European Gas Falls After EU’s Green Light on Russia Payments

(Bloomberg) -- The European Union’s green light to energy companies on payments to Russia helped send benchmark natural gas prices lower for a second day as invoice deadlines loom.

The European Commission sent its revised guidelines to member states, signaling that sanctions against Moscow do not prevent gas importers from opening new bank accounts. That means payments, satisfying President Vladimir Putin’s demands, could be made. Dutch front-month gas, the European benchmark, closed 4.2% lower.

Traders have been eagerly awaiting updated guidance, with most payment deadlines due by the end of the month. Russia had asked companies to accept a new transaction method that would involve opening two accounts at Gazprombank, one in euros or dollars and another one in rubles. 

Italy’s Eni SpA will move to open accounts in rubles and euros with the Russian bank by Wednesday so that it can make payments on time this month and avoid any risks to gas supplies, according to people familiar with the situation. 

In its updated recommendations, the European Commission also said that companies should make a clear statement that they consider their obligations fulfilled once they pay in euros or dollars. The bloc could also cap gas prices if Russia cuts or significantly limits shipments, according to a draft of energy-market intervention measures seen by Bloomberg News.

Warmer-than-normal weather is adding to the downtrend in prices, while stronger wind power production expected in Germany next week is reducing the need for gas to generate electricity. In addition, vessels carrying liquefied natural gas continue to arrive, providing the continent with alternatives to supplies from Russia, while storage levels are improving. 

Read also: Europe’s Gas Stocks Jump As Nations Prepare For Supply Cuts

Dutch gas for June delivery fell to 92.86 euros per megawatt-hour, followed lower by front-month German power which dropped as much as 5.7%. 

Meanwhile, the equivalent gas contract in the UK, which is somewhat buffered from issues related to Russian supply, advanced 16% to 172.26 pence a therm. Futures jumped amid concerns that LNG arrivals may be curbed over the summer after the UK grid imposed capacity limits to avoid over-stretching its infrastructure.

Outages at some North Sea facilities are also affecting prices, while Equinor ASA announced a delay to the restart of its LNG plant in Norway after a fire in 2020. LNG flows in the UK already slipped and a tanker diverted from the nation last week. 

Read also: Britain’s LNG Constraints Trigger 21% Rally in UK Gas Prices

Germany, Europe’s powerhouse, said Monday that its gas supply remains stable even though Russia’s fuel shipments crossing Ukraine were expected to be lower, based on orders. Last week, flows to Europe via the route were curtailed after a key cross-border entry point was out of service because of troop activity on the ground. 

“The market calmed down as the gas so far continues to flow from Russia,” trading group Energi Danmark said in a note. “This week will of course also be dominated by this topic, as all eyes are on the tensions between Europe and Russia.”

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