Putin loses leverage

Eurozone gas surplus changes Ukraine metrics

The biggest natural gas inventories in Europe since at least 2010 are deflating the risk premium stemming from the crisis between Russia and Ukraine, sending prices for supplies during the winter to a four-year low.

The winter contract in the U.K., Europe’s largest market, would drop 6.9 percent if the Ukraine crisis ended, according to the median estimate of seven traders, brokers and analysts surveyed by Bloomberg from July 3-7. Gas for the six months from October rose 6.5 percent on March 3, the first trading day after Russian President Vladimir Putin got approval to send troops into Ukraine, which carries about 15 percent of Europe’s needs.

Russia cut gas supplies to Ukraine on June 16 after OAO Gazprom and NAK Naftogaz Ukrainy failed to agree on a price for future deliveries and on debt payments, echoing similar disputes that saw flows to Europe reduced amid freezing weather in 2006 and 2009. High European inventory levels mean capacity is limited this year and demand upside is “minimal,” Citigroup Inc. analysts including Seth Kleinman said in a July 7 report.

“The risk premium related to Ukraine has been partially absorbed so the reaction of winter gas prices on the face of an end to the crisis would be limited,” Lysu Paez-Cortez, a natural gas analyst at Natixis SA in Paris, said yesterday by e- mail. “High stocks across major European hubs and seasonal lower demand also dented the geopolitical related risks.”

Winter gas on the U.K.’s National Balancing Point hub would fall to 52 pence a therm ($8.90 a million British thermal units) if the crisis ended, from an average of 55.86 pence on July 3-7, according to the median of the survey. Responses ranged from 45 pence to 53 pence.

Storage Levels

Prices for the fuel used for heating and power generation slid 1.1 percent to 55.21 pence a therm 3:37 p.m. in London after rising 0.9 percent yesterday, broker data showed. They are down 22 percent this year and reached 54.95 pence on July 7, the lowest for a next-winter contract since November 2010.

Nations in the European Union had 58 billion cubic meters (2 trillion cubic feet) of gas in storage yesterday, the highest for the time of year since at least 2010 and more than 72 percent of the capacity, according to Brussels-based lobby group Gas Infrastructure Europe. While gas demand for stockpiling is usually at its highest in the third quarter, Europe’s mildest winter in seven years left storages full.

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