LNG glut, Groningen supply cut boosts IUK gas flows

Strong LNG send-out in Britain and increased H-gas demand in the Netherlands has helped boost British exports to mainland Europe via the Interconnector pipeline to a four-year high in the fourth quarter of 2015.

According to operator IUK, the bi-directional Interconnector consistently delivered volumes from Britain to Belgium between October-December 2015. This is the first time the pipe has failed to flip to British imports during a fourth quarter in more than 10 years.

A total of 2.2 billion cubic metres (bcm) was delivered to Zeebrugge Beach in the fourth quarter. In the same period of 2014, net flows towards Belgium totalled 549 million cubic metres (mcm), with total transmission in either direction reaching just 685mcm.

Fourth quarter Interconnector flows in 2015 were the greatest since 2011 when nearly all of the 2.9bcm of throughput on the pipe was in the direction of Belgium. Net flows in the same period in 2012 and 2013 were both in the direction of Britain.

Oversupply

Above-average winter temperatures persisted through much of the quarter but despite relatively weak weather-driven demand in Britain, LNG send-out increased to a four-year high creating oversupply and export pressure at the NBP in the final months of the year.

According to fundamental data collated by ICIS, LNG send-out from the South Hook, Grain and Dragon terminals in Britain increased 59% year on year to total 3.4bcm – the greatest volume supplied to the British grid in a fourth quarter since 4.4bcm in 2011.

Interconnector flows were responding to an average Zeebrugge Beach Day-ahead discount to the NBP of 0.876p/th in the final three months of 2015, down from an average Belgian discount of 1.384p/th in the same period of 2014, boosting the financial incentive to export gas to Belgium this year.

Due to the current commodity charges due on gas entering the British system, a Belgian discount of more than 2.1p/th to NBP gas contracts would be needed to incentivise flows towards Britain on the Interconnector.

The commodity charge set by British system operator National Grid has historically created an export bias on the Interconnector as shippers often opt to export gas beaching at Bacton towards Belgium if the Zeebrugge discount to the NBP is smaller than the cost that would be incurred entering the gas into the British system.

Groningen

The average discount held by the Zeebrugge Beach Day-ahead to its British peer was partly squeezed by developments in the Netherlands this year.

Due to lower L-gas production from the Groningen field in the Netherlands in 2015, Dutch demand for H-gas – which can be converted to L-gas through nitrogen blending – has increased.

As a result, the Zeebrugge Beach Day-ahead has averaged a 0.371p/th discount to the TTF in 2015’s final quarter, compared to a small premium in 2014, reducing the financial incentive to deliver gas towards Belgium.

Net Belgian imports of high-calorific natural gas (H-gas) from the Netherlands fell to a total of 1.3bcm in the final three months of 2015, according to data from Belgian grid operator Fluxys, down 54% from 2.8bcm in 2014.

The 1.5bcm drop in H-gas supply from the Netherlands has been fully covered by the 1.65bcm increase in net flows towards Belgium on the Interconnector this year.

First quarter 2016

The now-expired Zeebrugge Beach Q1 2016 delivery contract averaged a discount of 1.635p/th in the latest quarter, according to ICIS closing price assessments. As this is short of the 2.1p/th discount needed to spur British imports on the pipeline, gas transmission towards Belgium looks set to continue for the remainder of the winter with reverse flows towards Britain largely absent.

Last winter, British imports peaked at 15mcm/day in early February, but across the first quarter of the year, net flows were towards Belgium. jake.horslen@icis.com