European gas prices rise as Gazprom cuts supplies to Austria – BNN Bloomberg

On November 18, 2024By Pranco

(Bloomberg) — European gas prices rose after Austria’s OMV AG said Russia will halt fuel deliveries from Saturday.

Gazprom PJSC has informed Austria that it will reduce deliveries to zero, according to a file from OMV. The halt comes after the Austrian energy company said on Wednesday it would halt payments to the Russian company to recover a €230 million ($242 million) arbitration award.

The region’s benchmark contract rose as much as 2.7%, reversing earlier losses. Prices reached their highest level in about a year.

The November 16 shutdown is a significant event, even with Europe’s efforts to distance itself from Russian gas. A handful of countries, including Austria, remain major buyers of the fuel, which is transported through Ukraine under a transit deal that expires at the end of this year.

The halt means Austria will have to do without Russian supplies sooner than expected, which could have a ripple effect on an already tight market. European gas prices have risen about 30% since late July as supplies are drawn back faster than normal due to cold weather and a drop in wind generation.

“Prices are rising because the suspension of Austrian deliveries comes a few days earlier than expected, adding fuel to the fire,” said Florence Schmit, a European energy strategist at Rabobank. “While the market is currently well supplied, this shutdown means that stronger storage withdrawals will be required in the winter, as well as greater demand for liquefied natural gas.”

For now, the nominations for Sudzha, a cross-border point on the Russian-Ukrainian border, show the usual level of flows for Saturday, according to data from the Ukrainian grid operator. Russian gas flows to Austria via Ukraine and Slovakia.

Austrian energy regulator E-Control said authorities were monitoring the supply situation. “However, due to the high storage levels and the possibility of substitution via other transport routes, it is assumed that supplies to Austrian gas customers will remain safe,” the company said in a statement.

Gazprom did not respond to a request for comment.

The announcement is a turning point for Austria, which has retained one of Europe’s oldest and deepest connections to Russian energy and in 2018 extended a long-term gas contract until 2040. Much of the region has turned away from Moscow’s gas in recent years. with Austria – OMV’s home market – Hungary and Slovakia the largest remaining importers of fuel.

OMV has said it can meet supply obligations through other sources even if the long-term contract is disrupted. Landlocked countries such as Austria have access to alternatives such as LNG, which is more expensive and incurs costs to regasify and move it from the terminals.

The drop in supply is also because lower temperatures and lower wind yields have led to accelerated extraction of gas from storage locations. This could result in less gas being available later in the winter, when heating needs increase.

Stronger withdrawals would also make it more difficult to replenish supplies next summer. This has ensured that prices for the summer are high compared to those for the coming winter.

The supply constraints, combined with frigid weather, could support gas prices above 47 euros per megawatt hour in the near term, although underlying demand signals still look weak into 2025, Bloomberg Intelligence analysts Patricio Alvarez and Joao Martins wrote on Friday.

The cost of hedging against rising prices during next year’s inventory season has also risen. The implied volatility difference between Dutch options for April, when traders start to build inventories, and those for winter 2025, is now at its highest this year.

Dutch early-month futures, the European gas benchmark, closed 0.7% higher at €46.55 per megawatt hour in Amsterdam.