Concerns over Danish natural gas supply send Within-Day to new highs
Cold weather and low natural gas storage levels forced Denmark's Nord Pool Gas (NPG) bourse to extend Within-Day trading by three hours on Monday.
The decision came after Danish transmission system operator (TSO) Energinet.dk declared an "early warning situation" on expectations that cold weather may continue over the coming weeks, adding further pressure to already limited supply stocks in the country.
Within-Day trading at the NPG exchange rose to an all-time high of €41.78/MWh on Monday and the Day-ahead product climbed to €39.17/MWh - the highest level so far in 2013. Compared to the same period in 2012, the Day-ahead was 75% more expensive. The gains also put the NPG Day-ahead contract at around a €5.00/MWh premium to the German NCG and GASPOOL markets compared to just €0.30/MWh premium at the beginning of March, according to NPG and ICIS data.
Before the market closed on Tuesday, the Danish Within-day contract was trading at €50.00/MWh and the Day-ahead at €48.86/MWh, giving the spot contract a €20.00/MWh premium to GASPOOL, NPG CEO Jacob Pedersen said.
"The cold has increased demand significantly, volumes traded are quite high compared to March last year," an NPG spokesman said. "This has pushed prices up quite significantly over the last few days. We are well above German prices these days, and nothing seems to indicate that it will change soon."
However, participants remain mixed about the impact on the market. While many contacted by ICIS said that continued below-normal temperatures and low stocks will force prices up and may have an impact on congestion, others believed the calling of an early warning was an unnecessary measure based on an expectation that temperatures will become even colder.
"The weather forecast is a fickle thing, and we are entering a holiday period soon which will put pressure on demand," a source said, adding that all market players know this. "I do not think they should have called an early warning," the counterparty added.
Instead, the source believed the warning spooked the market, propelling prices at the NPG higher, particularly since there have not been any flow interruptions at the border yet.
"Energinet.dk triggered extended opening hours at NPG, which was totally unnecessary and are only created further panic trading," the source said.
A spokesman from the TSO said the early warning system was only a signal the network was slightly under pressure and it was up to the market to act.
Indeed, on 15 March, the physical capacity of 200,000 cubic meters/hour at the Ellund entry point was close to full utilisation. By 18 March, however, capacity was fully utilised, TSO data indicated.
Frequent production problems in the Danish North Sea continue to put pressure on the country's supply, prompting Energinet.dk to announce on 15 March that stocks and supply at Nybro and Ellund were low. The TSO warned that if the weather continued to be cold for the rest of March and into April, demand would outstrip supply.
Danish storage fullness has fallen from 85% on 20 November to 24% on Monday 18 March, Gas Storage Europe data shows.
Energinet.dk confirmed on Tuesday that no deliveries were affected and the supply of natural gas would continue as usual. The TSO added that it does not intend to increase the incentive-based balancing charges but will continue to monitor the situation and could increase charges at a later date.
Last October, the TSO introduced changes to the balancing system aimed at encouraging more market involvement in cases when gas supply was tight. The change meant that instead of a 12-hour settlement period for delivering Within-day gas, settlement occurs in the last hour: between 05:00 and 06:00 local time.
The rationale is to allow trading, which is normally between 09:00-15:00, to continue in the event of an early warning or emergency situation.
On Monday, the trading window was extended until 18:00. Kirsty Ayakwah
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