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Storage facilities in Europe are more than half-empty, data shows

Gas reserves in Europe nosedived to historically low levels this month. According to data by Gas Infrastructure Europe, consumption from storage facilities this January is one third more than the average for the previous five years.

Experts have been raising concerns about the risk of full supply disruption to the EU if tensions between Moscow and Kiev escalate. The European Union receives roughly 40% of its gas via Russian pipelines, several of which run through Ukraine.

Statistics showed that storage facilities were 39.65% full of gas as of January 27. This is the first time that inventories dropped below the 40% mark. The level is 15.6 percentage points below the five-year average.

Typically, Europe’s gas inventories don’t fall even to half until about early-to-mid February. During some mild winters, the inventories don’t sink below midpoint until early March.

This month, the weather was very mild in Europe, but stockholders decided to use reserves to protect against high prices. In many contracts with suppliers, an exchange index “for a month ahead” is used, and now the price of its execution is at an all-time high. On average, gas was traded at $1,310 per thousand cubic meters last month at the TTF hub, with a maximum value of up to $2,138. Under such conditions, buying gas on the spot market at $976 per thousand cubic meters on average looks like a good solution, experts say.

READ MORE: LNG supplies to Europe hit all-time high

The defensive behavior of importers has also seriously reduced the physical import of gas to Europe. In the first half of January, Gazprom’s exports to non-CIS countries fell by 40%. However, analysts note that export volumes may change as early as February as prices stabilize.

According to the experts, the arrival of liquefied natural gas (LNG) cargos in Europe has alleviated the energy crunch. Last week, Europe’s gas transportation system received approximately 434 million cubic meters, a record for that date.

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The budget carrier posted quarterly loss of over $107 million

Europe’s low-cost airline, Ryanair, reported missing its target of 11 million passengers in December, instead carrying 9.5 million, due to “media hysteria” over the Covid-19 Omicron variant.

The company’s loss for the final three months of 2021 amounted to €96 million ($107 million), although this was a significant improvement over the €321 million ($359 million) loss in the same period in 2020.

Customer numbers, at 31.1 million, were more than three times higher, and revenues of €1.47 billion ($1.6 billion) were 331% up on 2020 levels.

“The sudden emergence of the Omicron variant and the media hysteria it generated in December … forced European governments to reimpose travel restrictions in the run-up to Christmas,” Ryanair chief executive Michael O’Leary explained. That had “significantly weakened” peak last-minute bookings and fares over Christmas and new year, cutting December traffic and load factors, he added.

READ MORE: WHO predicts end of pandemic in Europe

The company has warned of a “hugely uncertain” financial outlook, saying that the first three months of 2022 would require “significant price stimulation at lower prices” to attract customers.

The airline also said it hopes the roll-out of booster jabs and evidence about Omicron being less virulent than other variants will lead to easing of restrictions and restoration of consumer confidence ahead of Easter. Ryanair sees capacity this summer topping pre-pandemic levels.

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Doha is exploring opportunities for long-term gas supply contracts with the bloc instead of spot market agreements

The world’s second-biggest producer of liquified natural gas (LNG), Qatar, has reportedly requested that the European Union restrict the reselling of its gas outside the bloc, if it is to provide emergency shipments in the event of a disruption of deliveries from Russia.

“Qatar’s supply wouldn’t be conditional on requests. But the issues need to be dealt with to ensure long-term and short-term solutions for Europe’s LNG crisis,” unnamed sources briefed on the talks said, as quoted by Reuters.

The news comes amid the continued speculation fueled by the US that Russia is preparing to invade Ukraine. In the event of a military conflict, Moscow has been threatened with severe economic sanctions that may target the country’s energy exports.

Russian gas supplies account for nearly 40% of Europe’s consumption. Any interruption will inevitably exacerbate the existing energy crunch amid the rapid recovery of major economies after the pandemic-related slowdown.

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Although Qatari producers lack enough spare gas, Doha has pledged to divert some volume from its Asian consumers with mediation from Washington. However, sources told Reuters that no such request has so far been made.

Qatar also wants the EU to conclude a 2018 investigation into the country’s long-term contracts, which the European Commission had said might be inhibiting the free flow of gas in Europe and its single gas market.

