European gas prices hit seven-month highs

European gas prices hit seven-month highs on Friday in anticipation of cold weather, and amid concern about supplies from Libya and Russia.

Day-ahead UK gas prices hit 70.35p a therm and have climbed more than 10 per cent this month, according to Bloomberg data. Meanwhile in mainland Europe, month-ahead prices at the Dutch TTF gas hub climbed to €28.38 per megawatt-hour and are up 8 per cent so far in November, says Bloomberg.

The move was partly seasonal, with gas prices expected to climb as winter approaches in order to draw gas out of storage.

“Last week we had prices which were lower than at some points in summer, so we did need higher prices in order to attract all of the available supplies,” said Thierry Bros, senior European gas analyst at Société Générale.

But there were also concerns about supplies.

A pipeline from Libya to Italy operated by Eni, the Italian energy company, has been closed since Wednesday, according to people familiar with the situation, as protests that have crimped the supply of oil from the North African country spread into the gas sector.

Berber tribesmen who are demanding greater representation in the government have been protesting at Eni’s facilities in the northern port city of Mellitah for several weeks. This week they ordered a halt to flows through the gas pipeline to Italy.

The pipe has a capacity of about 11bn cubic metres per annum. While that is a small fraction of European demand, which is estimated at more than 450bcma by Société Générale analysts, supplies to Italy from Algeria have also fallen this year.

Shortages in the Italian market can feed through into the rest of Europe, if Italy imports more gas from Russia, leaving less gas available for the rest of Europe.

The Russian gas giant Gazprom also raised the prospect of supply shortages this week, when it warned on Thursday that Ukraine had not put enough gas into storage ahead of winter. A key Russian gas pipeline to Europe passes through Ukraine, and the country could turn to the pipeline for additional supplies if it runs short of gas.

In 2009 Russia cut off supplies to Ukraine during a dispute, leading to shortages in the rest of Europe. But analysts said that a similar event would have less impact on Europe today, because Russia has since developed an alternative pipeline that does not pass through Ukraine, while Europe’s long recession has also reduced consumption.

“Europe is in a much better position to cope with supply disruptions than in 2009, largely because demand has fallen,” said Siamak Adibi, a senior consultant at Facts Global Energy in London.

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