(Bloomberg) -- European gas prices surged to the highest level this year following a report that Ukrainian troops seized a key gas-transit point near the border in Russia.
Benchmark futures settled 4.8% higher at €38.45 a megawatt-hour, the highest since December. The unofficial Russian military blog Rybar said Ukrainian troops seized the gas intake point near the town of Sudzha. The claim couldn’t be independently verified.
Russia’s state-controlled Gazprom PJSC declined to comment, as did Ukraine’s defense ministry and general staff of the armed forces.
The Sudzha station is part of the last remaining pipeline link bringing Russian gas to Europe via Ukraine. While Europe has made efforts to wean itself off piped Russian gas since the war, a potential cut to supplies would still be a shock, pushing up prices for consumers and industry. Europe hasn’t sanctioned Russian gas and parts of the continent still depend on it.
The Ukrainian gas transmission system operator said in a daily update that flows for Thursday are set to be within their normal range. The so-called nominations are indication of shipments, and actual supplies may still change. Gazprom said in a daily update earlier that flows were at usual levels on Wednesday.
“The gas flow is stable, no changes,” said Sergiy Makogon, former chief executive of Gas TSO of Ukraine, which runs the network. “If Ukraine wanted to stop the flow it could do it without capturing Sudzha.”
European gas prices have been extremely sensitive to any perceived supply risk, particularly at a time when global competition for liquefied natural gas is rising.
Still, the price increase Wednesday “may overstate the threat to supply, given flows via this route only meet 3-5% of demand in Europe, which also sits on near-record storage,” Bloomberg Intelligence analysts Patricio Alvarez and Joao Martins said in a note.
The only other major entry point for Russian gas into Ukraine, Sokhranovka, was put out of service in May 2022. At the time, Russian military forces had occupied the area, and Ukraine’s Naftogaz said it couldn’t take responsibility for shipments via the territory. It offered to reroute the gas volumes through Sudzha, though Gazprom said that wouldn’t be technically possible.
Future Flows
It’s unclear whether Gazprom will choose to continue sending flows through Sudzha if it has indeed been captured by Ukraine. Russian President Vladimir Putin accused Ukraine of a “large-scale provocation” by sending hundreds of troops into Russia’s Kursk region, the biggest assault on Russian territory since he ordered the 2022 invasion of its neighbor.
Austria and Slovakia are the primary remaining importers of Russian pipeline gas in Europe after Gazprom throttled deliveries to Germany and other countries two years ago.
The flows are set to stop when a transit deal expires at the end of this year, though European officials have held talks with a view to keeping gas flowing through the pipeline. Austria and Slovakia have previously said they have secured alternative supplies.
Dutch front-month futures, Europe’s gas benchmark, also hit an intraday high for the year. The contract has gained about 40% since the start of the stockpiling season in April.
--With assistance from Marton Eder.
©2024 Bloomberg L.P.
