European natural gas prices decline 10%, with Russian flows steady

European natural gas prices declined as much as 10 per cent, with Russian flows to the continent steady even amid reports of military action around two key pumping stations.

Shipments via a key route crossing Ukraine are set to remain normal on Thursday, according to data from grid operator Eustream. Supplier Gazprom PSJC also said flows via Ukraine are in line with client requests.

Ukraine’s gas grid operator on Wednesday said Russian troops had entered two of four stations that pump gas to Europe, and officials from the two countries sought to distance themselves from responsibility for any disruptions. Russia’s attempt to take control of the infrastructure came on the same day that the nation said it may rethink its energy supply commitments to Europe after international sanctions imposed.

Contingency plans

Governments around Europe have been preparing contingency plans for a scenario in which Russia cuts off gas supplies to Europe. The EU laid out measures this week to wean the region off Russian gas this year but any immediate disruption would have widespread economic consequences with soaring wholesale prices crippling industry and sending inflation even higher.

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Gas prices have been extremely volatile this week, rising to record levels on Monday, as traders weigh the ongoing risk of Russia cutting gas supplies or the EU imposing sanctions. The UK and US have taken steps to ban imports of Russian oil, but Britain has stopped short of including gas.

Europe is dependent on Russia for about a third of its gas consumption, and a third of that supply transits Ukraine. Leaders in the region including German Chancellor Olaf Scholz have opposed restricting energy supplies and flows have even increased since the war started.

“It is unlikely the EU could easily replace Russian gas imports in the event supplies are meaningfully disrupted,” said Federico Santi, an analyst at Eurasia Group UK Ltd.

European benchmark futures dropped 5.7 per cent to €147 a megawatt-hour in early trading in Amsterdam. - Bloomberg