**Natural Gas Price**



iNVEZZ.com, Tuesday, June 17: British spot wholesale gas prices advanced yesterday as Russia and Ukraine failed to agree overnight on the price of future gas deliveries, a necessary step to ensure Russia continues to supply Ukraine. Europe imports almost a third of its natural gas needs from Russia, and nearly half of that supply comes through Ukraine.

Gazprom, Russia’s state-owned gas company, said Ukraine had to pay in advance for its gas, after Kiev failed to follow through on large payments it owed to the gas giant. “Gas supplies to Ukraine have been reduced to zero,” Ukrainian Energy Minister Yuri Prodan said. Ukraine has enough reserves to last until December, according to the country’s state gas firm Naftogaz. Gazprom said gas supply to Europe through Ukraine will continue, although its chief executive Alexei Miller warned of “significant” potential risks to that supply as well, according to the BBC.



ICE July UK natural gas climbed as much as nine percent to 45.5p a therm yesterday. However, the benchmark contract later underwent a downward correction to trade at around 42.61p a therm, still up 1.8 percent, as analysts highlighted Europe’s unusually high gas stockpiles.

“We initially had a knee-jerk reaction in prices that was limited by the fact that European gas storage overall is quite high,” Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London, told Bloomberg yesterday by e-mail. “Russia is still supplying gas through Ukraine to meet demand from European countries. As long as this remains the case, and these supplies do not become diverted to Ukraine, any further price reaction is likely to remain contained,” he argued.



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The Ukraine transit pipelines are expected to have a smaller effect on the European gas market than previously, should Russia decide to discontinue gas shipments to Europe through Ukraine, because of “new infrastructure such as the Nord Stream, which runs under the Baltic sea to Germany,” according to the Financial Times. In addition, current EU stockpiles amount to around 52 billion cubic metres, a record high for this time of year. As of yesterday, 65 percent of gas storage was full in the 28 EU member states, the highest for this time of year since 2011, according to Brussels-based lobby group Gas Infrastructure Europe, Bloomberg reported.



“[The gas delivery halt] doesn’t mean much yet for Europe because it’s the middle of the summer, gas supplies are relatively high,” Daragh McDowell, the senior Russia analyst at Maplecroft Ltd. in Bath, England, told Bloomberg yesterday by phone. “It’s not at the point where it’s really setting alarm bells in Europe,” he added.

Alexander Pögl of Vienna-based consultants JBC Energy told the FT the muted reaction to Russia’s action could in part be explained by timing. “We have seen this happen before […] but usually during the autumn and winter when demand for gas is relatively high. At the moment it is summer period and we have a very well supplied market in Europe,” Pögl said.

However, if Russian gas destined for Europe stops flowing through Ukraine, Europe would have to deal with shortages. Thierry Bros, an analyst at Société Générale, told the FT that in such a case Europe would be forced to rely on the more expensive liquefied natural gas to cover the shortfall. “Today’s move is a blip but perhaps we have seen prices bottom,” Bros said, adding that it was against Russia’s interest to cut off supplies to Europe as it needed the income for those gas sales.