Imminent return expected for Danish natural gas congestion woes
Congestion at the Ellund border point between Denmark and Germany is an issue that has plagued the Danish natural gas market in recent years, but hit as failed to materialise so far this winter. Nevertheless, traders remain sceptical as to whether the long-term issue is a thing of the past.
Structural issues within the Danish gas system, such as falling production and limited import capacity, that had caused congestion over winter 2010/11, remain present.
Energinet.dk, the Danish transmission system operator (TSO), has taken steps to resolve the problems. The first of these, permanent and guaranteed gas flow to Denmark from Germany, is not expected to be in place until 2013 at the earliest.
Market participants had long expected prices to spike this winter as had been the case in winter 2010/11 when Denmark's system required greater imports.
But in the final quarter of 2011, the Danish Day-ahead price traded at a €0.16/MWh discount to its German GASPOOL equivalent.
In 2010, the Danish Day-ahead contract had approached a €10/MWh premium over the corresponding GASPOOL contract.
The overriding reason that congestion has not been an issue so far this winter is mild weather. Temperatures well above average have dampened gas demand in Denmark, as well as the rest of Europe.
Consequently, end-of-year import volumes from Germany were lower than in 2010. Storage sites, which had been heavily drawn on last year, have been relatively untouched.
A larger amount of gas also has been available for export to Denmark in the event it was required.
The Northern Offshore Gas Transport Pipeline (NOGAT), which connects Tyra a large Danish Continental Shelf gas field to the Netherlands, had suffered issues in 2010, which reduced Dutch export capacity. A fully functioning NOGAT pipeline this winter has, in recent months, reduced the risk premium placed on Danish contracts in the event that demand did surge.
Long-standing issues remain
All these factors which have left the Danish market well supplied have failed to convince traders that import congestion is merely a memory.
"Just one thing needed to fail for prices to spike once more. We cannot really be making predictions on a system that really has no major flexibility. It only needed temperatures to be a little cooler for everything to become tighter," one trader said.
Declining domestic supply remains a problem. The Danish Energy Agency expects 2012 Danish and Swedish cumulative production to fall to 6.8 billion cubic metres (Gm³) from 8.6Gm³ in 2008. It is forecast to fall even further before new fields come on line in 2015, with the hope of reviving the flagging Danish gas industry.
Participants who were bullish as the winter approached believe nothing has changed fundamentally.
"No mechanisms have been put in place to prevent congestion in the short-term, we just seem to be hoping demand stays low," an analyst said.
The Danish TSO has put together long-term plans to enhance Danish supply security.
Permanent gas flow from Germany to Denmark will be enabled following the building of a compressor station at Egtved, which is due for commissioning in October 2013.
To minimise the impact of tight supply, Energinet.dk is hoping to bring forward the commissioning of one of the four compressors to 1 April 2013.
The Danish TSO also has submitted plans to increase the capacity of the Lille Torup storage facility to over 1Gm³ from 450 million cubic metres (Mm³).
A decision is still needed on a potential link to Norway or the Netherlands. The possible scenarios include a connection to the Dutch grid via the Tyra platform, while Norwegian offshore pipe operator Gassco is investigating a Norwegian-Danish link.
Dutch TSO Gas Transportation Services (GTS) said it would allocate €450m for the expansion of its network in northern Germany, Denmark and Sweden in order to solve bottlenecking and improve the security of supply. JT
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