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Britian: Large natural gas supply rise, demand fall lead NBP significantly lower

08 May 2012 18:57:40 | esgm

Prompt natural gas contracts at the British National Balancing Point hub were crushed on Tuesday as a combination of bearish factors including suppressed demand and comfortable supply removed support from near-term contracts.

The NBP Day-ahead contract fell by 3.35p/th, its largest fall in almost seven weeks as the supply-demand picture changed drastically compared to the previous week.

As the gas day began, predicted closing linepack was set 60Mm³ long, in part due to demand being forecast at 237Mm³ at 15:00 London time, well below average, according to British transmission system operator National Grid.

Demand had been weakened by temperatures reaching seasonal norms, with forecasts suggesting that they are headed above average in the near term.

Demand had been forecast even lower before capacity holders at storage sites ramped up injections in order to take advantage of the weak spot.

Because of the comfortable supply picture, Within-day had slumped to just 56.15p/th at 15:00, meaning it was trading at a discount to the rest of the prompt and to the front-month, creating an arbitrage opportunity for traders.

Unsurprisingly, nominations via the Interconnector ramped up given the rapid decline of the NBP Day-ahead contract, in comparison to its continental equivalents.

The Day-ahead basis, which settled at -1.45p/th on Friday, shifted to -0.15p/th at the close of Tuesday's traded day. Nominations for Day-ahead delivery grew to 8.84Mm³ at 17:00, compared with Within-day deliveries of 5.85Mm³.

Regardless, both were well in excess of the 3.82Mm³ that was delivered on Monday, according to IUK data.

New arrivals at Britain's LNG terminals also offered downside to the prompt. The Mozah arrived at South Hook on 6 May, according to terminal data, subsequently increasing LNG stocks to 56% of capacity, having fallen to a 14-month low of just 37% in the previous week. Over the long UK holiday weekend, a fresh LNG delivery was confirmed into South Hook. The Mekaines will berth on 12 May, following the Al Ghuwairiya, which is scheduled to arrive on 10 May.

Norwegian field maintenance at Ormen Lange will mean a possible reduction of as much as 70Mm³/day from 11 May, with a restart date of 16 May, according to Gassco data. By 17:00, Norwegian gas was flowing into the UK at a rate of 76Mm³/day, significantly above the Summer-to-date average of 47.33Mm³/day, exemplifying the volume of gas available at the NBP on Tuesday.

Further losses were on offer to British gas contracts as the euro fell to a 42-month low by the close of trade on Tuesday. As a consequence of the currency slide, sterling denominated products became relatively more expensive for those purchasing in euros.

Prompt losses fed their way through to the near curve as well, given the expectations of milder temperatures expected to last deep into summer. Also offering downside to near-term contracts were the large storage injections on Tuesday, which after an extended period of withdrawals will come as a large relief to those fearing limited supply flexibility or increased demand over the rest of summer.

Further along on the curve, contracts were also bearish, this time as macroeconomic concerns weakened the influential Brent crude oil market. The losses sustained on the oil market on Tuesday led Winter '12 to a three-month low of 68.30p/th, following its fourth consecutive session of losses. JT

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