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European gas prices jumped after Austria’s OMV AG said Russia will cut off fuel deliveries from Saturday.
Author of the article:
Bloomberg News
Marton Eder, Priscila Azevedo Rocha and Anna Shiryaevskaya
Published Nov 15, 2024 • 2 minute read
(Bloomberg) — European gas prices jumped after Austria’s OMV AG said Russia will cut off fuel deliveries from Saturday.
Gazprom PJSC notified Austria that it will cut supplies to zero, according to a filing by OMV. The halt comes after the Austrian energy company said on Wednesday it would stop payments to the Russian firm to recoup a €230 million ($242 million) arbitration reward.
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The region’s benchmark contract rose as much as 2.7%, reversing earlier losses. Prices are trading at the highest in a year.
The Nov. 16 halt comes just as temperatures dip and the heating season gets under way. The cut is a significant event even with Europe’s efforts to move away from Russian gas.
“Prices are rallying because the halt to Austrian deliveries comes a few days earlier than anticipated, which is adding fuel to fire,” said Florence Schmit, a European energy strategist at Rabobank. “While the market is at present well supplied, this halt means stronger storage withdrawals during winter will be necessary as well as higher demand for liquefied natural gas.”
For now, nominations for Sudzha, a cross-border point on the Russian-Ukrainian border show usual level of flows for Saturday, data from Ukraine’s grid operator show. Russian gas flows to Austria via Ukraine and Slovakia.
The announcement is a turning point for Austria, which has maintained one of Europe’s oldest and deepest connections to Russian energy, and in 2018 extended a long-term gas contract to 2040. Much of the region has weaned itself off Moscow’s gas in recent years, with Austria — OMV’s home market — Hungary and Slovakia the biggest remaining importers of fuel.
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OMV has said it can meet supply obligations via alternative sources even if its long-term contract is disrupted.
The supply cut also comes as cooler temperatures and lower wind output have led to accelerated withdrawals of gas from storage sites. That could leave less gas available for later in the winter when heating needs rise further.
Stronger withdrawals would also make it more challenging to replenish inventories next summer. That has kept summer prices for next year elevated compared to those for next winter.
The cost of hedging against surging prices during next year’s stockpiling season has also gone up. The implied-volatility gap between Dutch options for April, when traders start building up inventories, and those for winter 2025 is now at the highest this year.
Dutch front-month futures, Europe’s gas benchmark, edged 1% higher to €45.59 a megawatt-hour at 4:10 p.m. in Amsterdam.
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