Naftogaz-Gazprom dispute boosts European gas prices

European prompt gas markets have firmed on the ongoing disagreement between Russian gas incumbent Gazprom and the Ukrainian counterpart Naftogaz over an alleged breach of a winter gas supply contract.

Despite a weak fundamental outlook prevailing across Europe, the disagreement between Gazprom and Naftogaz continues to stir buying interest in European hubs, strengthening prices on the near curve.

On Thursday, Naftogaz signalled its willingness to participate in trilateral talks between the feuding countries and the European Commission in Brussels on 2 March.

According to Naftogaz, Russian gas is also being supplied via the Platovo and Prokhorivka gas metering stations located in the disputed Donbass region, which is currently being held by rebels. Therefore, Naftogaz has no means to measure the actual gas flow through these regions.

Gazprom announced that it was ready to separate the question of gas supplies to the Donbass region from the discussion in order to find a solution to guarantee stable gas supplies to Ukraine, said a Gazprom spokesman.

On Monday evening, Naftogaz said Gazprom did not supply all of the 114 million cubic metres (mcm) of gas ordered for Sunday. Naftogaz’s order was more than three times the amount it had been receiving from Russia since gas flows restarted in December, according to system operator Ukrtransgaz data. The data also indicates that 46mcm was supplied to Ukraine on Sunday.

The full delivery of the requested volumes would have resulted in a complete cessation of Russian gas supplies to Ukraine within two days and would have created “serious risks for gas transit to Europe”, said Gazprom CEO Alexei Miller on Tuesday in response to a claim the Russian company had broken its winter supply contract.

Miller said Ukraine only had 206mcm of prepaid gas left for February as of Wednesday. “If we do not receive new funds from Kiev, naturally, we will not be able to continue supplying gas to Ukraine,” said another Gazprom spokesman.

Fundamentally, the outlook in central and northern Europe remains bearish with average temperatures forecast across northwest Europe and modest weather-driven demand expectations heading into March. Yet, sentimental drivers surrounding the conflict put a premium on near-curve contracts across European gas hubs.

One trader active at the Dutch gas hub TTF said that the word-based skirmish between Gazprom and Ukraine had continued to push buying interest up, supporting bullish price movements, despite no suggestion of any physical impact on Russian deliveries to European markets. Marcello Kolax