European NatGas Prices Plunge As Russian Flows Via Ukraine Soar

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by Tyler Durden
Friday, Feb 25, 2022 - 04:04 PM

European natural gas futures plunged Friday after surging the most since 2005 when President Vladimir Putin's forces invaded Ukraine. The record-breaking rally was halted after four consecutive days of gains due to increased natgas flows from Russia.

During Thursday's invasion, Dutch TTF Gas Futures soared as much as 60% as Putin's forces launched a barrage of artillery, airstrikes, and missiles across Ukraine to "demilitarize" the country. We noted, at the time, even though energy prices jumped, there were no reports of supply disruptions or blackouts in Ukraine, suggesting businesses as usual. 

On Friday, Dutch TTF Gas prices plunged as much as 28%...

...on new data supplied by Bloomberg via Gazprom PJSC that natgas flows from Russia, through Ukraine, and into Europe jumped almost 38% on Thursday and are expected to rise 24% on Friday.

"Utilities are ordering more of the fuel under long-term contracts with Gazprom PJSC. That's because the deals are priced in such a way that Russian imports are now cheaper than spot gas traded at European hubs. The development follows months of limited Russian exports," Bloomberg explains. 

BCS Global Markets' commodity desk told clients that "Gazprom's month-forward contracts have been 'out-of-the-money' all year, keeping exports low. That changed yesterday as prices jumped, and demand for Russian gas has risen sharply, and could well rise further in the coming days." 

Gazprom reiterated that natgas flows via Ukraine are running as normal and will increase upon client requests. Russian flows through Ukraine are rebounding, though a pipeline into Germany via Poland remains muted. 

Stefan Ulrich, an analyst at BloombergNEF, said besides economics behind European buyers purchasing more Russian gas, "there may also be a strategic component as buyers seek to buy now given a potential for disruption in flows or further price increases." 

Even though Russia's invasion of Ukraine is sufficient for Western countries to take the nuclear option of expelling Russia from SWIFT, effectively kicking Russia out of the entire dollar-payment system, and leaving the country with few payment options, the move would be too damaging to Europe because Russia is the continent's largest natgas supply, providing more than a third of the region's needs. About a third of those shipments transit via Ukraine.

President Biden has also backed the decision not to sanction Russia's energy sector, saying it would disrupt global energy markets and send higher prices. 

So for now, business as usual for Russia, now flooding natgas into Europe even though it's in the process of invading Ukraine.