European Gas Erases Gains as Traders Assess Transit Point Attack

(Bloomberg) -- European natural gas prices erased a knee-jerk jump triggered by an attack on an inactive pumping station in Russia’s Kursk region.

Benchmark futures settled 0.6% lower on Friday after surging as much as 6.2% in early trading. The blast affected the Sudzha gas metering station, part of a link that sent fuel to Europe until recently, with Russia and Ukraine blaming each other for the shelling.

The market’s immediate reaction and the subsequent price retreat highlight that traders remain alert to fast-moving geopolitical developments involving Russia and Ukraine.

There were worries that serious damage to the facility could make the resumption of Russian gas supplies more unlikely, a prospect that was already in retreat after a 30-day ceasefire didn’t emerge this week. Both sides indicated they’d agree to a halt on hitting energy infrastructure, but so far even those haven’t stopped.

Up until the start of this year, Russia was still sending pipeline gas to Europe via a link that crossed Ukraine. Some countries that previously depended on those flows had hoped they would eventually resume, though a comeback would depend on more than just the physical infrastructure. Europe has been working on plans to exit Russian energy imports entirely in the coming years.

“A fix could range from weeks to a year or two, depending upon the availability of replacements and the severity of the damage,” said Ronald Smith from Emerging Markets Oil & Gas Consulting Partners LLC. “The major issue here remains one of finding a political resolution to the conflict and restarting full economic relations between Europe and Russia, not so much in the infrastructure.”

Gazprom PJSC, which previously controlled the transit point that came under attack, did not respond to a request for comment on the damage. Ukraine’s gas transmission operator declined to comment on the incident that occurred on Russian territory.

If there were a political decision to revive Russian gas flows, there could be multiple routes despite the recent damage. The country used several cross-border points in the past, but their number fell to two by 2022 after Moscow launched its full-scale invasion. In May that year, supplies via the Sokhranivka point stopped after Ukraine said it couldn’t control the facility because of occupying forces.

For now, Europe continues to meet a large part of its energy needs with expensive liquefied natural gas cargoes, leaving it exposed to competition with other buyers. The continent faces a challenging stockpiling season after stronger-than-usual withdrawals this winter have left gas reserves at their lowest levels since 2022. 

Dutch front-month futures, Europe’s gas benchmark, settled at €42.61 a megawatt-hour in Amsterdam. 

--With assistance from Stephen Stapczynski, Volodymyr Verbianyi, Daryna Krasnolutska and Anna Shiryaevskaya.

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