LONDON: British spot wholesale gas prices jumped 5 percent on Monday as Russia cut supplies to Ukraine over a gas pricing and debt dispute.
Russia severed natural gas shipments to Ukraine on Monday in a row over unpaid bills that could disrupt supplies to the rest of Europe and set back hopes for peace in the former Soviet republic.
Ukraine's energy minister said Russia had cut off all gas supplies to Kiev but he guaranteed reliable flows would continue to Russia's European clients who get imports through pipelines via Ukraine.
The day-ahead contract rose as high as 44.50 pence per therm early, and although the contract eased to 43.40 pence by 1100 GMT, prices were still up around 5 percent compared to Friday's close.
Prices for delivery next winter, when a cut would hit Europe most as demand is highest during the heating season, rose as high as 63.20 pence a therm.
Prior to Monday's rises, gas prices had spent most of the year in decline after a mild winter and spring left storage unusually full, with healthy pipeline supplies and shipped liquefied natural gas (LNG) imports.
"I think the market had expected a compromise to be found over the weekend, so when it became clear that the deadline had passed without a deal and then supplies were cut, prices reacted with an uptick," one trader said.
"Despite the disruption, prices remain relatively low compared with last year as gas stocks are very healthy, alternative supplies also seem OK, and most still believe the gas dispute will be resolved before the winter," he added.
Europe meets around a third of its gas demand through imports from Russia, and almost half of this usually flows through Ukraine. The rest is sent through alternative routes such as the Nord Stream and Yamal Europe pipelines, which go to Germany, avoiding transit through Ukraine.
EU NOT IMPACTED YET
Despite the supply cut, gas system operators from the European Union said Russian gas continued to come in from Ukraine.
European gas system operators across Europe, including from Germany, Poland and Slovakia, said Russian flows via Ukraine remained ongoing.
It was unclear whether Ukraine was sending gas to the EU out of its own storage facilities or whether a drop in Russian flows had not yet been registered at the EU border.
Ukraine has almost 14 billion cubic metres of gas in underground storage, compared to yearly demand of over 50 bcm, enough to meet its needs until December, the chief executive of state gas company Naftogaz said on Monday.
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