Spain: AOC natural gas prices bear litte link to domestic fundamentals
Spain's AOC natural gas market is almost completely detached from the fundamentals of the internal gas market, according to traders.
With the domestic gas market having been in decline for a couple of years, traders say the price of gas delivered at the AOC is now governed by LNG netback prices, rather than any fundamental drivers within Spain.
As a result, there was little expectation the summer nuclear maintenance schedule in Spain - which will see three of the country's eight nuclear plants taken off line during May - would have much of an effect in increasing demand from domestic gas-fired electricity generators.
Despite the limited demand, traders still said prices at the AOC looked firmer.
One gas buyer looking for quarterly delivery terms had been quoted €31.50/MWh for Q4 '12, although he said he had been unable to find a willing seller of gas for Q3 '12 delivery.
"I was expecting a less expensive price," he said. But this price seemed reasonable, one seller added, as the equivalent contract at the TTF closed at €27.35/MWh, making the AOC only €4.15/MWh more expensive than the Dutch price, when the spread is usually wider than this.
One possible bearish factor that could eat into AOC prices was if Repsol were unable to market the gas it was now withholding from Argentina and was forced to offload it in Spain. But given current high East Asian demand, this seemed unlikely, one trader said.
Traders also expressed concern that recent third-party access charge rises in April adding 5% to the cost of both reloading and unloading LNG in Spain could put a brake on demand. ICIS estimates that the 5% would add around €4,000 to the cost of unloading a standard 900GWh LNG vessel at Huelva to around €92,000 and around €73,000 to the cost of reloading a similar-sized vessel, taking the cost to more than €1.53m. RS
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