European Gas Prices Ease as Kremlin Soothes Fears

MOSCOW/LONDON (Reuters) — European spot gas prices eased on Friday after the Kremlin said that Belarus had not consulted Moscow before threatening to reduce flows of natural gas to Europe, adding that Gazprom remained a reliable gas exporter.

Belarusian President Alexander Lukashenko on Thursday warned of potential retaliation against any new European Union sanctions over a migrant standoff on the Belarus-EU border, including shutting down transit of natural gas and goods via Belarus.

European spot gas prices rose by about 2% to 75.25 euros per megawatt hour on Thursday before easing towards the end of the day in a sign that the market did not take the threat from Belarus, which has Russia as its closest ally, too seriously.

The Belarusian part of the Yamal-Europe pipeline, one of the routes for Russian gas exports to Europe, is owned by Russian state gas monopoly Gazprom.

"This is a statement by the president of Belarus," Kremlin spokesman Dmitry Peskov said on Friday. "I want to remind you of President Putin's statement that Russia has always fulfilled its contract obligations ... Belarus is our ally, but it is a sovereign state."

The Dutch front-month gas contract, a European benchmark, eased to 75.12 euros/MWh after Peskov's comments, down from 79.40 euros on Friday morning and half the 155 euros reached in October, when prices were driven by Russia exporting little more than contracted volumes.

Gas prices have risen this year because of factors including low inventories and increased demand after the easing of COVID-19 lockdowns, exacerbated by Russia not supplying more than contracted volumes.

In Britain, some energy companies have gone bust and consumers face much higher energy bills, with many business sectors also feeling the pain of higher energy costs.

'RELIABLE SUPPLIER'

The Kremlin has denied any politics behind gas supplies and Russia this week began refilling European storage sites, with Peskov reiterating Moscow's assertion that Russia is a "reliable supplier".

Analysts at VTB Capital, a unit of Russian state bank VTB, played down the Belarus threat.

"We think this threat is unlikely to be carried out, as it would lead to the loss of transit income and commercial fines being levied on Belarus, as well as potentially broader repercussions for Russian-Belarusian relations," they said in a note.

Russian gas continued flowing via the Yamal-Europe pipeline to Germany, which also runs through Belarus, but at an hourly volume of 6,500,948 kilowatt hours (kWh), down from an average of about 8,000,000 kWh per hour on Thursday, preliminary data from German network operator Gascade showed.

At some point on Wednesday, hourly entry flows at the Mallnow metering point on the Polish border were as high as 15,196,614 kWh. Exit flows at Mallnow - or gas transportation into Poland from Germany - were at zero.

Nominations for Friday daily flows of Russian gas to the west on the Ukraine-Slovakia border were at 92.1 million cubic meters, or 1 million MWh, similar to the previous two days.

"We see more scope for Russian deliveries to disappoint our forecasts than for them to exceed them, particularly over this winter," Energy Aspects analysts said in a research note.

Gazprom did not reply to a request for comment on why volumes via the Yamal-Europe towards Germany were lower than usual on Friday.

In a separate statement Gazprom Chief Executive Alexei Miller said the Russian group was fulfilling its plan at underground European gas storage facilities and would exceed obligations under its transit agreement with Ukraine this year.

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