Short-term wholesale natural gas prices in Britain spiked to new winter highs on Friday as a key piece of pipeline infrastructure failed.
The Interconnector – a subsea pipeline linking Britain to Belgium – halted all imports shortly after 07:00 because of a water pump malfunction. On Thursday gas imports via the Interconnector covered more than 20% of British demand.
The price for gas to be delivered during Friday to the British wholesale market – which is known as the NBP – hit £1.50/therm (th), 50% above the highest corresponding Thursday Within-day trade, data from industry benchmark price reporting agency ICIS Energy shows.
The price for NBP gas for the next working day was trading at a high of £1.20/th on Friday morning. According to ICIS Energy, the Day-ahead price has only closed above this level on eight occasions in the last two decades.
By 12:00 flows through the Interconnector had resumed at a low level and the Within-day contract was trading around £1/th.
Natural gas imports from mainland Europe have been fundamental in keeping Britain sufficiently supplied during the last month with storage reserves largely depleted.
Gas stores have been relied upon more this winter than usual as British and Norwegian production has suffered from numerous technical problems.
Delivery of liquefied natural gas, LNG, which has in recent years been a key source of supply to the NBP, has similarly been much lower than a typical winter. This is because Asian gas prices have been far higher than those in Europe.
On the electricity market, the UK Day-ahead contract traded at £88.00/megawatt-hour (MWh), the highest level seen since 7 December 2010.
The traded price of power is 24% above the highest traded price for this winter to date. The previous record was £71.00/MWh, reached on 13 March 2013, when concerns about UK gas storage levels boosted prices.
UK power prices have been supported by high gas prices, as gas is used to generate power. In February, gas generation accounted for 27% of the UK’s production, data from electricity balancing company Elexon shows.
Ed Cox, Editor of European Spot Gas Markets at ICIS Energy said: “The ongoing cold weather has kept prices high in Britain and the outage on the Interconnector pipe had an immediate and dramatic effect on pricing on the wholesale market. Earlier this week the Interconnector imported a record amount of gas to Britain and it has been a vital source of supply this winter.”
According to National Grid, the system operator of the British transmission system, gas demand on Friday was expected to hit 330 million cubic metres (mcm), well above seasonal normal. Following the spike in prices, more gas in store started to be withdrawn, as did LNG from holding tanks. Latest data shows that British gas and LNG stores collectively hold 840mcm.
The Interconnector is one of two pipes linking Britain to the European mainland, the other being the BBL which connects to the Dutch gas market. The BBL pipe was already running at maximum capacity, although it can only deliver at around half the rate of the Interconnector.
For further information please contact:
Ed Cox (gas)
t: +44 20 7911 1772
Zoe Double (power)
t: +44 20 7911 1875
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For more information visit www.icis.com/energy
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