Gas prices plummet as long-awaited supply deal reached

Natural gas prices tumbled on Friday, after a winter supply deal was finally struck between Ukraine and Russia. Even in north-west Europe, which has little exposure to Russian gas shocks due to abundant North Sea reserves, prices were dragged down by bearishness that followed the announcement (see separate story).

Front month contracts, which were held up partially by risk premium attached to the ongoing situation, made some of the biggest losses.

Italy is the country most exposed to any potential supply shock of transit gas through Ukraine, as it does not have alternative infrastructure to import significant volumes of Russian gas.

At the PSV on Friday, the Day-ahead contract shed €1.013/MWh from the previous close. The November product dropped by €0.875/MWh to expire at €25.575/MWh.

Germany is fairly reliant on Russian gas and imports some of the largest quantities in Europe, although any risk from Ukraine is partly offset by its direct connection to Russia through the underutilised Nord Stream pipeline.

Even so, the drop on the NCG front month was significant, shedding €1.00/MWh by the close.

Britain relies very little on Russian gas, with domestic production still accounting between 40-50% of consumption and main imports coming from Norway. But the NBP has not been immune from the crisis, with many contracts supported on any reports of an escalation in tension and unsuccessful resolution meetings.

On Friday the NBP November contract dropped by 1.375p/th session on session to expire at 51.60p/th. Ben Samuel