Fri. Jan 21st, 2022

European gas prices rose on Friday after the disruption in security talks between Russia and the US deepened concerns about supplies.

Russia said on Thursday that it had held talks this week with the US and NATO failed to address his security grievances, which cast doubt on the prospect of a Western diplomatic effort to defuse Moscow’s threat of military action against Ukraine.

The news pushed the benchmark European gas contract almost 25 percent higher during the last two sessions to reach € 90 per megawatt hour. Traders fear that this geopolitical tension will limit Russia’s gas exports to the mainland, just at a time when stocks have shrunk to a record low for the time of year.

The latest rise in gas prices comes after a volatile period in energy markets that lasted for months. Continental European and British gas prices rose to record levels last year, driven in part by Russia restricting exports to long-term contracts. In the past, additional spot sales were more readily available.

The International Energy Agency, the OECD-funded watchdog, this week accused Moscow from the efficient use of tight stocks to its advantage in a time of rising geopolitical tensions, saying it reduced exports by 25 percent year-on-year in the fourth quarter of 2021.

Gas prices withdrew from record levels at the end of December as warmer weather in Asia allowed European traders to acquire large volumes of seaborne liquefied natural gas.

Line graph of € per megawatt hour showing European gas prices rising again

But with tensions between Russia and the west showing little sign of easing, gas prices have risen higher again. A temporary interruption at a large Norwegian gas field contributed to market nerves.

“While [our] data shows Western Europe could break a record-breaking month in terms of [liquefied natural gas] deliveries in January, continued low pipeline supply from Russia and a partial disruption at Norway’s Troll gas field – which is the largest in the North Sea – caused European prices to rise sharply again, “said Tom Marzec-Manser, an analyst at consulting firm ICIS.

Russia has repeatedly denied that it restricts sales, but has also indicated that it wants customers to commit to more long-term deals. It also linked increased exports to the approval of the politically controversial Nord Stream 2 pipeline to Germany.

The pipeline, which runs through the Baltic Sea, will enable Russia to largely bypass Ukraine, fearing the US and Eastern European countries that Kiev would weaken.

Russia annexed Crimea from Ukraine in 2014 and further threatened the country by deploying 100,000 troops along the border. Moscow says the troops are there for military exercises, but said they could respond with force if its demands for a ban on NATO enlargement are not met.

Ukraine said on Friday it was the target of a “massive cyber attack”After at least 10 government websites ceased to function, including those linked to energy, foreign and veteran affairs.

European Commissioner for Competition Margrethe Vestager said on Thursday she viewed Gazprom’s market behavior as a “priority”, indicating that Brussels may be ready to open a formal investigation into the state-owned Russian gas giant.

“It’s indeed provocative that a company is limiting supply in the face of increasing demand,” Vestager said. “This is pretty rare behavior in the market.”

Traders said gas demand is also likely to rise in the coming weeks after France’s EDF cut its planned nuclear power output on Friday, which should lead to more gas being burned for power generation.

The state-subsidized nuclear giant’s shares fell nearly 25 percent on Friday after issuing a profit warning following demands by the French government to sell discounted power to help protect consumers from the energy crisis.

Additional post by Javier Espinoza in Brussels

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