“That will ensure the EU can enter into long-term contracts with Qatar and others, instead of more costly spot contracts or searching for short-term solutions during a crisis,” the source said, as quoted by the agency.

Doha is also asking for guarantees that EU member states will divert any surplus LNG only within the bloc.

“If not implemented, emergency shipments to the EU could be resold as spot shipments for a profit out of the EU, basically prolonging the energy shortage in the EU,” the source said.

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BlackRock and Goldman Sachs holding on to Russian investments, expecting diplomatic solution to crisis

The latest hysteria around the uneasy relationship between Russia and Ukraine has reportedly failed to scare global investors away from Russia’s debt. International investment majors like Goldman Sachs, BlackRock, Fidelity and Pimco are betting a diplomatic solution could boost interest earnings.

Yields on Russian government and corporate bonds have reportedly surged since the beginning of the year, with the spread between Treasuries and 10-year local-currency sovereign debt rising to 7.8 percentage points at the peak.

The total return on a local-currency 10-year sovereign bond was 6.3% in 2020 and 6% in 2021, versus 1.92% and 0.9% for the equivalent US Treasury note.

Meanwhile, the Russian ruble has depreciated 3.5% against the greenback so far this year and was trading at its weakest level in more than a year last week, before recovering moderately. The Central Bank of Russia suspended its planned foreign-exchange purchases on Monday in an attempt to support the domestic currency. The regulator has hiked interest rates seven times since March 2021, to tame the surging inflation due to the pandemic.

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Russian bonds reportedly make up 7% of a popular emerging-market debt index run by JPMorgan Chase & Co. that is used as a benchmark by many fund managers.

“Russian assets could have a big rally back,” Abrdn PLC’s Viktor Szabo, who continues to hold some ruble-denominated Russian sovereign bonds, said, as quoted by WSJ. “It’s not so easy for investors to fully walk away.”

Russia’s current-account surplus increased by 3.5 times in 2021 through November, boosted by rallying crude prices. In January, the country’s international reserves rose to an all-time high of nearly $640 billion. Russia also enjoys a relatively small debt load, at 17% debt-to-GDP. Those factors keep luring investors, who see the underlying financial strength as very promising.

Some of the world’s biggest investors are still sticking to positions in Russian debt.

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“My base case is that there likely won’t be a full invasion. We’re in a situation where you still have this frozen conflict, since 2014,” Uday Patnaik, head of emerging-market debt at Legal & General Investment Management, who bought Russian sovereign bonds maturing in 2042 last week, told media.

A complete ban on trading Russia’s government debt was included in the debated list of potential sanctions that Washington and its allies have pledged to introduce against Moscow in case of a military assault in Ukraine. Russian authorities have rejected the idea of war with Ukraine, accusing Western officials of provocative rhetoric that just ramps up tensions.

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Digital currency project Diem raised security and reliability concerns

After months of speculation and regulatory opposition, Meta, formerly known as Facebook, said this week it was shutting down its digital currency project, Diem. The company said the underlying technology had been bought by a crypto-focused bank for $182 million.

“Over the coming weeks, the Diem Association and its subsidiaries expect to begin the process of winding down,” Meta said.

The initiative made progress, but “it nevertheless became clear from our dialogue with federal regulators that the project could not move ahead,” Diem Networks’ US CEO Stuart Levey explained.

Silvergate bought development, deployment and operations infrastructure, as well as tools for running a blockchain-based payment network for payments and cross-border wire transfers.

The Diem Association (initially known as Libra) was launched by Facebook in 2019 with the support of a number of partners including Visa and Mastercard, as well as tech companies Lyft and Spotify. The social media giant had been hoping that getting into crypto payments would provide it with a fresh income stream, but questions about its involvement led to several of the founding partners pulling out.

READ MORE: ‘Crypto winter’ is coming – analysts

The organization was renamed as Diem at the end of 2020 in a bid to show the currency would be independent from Facebook. However, those measures did not convince regulators, with some arguing that the network effects available to Meta through its social network could increase its circulation and undermine the fiat currencies of weak economies.

“The combination of a stablecoin issuer or wallet provider and a commercial firm could lead to an excessive concentration of economic power,” US regulators said in a 2021 report.

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