Benchmark European and British wholesale gas prices posted strong gains on Tuesday morning driven by an ongoing lull in Russian gas deliveries, higher gas prices in Asia and colder weather lifting demand.
The British gas contract for day-ahead delivery jumped by 70 pence to 2.00 pounds/therm by 1000 GMT.
The equivalent Dutch contract was up 19.30 euros at 86.20 euros per megawatt hour (MWh), while the Dutch front-month contract – the European benchmark – was up 16 euros at 88.00 euros per megawatt hour (MWh).
Weather forecast have turned colder, but the low Russian gas flows were the key driver, a trader said.
Local distribution zone gas demand in Britain is forecast to rise both in the UK and Europe due to a shift to colder weather, Refinitiv Eikon data showed.
Flows on the Poland section of the Yamal Europe pipeline from Russia to Europe remained in reverse for a 15th consecutive day with eastward flows jumping 70%, while deliveries of Russian gas via Ukraine to Europe are also down.
Prices are up sharply after a heavy drop in the last week of December, when unseasonably mild weather curbed demand, even allowing some re-filling of Europe’s very low gas storages between Dec. 30 and Jan. 2, data from Gas Infrastructure Europe showed.
However, European gas storage remains just 56.3% full, compared with a 5-year average of around 71%.
Increased U.S. LNG flows into Europe have helped to plug the missing Russian gas gap but competition for cargoes is set to increase, analysts said.
“Spot Asian LNG prices are now back at a premium to Europe, which suggests that the trend of stronger LNG flows to Europe is likely to slow. And in the absence of a pick-up in Russian flows, hub prices in Europe are likely to remain well supported,” analysts at ING bank said in a morning report.
Asian LNG is trading at $30.60/mmBtu this morning, and Europe still needs to fight to attract LNG cargoes for the coming months, analysts at Norway’s DNB bank said in a note.
Gas demand in Asia could also see a boost from a coal export ban in January by major producer Indonesia, analysts and traders said.
In other markets, the European benchmark December 2022 emission allowance (EUA) contract CFI2Zc1 was up 1.81 euros at 85.87 euros a tonne.
Source: Reuters (Reporting by Nora Buli in Oslo; editing by Nina Chestney)