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Russian gas flows to Europe in December close to 2017 highs

Russian gas flows to Europe in December via its three main pipeline routes stayed at close to the highest levels of last year recorded in January as strong demand in the first half of December drove increased European customer demand.

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Total deliveries reached 11.4 Bcm via the Nord Stream, Yamal-Europe and the Brotherhood pipelines last month, according to data from Platts AnalyticsEclipse Energy, flat on November and close to last year's monthly record of 11.7 Bcm in January.

Russian pipeline supplies to Europe totaled 129.6 Bcm in 2017, the data showed, up 11.3 Bcm from the whole of 2016.

Russian gas has been competitive with European hub pricing over the past few years given the low oil price environment combined with Gazprom's pricing structure leaning toward more hub indexation, with customer nominations increasing as a result.

With European gas hub prices having risen toward the end of 2017, oil-indexed supply contracts continue to look attractive, especially in the first quarter of 2018.

European demand for Russian gas remained strong through December as the winter began in earnest, with colder-than-normal temperatures in the first half of the month.

Russian flows in December averaged 368 million cu m/d -- easily beating the five-year average of 296 million cu m/d for the month.

Lower production from the newly capped Groningen field in the Netherlands and some unplanned field outages in Norway saw Russian gas demand stay robust, with the Nord Stream and Yamal-Europe routes effectively maxed out.

Russian deliveries via the Ukraine route to Italy were curtailed for one day in December after a blast at the key Baumgarten gas hub in Austria, but supplies resumed quickly after repairs.

Total supplies via the Velke Kapusany interconnection point were 3.9 Bcm in December, down from 4.2 Bcm in November.

December volumes were also lower than the April-September period when flows through Ukraine were buoyed by strong Italian demand.

Russian pipeline supplies were high in 2017 despite hub prices mostly being at a discount to the oil-indexed contract price range from April until November.

But TTF month-ahead prices are now trading above the range through the first quarter of 2018, according to Platts Analytics estimates and the current forward curve, incentivising Russian gas purchases in the nearer term.

The TTF month-ahead drops back into the range again in Q2 before falling below the range for the period July-October as the recent oil price rally makes oil-indexed gas more expensive again.

The oil-indexed range stays relatively flat until spring 2019, with the TTF month-ahead price moving back into the range in the first quarter of 2019.

--Stuart Elliott,
--Edited by Jeremy Lovell,