Italian market: Length persists despite rise in demand
The lifting of the emergency import maximisation in Italy from 1st February came as no real surprise to traders on the PSV and has had no real impact on spot prices.
“Everyone was long before and they are still long now,” one trader commented, summing up market sentiment this week. The absence of buyers continues to strangle trading activity, with even prompt interest almost dead on the PSV, traders said.
If anything, spot prices fell again over the preceding week, sources agreed, pressured by the fundamental situation and the fall in value at the northwestern hubs. A pick up in demand in Italy on colder weather has hardly made a dent in stocks.
Operator Stogit told Heren Energy on Monday that there were still 7 billion cubic metres (Gm3) in store, only 16.6% down from the beginning of November, when storage levels were full at 8.4 Gm3.
Some companies said the high stock levels were still likely to put pressure on companies in summer, and many shippers said that they wouldn’t necessarily be turning down long-term contract supplies for the rest of winter (even though they now can in theory), because they would rather preserve flexibility for summer.
There may be additional appetite to turn down oil-linked contracts this summer as the northeastern hub price has dropped so low. The Dutch TTF Summer ’07 price is now around EUR 6.70/MWh below the indicative PSV spot price of around EUR 18.40/MWh this week. Although there is now a bigger premium for the rest of Q1 ’07, not as many companies will have spare transport capacity for this period, shippers suggested. Whereas there is a bigger appetite from traders to arbitrage the summer spread between the north and Italy and to buy capacity ahead of time for this purpose.
In reality however, the value of summer spot gas in Italy is a mystery at the moment, with sources quoting a huge range of values, but none able to report firm deals, bids, or offers in the last two weeks. On the low side, a trader with one of Italy’s biggest utilities said he had recently bought Summer ’07 at EUR 17.00/MWh. But a trader with another large trading and supply company said Summer ’07 should not be valued more than EUR 1.50/MWh below the gas release price. This discount would put the contract at around EUR 20.00/MWh.
Another consequence of high levels of gas left in store at the end of the winter season may be renewed appetite to supply municipalities. Stock levels are allocated according to end-user demand and more customers would allow companies more space and thus the ability to carry more of their remaining gas over to the next storage year. Companies have to submit their storage needs for next year, based on existing customers, by 12th February. LB
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