Uncertainty surrounding Russian gas payments push prices higher, hot weather coming to the US
Concerns surrounding how European countries can legally pay for Russian gas supplies without breaching sanctions are pushing prices higher today.
After mixed messages emerged from both sides earlier this week, the situation appears as clear as mud.
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More clarity regarding payment mechanisms or a consensus between Russia and the EU is essential to calm market participants’ concerns.
As per EU guidance, companies will not violate sanctions if they declare transactions completed after paying in euros or dollars, but they are not allowed to open another ruble account with Russian banks.
Meanwhile, Russia claimed that opening a ruble account is a must and European companies need to complete any currency conversions in less than 48 hours.
As a result of the uncertainty, the TTF front-month rose 3.1% to €97.1 per megawatt-hour (MWh) or $30/MMBtu at the time of writing, from last settlement at €94.2/MWh or $29.1/MMBtu.
However, some major European companies have already announced their payment plans.
Italy’s Eni has opened a ruble account with Gazprombank to ensure Russian gas supply, but on paper, that move seems to be a violation of EU sanctions.
Germany’s Uniper and France’s Engie have said they will pay in euros this month to Gazprom.
Finland’s Gasum is taking a different approach, and has said they will not pay in rubles, but acknowledged the potential for Russia to cut off its gas supply.
The Finnish company is aiming to get access to other gas sources from Estonia via the Baltic pipeline.
Overall, the reactions by the market have appeared restrained and await more responses from all parties.
Another upside factor pushing TTF higher is a new plan by the EU.
The commission aims to raise 20 billion euros by selling ETS certificates to fund an exit from Russian energy.
This could potentially drag down carbon prices in Europe and lead to cheaper costs of coal and other carbon-intensive fuels, although it is not in line with the energy transition goal in the long term.
Pipeline flows to Europe are largely flat.
Russian flows were down 0.6% day on day to 208 MCMD, and Norwegian pipe flows rebounded by 2.3% to 314 MCMD after the flows edged lower to 307 MCMD in a day earlier.
Lower LNG imports into the UK and increased pipe flows to Belgium and the Netherlands are pushing prices higher.
Similar to the TTF movement, NBP prices were up 1% day on day to 187 GBP/Therms or $23.4/MMBtu at the time of writing.
Also, the UK’s gas consumption from the residential and power sectors has edged higher, which could result in storage withdrawals and lead to further elevated prices.
The discount to TTF is currently standing at $6.6/MMBtu, up from $6/MMBtu in the last session.
In the US, the Henry Hub is relatively flat today at $8.25/MMBtu, slightly down 0.7% from last settlement at $8.3/MMBtu, but the fundamentals could provide upsides.
Recent hot weather in the south is providing upward momentum to gas demand and could push prices higher in the near term.
High temperatures well above the five-year average are forecast to return in early June and coupled with low gas storage and high LNG exports, upside pressure on prices is likely to persist.
In Asia, the prospect of China’s plan to ease Covid controls is holding the Asia spot LNG prices relatively stable, at $23.4/MMBtu, while the actual buying from Chinese importers has yet to rebound.
Asia spot price remained a discount to TTF, at about $6.8/MMBtu.
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