a pretty stable market for Europe moving into the third quarter,” Stromquist said. “They are still holding the meetings tomorrow so I wouldn’t take the statement as definitive.”
