UK GAS-Winter prices rise on Russian supply fears

British natural gas prices for delivery next winter rose 2 percent early on Thursday on fears that escalating tension between Russia and Europe could lead to disruptions of gas supply later in the year.

The Winter 2014 contract traded at 60.61 pence per therm at 0907 GMT, up 1.36 pence on Wednesday’s settlement. The September contract was up 1.18 pence to 41.50 pence per therm.

“Gains on the Winter 14 contract continue to support prices from the prompt outwards, as further premium to cover supply risk is added into the contract,” a gas trader said.

Traders said the risk premium was added to contracts on the curve after relations between Russia and Europe appeared to deteriorate further.

Russia on Thursday announced a ban on fruit, vegetables, meat, fish, milk and dairy imports from Europe as well as the United States, Australia, Canada and Norway.

Meanwhile Russia has massed around 20,000 troops on Ukraine’s border and could use the pretext of a humanitarian mission to invade, NATO said on Wednesday, its starkest warning yet that Moscow could soon mount a ground assault against its neighbour.

Russia meets 30 percent of Europe’s natural gas demand and half of that gas transits to the EU through Ukraine.

British prompt gas prices also edged higher despite unseasonally low demand and an oversupplied system.

With supply flows at about 163 million cubic metres (mcm) per day on Thursday and demand expected to be about 154.8 mcm, the system was 8.2 mcm oversupplied, National Grid data showed.

Thursday’s demand was almost 12 percent below the seasonal norm of 175.1 mcm, National Grid data showed.

In Britain’s power market, prices for day-ahead baseload delivery were trading 0.95 pounds higher at 37.40 pounds per megawatt hour.

There are currently three nuclear reactors offline, with a combined capacity of 1.6 gigawatts