European gas prices are posting weekly gains as the market faces depleting inventories and lower supplies following the loss of Russian flows through Ukraine. Benchmark futures were trading near 50 euros per megawatt-hour on Friday, with contracts on track to close the week about 5 percent higher.
European gas prices are hovering near a 14-month high, more than two years after the region went through an energy crisis. The New Year’s Day cutoff of Russian gas deliveries through Ukraine came as supplies were depleting at the fastest pace since before the crisis.
The weather is also getting colder, which could spur further withdrawals. The region’s vast underground facilities are now about 72% full compared with 86% at the same time last year. While there is little risk of an immediate shortage in Europe, the tight supply picture this winter will make stockpiling more difficult ahead of the next heating season.
“Higher demand for gas to be stored will keep markets high in the coming months,” said Florence Schmit, European energy expert at Rabobank.
Europe is now increasingly exposed to market volatility as it becomes even more dependent on global LNG to replace the shortfall left by the closure of the Russian gas pipeline through Ukraine.
The price hikes also coincide with the shutdown until January 9 of Norway’s Hammerfest LNG plant due to a compressor failure. Any disruptions at global LNG export facilities may increase price fluctuations.
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