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  • May 2nd, 2014

Ukraine Widening U.K. Gas Spread Set to Boost Inventories

European natural gas injections may accelerate as warmer than usual weather and fears of disruptions via Ukraine make it more profitable to store the heating fuel, according to analysts.

The premium of gas for the six months from October to the next-day contract in the U.K., Europe’s biggest market, has risen to the widest since June and has been above 10 pence a therm since 31st March, according to broker data compiled by Bloomberg. Injections become attractive above that level, according to Patrick Heather, a senior research fellow at the Oxford Institute of Energy Studies.

Milder-than-normal weather has weakened next-day gas prices about 5 percent this month to the lowest level for this time of year since 2010. The winter contract rose about 4 percent amid concern that supplies via Ukraine, which transits about 15 percent of the European Union’s gas demand, may be affected because of its dispute with Russia.

Winter gas traded at 64.9 pence a therm today, 16.1 pence more than than the day-ahead price, broker data showed. That’s the widest price gap for this time of year since 2009.

EU storage sites were more than 50 percent filled as of yesterday, the highest level for this time of the year since at least 2007, according to Gas Infrastructure Europe, a Brussels-based lobby group. In the U.K., facilities were 62 percent full, compared with 53 percent at the end of last month, according to the data.

European inventories may be full by August or September instead of in October if there are no supply disruptions, Campbell said.

March was 1.2 degrees Celsius (2.2 degrees Fahrenheit) warmer than the 1981-2010 average in the U.K., according to the Met Office. Most of western Europe will have temperatures above normal next month, Michael Thomas, a meteorologist at Commodity Weather Group LLC in Bethesda, Maryland, said today by e-mail.

The conflict between Russia and Ukraine is escalating, with the U.S. and the EU announcing new sanctions on President Vladimir Putin. Past disagreements between the eastern European neighbors led to reduced flows into Europe in 2006 and 2009.

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