Planned Kollsnes maintenance may boost hub volatility

Upcoming Norwegian maintenance could increase European gas hub volatility, particularly at the British NBP due to lower storage levels there than elsewhere in Europe.

Maintenance at the Kollsnes processing plant will begin on Friday, with 24.5mcm of its potential processing capacity offline, and it will be fully offline from Saturday, removing 144.5mcm/day of potential Norwegian gas flows from the European hubs according to data from operator Gassco. Similar work will happen at two unnamed fields concurrently, these are likely to be the Troll and Kvitebjorn facilities, as gas from both fields has to pass through Kollsnes before heading onto central Europe. Kollsnes and the two fields are expected to return to operation on 9 June.

Traders are aware of these events well before they occur, with the first notification about this work published at the beginning of December 2015. This allows them to largely price in the impact of the drop in flows, limiting price moves when the maintenance kicks in. However, there is generally still a small price jump at the beginning of the maintenance and a corresponding fall when supply returns to normal levels.

Kollsnes was last shut down for annual maintenance in April last year. On 9 April, the day on which work began, the NBP Day-ahead contract gained 0.438p/th, with a small further gain on the second day of maintenance when the plant was taken fully offline. At the TTF the gain was sharper on the second day, with the Day-ahead contract gaining €0.288/MWh on 9 April and €0.725/MWh on 10 April, and the NCG Day-ahead gained €0.225/MWh on 9 April and €0.313/MWh on 10 April.

Several NBP traders believe this year’s maintenance will have a similar impact, with an adjustment in prices at the start of the work followed by a return to following other fundamental drivers. One trader also expected the bank holiday in Britain on 30 May to “soften the blow” of the maintenance as traders will be away from their desks when the supply cut hits the market.

However, some traders active at the NBP and TTF expect a bigger impact this year, particularly at the NBP as storage levels are considered to be “low”.

According to the latest data collated by ICIS, Britain currently has around 1.2 billion cubic metres (bcm) of gas in store, up by around five percentage points year on year. Its sites are around 28% full though, comparatively lower than sites in many other European countries. In Germany, sites are almost 60% full on average and French and Italian sites are 37% and 36% full respectively.

This could add bullish pressure to the prompt, increasing the impact of the upcoming maintenance. Temperatures at the beginning of the maintenance period are currently expected to be fairly warm, but if forecasts change this could also drive up prompt prices.

Flow patterns in Europe also often change during large maintenance events such as this, in order to make up the supply shortfall. During the last period of annual maintenance at Kollsnes, Interconnector flows towards Belgium and German deliveries to the Netherlands increased, as did supplies of Russian gas via the Nord Stream pipeline. The ability to redirect gas through Europe helps to lessen the price impact of maintenance events. julie.fisher@icis.com