CEE gas prices on the rise after Russia ends Ukraine supplies

Author: Aura Sabadus David Simon


LONDON (ICIS)--Unforeseen natural gas sales from central European countries to Ukraine combined with depleting storage have boosted the region’s premium over western Europe and have kept the prompt at a premium to Winter ‘19 prices.

Ukraine extended its imports of gas from neighbouring Hungary, Poland and Slovakia in March and is likely to continue buying regionally over spring and summer after Russia’s Gazprom unilaterally cancelled a supply contract in March following a dispute over a recent arbitration award.

As a result, earlier expectations for bearish prices flipped to a markedly bullish sentiment across central Europe, supported also by recently depleting storage volumes across the region.

The Austrian VTP May ‘18 product which was trading at a discount to the German NCG between mid-February and the beginning of March, has now switched to a premium position, dealing at an average of €0.63/MWh and €0.34/MWh above the Dutch TTF and NCG, respectively.

The premium of the Hungarian May ‘18 contract traded on the HUDEX futures exchange over the Austrian VTP, NCG and TTF began to shrink at the end of February, as there were expectations that Russia would resume exports to Ukraine. But the premium widened again in the first half of March when Ukraine restarted imports from the region.

A similar, albeit much less pronounced spread, has developed on the prompt, where Slovak and Hungarian prices are beginning to trade above German and Dutch equivalents.

In Austria, average prompt prices have been more than €1.00/MWh above Winter ’19 since the beginning of April, reflecting a similar trend at the NCG and TTF which has been prevalent since the start of the year.

Although the prompt premium over Winter ’19 may have been justified in the first months of the year when demand was high, counterparties have now questioned whether it is still logical in spring.

“Spot prices are now above winter prices in many places, which is unsustainable,” a trader active in the region said.

“At some point, either winter has to move up, or near curve down, but things are unlikely to be more bullish until more LNG arrives in Europe,” he said.

Renewed Ukrainian demand

The unexpected resumption of gas imports from central Europe to Ukraine at the beginning of March is one of the reasons for the backwardation.

Ukraine had been expecting to resume imports from Russia from 1 March after a three year hiatus, following an award by an arbitration court which ordered Naftogaz to off-take a minimum 4 billion cubic metres (bcm)/year.

But as Russia then said it would not deliver pre-paid gas Ukraine scrambled to find 18 million cubic metres (mcm)/day in neighbouring countries to replace the non-delivered Russian volume.

Currently, Ukraine is buying around 2mcm/day on average from Slovakia and around 4mcm/day on average from Hungary, while Polish exports have to dropped nearly zero since the beginning of April, on the back of high transit fees in the summer.

Exports are higher from Hungary because independent shippers and industrial consumers tend to source gas on the MGP hub or transit volumes via the Beregdaroc border point, as Hungarian transit fees are the cheapest in the summer compared to Poland and Slovakia.

A shippers told ICIS that Naftogaz may ramp up imports via Slovakia in the coming month to around 20-30mcm/day.

The company holds around 29mcm/day firm long-term capacity at the Budince point, which is due to expire in 2019, according to data by Slovak grid operator Eustream. A further 7mcm/day of interruptible capacity is sold on the border point.


Given Russian supplies to Ukraine did not restart, Ukrainian storage injection demand is another bullish driver for central European markets over the summer.

As with much of the continent, high weather-driven demand in the second half of the winter depleted Ukrainian stocks heavily and by the end of the gas winter, tanks held only 7.63bcm, down by around two percentage points year on year.

Ukrainian storage further decreased to 7.44bcm by 9 April, at which point net injections began to build ahead of the coming winter.

Central European storage injection demand will also support regional prices in the summer as storage levels dropped below 2017 levels in most countries.

Austrian storage facilities were around 9% full on 1 April, down by three percentage points compared to 2017, while Slovak tanks were 12% emptier year on year. Meanwhile, Hungarian storage tanks were 7% full by the end of the gas winter, up by one percentage points year on year.