(Bloomberg) -- European natural prices rallied for a third day, settling at the highest level since December on fears of possible disruptions to Russian fuel crossing Ukraine.
Benchmark futures closed at 4.3% higher at €40.10 a megawatt-hour, following fighting in Russia’s Kursk region, home to a key gas intake point. The incursion is Ukraine’s largest assault on Russian territory since Vladimir Putin ordered the 2022 invasion.
The Sudzha station near the border is part of Russia’s last remaining pipeline route to Europe via Ukraine. Gas flows at the transit point are continuing for now with volumes set to remain in line with previous weeks on Friday.
Europe has made strides to wean itself off Russian pipeline gas since the 2022 crisis, including by boosting imports of liquefied fuel. However, some countries still depend on the pipeline flows, leaving their economies vulnerable to any sudden disruptions.
“There’s still a lot of supply that would be lost if flows are cut immediately,” said James Waddell, head of European gas and global LNG at Energy Aspects Ltd. “This would cut into end-October stocks.”
Russian gas flows via Ukraine are set to remain normal on Friday, according to nominations published by the Ukrainian grid. Earlier on Thursday, Russian exporter Gazprom PJSC said transit via the Sudzha intake point was set at 37.3 million cubic meter per day on Thursday, slightly lower than the 42 million cubic meters usually observed in recent months.
“At first glance, we believe both Russia and Ukraine have the incentives to keep natural gas flowing as normal,” Citigroup Inc. energy strategists including Maggie Xueting Lin said in a research note.
Transit Agreement
The transit agreement between the two nations expires at the end of this year, so the flows are set to end. But in a sign of how important the fuel remains to the continent, European officials have been holding talks to try to keep gas coming through the pipeline after the deal expires, even as it’s not clear where the replacement fuel might originate.
A sudden and earlier halt in flows would come as a shock for nations such as Slovakia and Austria, which currently rely on that supply and could see higher gas prices for companies and consumers if it’s cut off.
The summer has been volatile for Europe’s gas market even before the latest developments, as heat waves in parts of Asia and Europe have boosted demand and intensified competition for cargoes. Some major global producers have also faced disruptions to their facilities due to outages or extreme weather events.
Norway, Europe’s top supplier, is set to enter an intense period of maintenance at the end of August, and any unplanned additional works would likely spark further volatility.
Dutch front-month futures, Europe’s gas benchmark, are up more than 45% since the start of April, when the storage-refilling season begins.
--With assistance from Daniel Hornak.
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