Interest in short-term natural gas offshore capacity limited in Denmark
Use of shorter-term grid entry capacity recently introduced at Denmark's offshore natural gas grid is expected to be limited to high-demand winter periods when capacity from Germany is restricted, sources have said.
Access to DONG Energy's offshore grid has historically been through monthly capacity bookings, which has allowed producers needing to ship natural gas to the market access to the incumbent's offshore pipelines and Nybro gas treatment plant, (see ESGM 19 December 2012).
The introduction of Day-ahead and Week-ahead capacity products is designed to give producers more flexibility when responding to changes in natural gas demand driven by colder temperatures or capacity restrictions at the Danish-German border.
Currently, producers in Denmark are able to sell around 10% of their output direct to the market while the remainder is sold to DONG Energy as part of long-term agreements. "They [shorter-term capacity products] are good tools for independent producers to get volumes away in times of need and would allow for optimisation if they should need to scale back or increase production," a source said.
Another source pointed out that before the new transport tariffs were introduced, producers were restricted to flowing gas either via the NOGAT pipeline to the Netherlands or via DONG Energy's grid because the capacity was sold on a minimum of a month-ahead basis.
Low liquidity on the wholesale gas market in Denmark originally meant that producers had to sell their gas at prices below those attainable in the German markets, the source said. Though the shorter-term tariff gives them the option to supply the home market at short notice.
DONG Energy introduced Day-ahead capacity for booking from 28 December 2012 for use from 1 January 2013. Week-ahead could be booked from 3 January 2013 for use from 7 January 2013. Their use, however, has been limited.
According to a statement from a DONG spokesman on Thursday, the first booking for Day-ahead capacity was made on 9 January. The limited interest has been linked to unfavourable market conditions. According to one source, there were only a couple of days prior to booking available when buying shorter-term capacity would have been "in the money", due to a weather-related rise in demand and therefore in Day-ahead prices.
Plunging temperatures between late November and the early part of December saw Day-ahead natural gas prices at Nord Pool Gas Spot achieve a €6.80/MWh premium against the NCG equivalent at its peak on 13 December 2012, according to ICIS data. Capacity availability via the Danish/German pipeline Ellund, which is Denmark's other main source of gas, was under pressure from higher domestic demand.
However, a rise in temperatures in Denmark towards the end of December 2012, coupled with a general decline in industrial demand for gas over the festive season, helped to erode this premium, limiting interest in using the new capacity products. A return to the cold temperatures seen during early December could make using the capacity products more attractive, but there would have to be a significant spread in the market to justify it, a source said. The Day-ahead tariff is around Danish krone (DKr) 0.12/MWh compared to the Week-ahead rate of DKr0.11/MWh, and DKr0.82/MWh for the monthly tariff.
It is hoped that the availability of short-term capacity products will encourage more of Denmark's producers to sell their volumes directly to the market. The initiative is one of a number of measures from regulator DERA to improve onshore and offshore gas market integration.
Some 97% of Denmark's domestic output comes from the Danish Underground Consortium, which comprises operator Maersk Oil, Shell, Chevron and Danish Sea Fund. Other active producers include BP, Exxon Mobil, DONG Energy and Hess Corporation, according to 2011 data from the Danish Energy Agency (DEA). Only Shell and Maersk Oil, through its trading arm Maersk Energy Marketing (MEMAS), take volumes directly to the market.
A Maersk Oil spokeswoman said: "As MEMAS has requested shorter products for more than one year, MEMAS welcomes the new short-term products that DONG just has started to offer. We are continuously considering which product fits our portfolio the best. We have already made use of the new products even though the price of the products restricts the frequency of their use."
DERA also ordered the Danish incumbent to improve balancing conditions and increase North Sea volumes and flow transparency. A new balancing system will be in place from 1 March 2013 and the roll-out of new offshore quarterly and annual capacity products will be coordinated with capacity products from onshore grid operator Energinet.dk. "Energinet.dk has not yet firmed up on its timing for introducing quarterly and gas year products for next gas year," a DONG Energy spokesman said. "This is expected to be announced during early spring this year." KA
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