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Belgium/France review: Basis Day-ahead natural gas spread hits three-month low

04 May 2012 15:54:36 | esgm

Improving supply at Europe's main gas hubs helped pare gains made early in the week on outright prompt contracts at Zeebrugge, while a gradual slide on oil and bearish macroeconomic sentiment placed downward pressure on the far curve.

Outright prompt contracts began the week in bullish fashion as meteorologists agreed that temperatures would cool over the coming days. This bullishness was fuelled by a growing atmosphere of panic at Britain's NBP, where trader fears that the UK system would be unable to cope with a drop in temperatures were compounded by a recurrence of technical problems at Centrica's South Morecambe gas field.

This supply tightness continued into Tuesday's session, before a ramping-up of flows from Norway to Britain on Wednesday put the bears in charge at the NBP - a situation that was exacerbated by the return to full production of Statoil's Kollsnes plant. Belgian prompt contracts followed suit, with the Day-ahead basis spread between the two markets relatively stable at -0.75p/th at Thursday's close.

The spread then widened to -1.50p/th on Friday - its lowest point since 31 January, according to ICIS data - as the UK system tightened on colder temperatures forecast for Friday and the weekend.

The consistently negative basis meant shippers had little incentive to flow gas from the NBP to the relatively cheap Belgian market. Intra-day nominations on the bi-directional Interconnector between the two markets remained below 5Mm³ across all four sessions, according to IUK data.

Prompt contracts at the PEG hubs in France followed a similar pattern, gaining value on colder weather forecasts during the first two sessions, before subsequently retracing back down as supply concerns eased.

PEG Nord Day-ahead's premium over PEG Sud remained at €2.00/MWh or higher across the week, with ongoing supply disruptions between the two hubs. One market participant remarked on Tuesday, when the spread stood at €2.00/MWh, that it was "substantially overvalued". The source said he anticipated the gap to close to around €1.00/MWh over the next two months. TH

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