UK: Bearishness returns as system handles record-high demand

Source: Heren

2010/01/08

The dramatic week at the NBP closed on Friday with an uncompromisingly bearish tone, as concerns over supplies eased. Prompt and curve contracts were sold off throughout the day.

The system opened the session 34 million cubic metres (Mm3) long despite another day of record-high demand. Extremely cold weather pushed consumption above 460Mm3, and it tipped 465Mm3 around the close.

But supply was reliable, and demonstrated its capability with relative ease. Langeled was flowing at a solid 70Mm3, as St Fergus Total flows - where Vesterled beaches - ramped back to 60Mm3 with the Troll field back to steady production.

Day-ahead opened at 41p/th, and was then steadily sold down to 39p/th by the afternoon. But an upward revision to National Grid's forecast demand levels forced the contract back to 39.5p/th at the 16:30 (London time) close. Weekend also dipped to 37.75p/th, but moved back up to 39p/th in a choice market at the close.

Within-day followed a similar pattern, falling from 41p/th to 38p/th by the close.

National Grid estimated demand at 461Mm3 on Saturday and above 450Mm3 on each of the next five days.

"Traders have short memories, but it does seem the end is in sight, with warmer temperatures to come after next week," said one trader.

Contracts out to WDNW registered heaviest losses, and this dampened sentiment throughout the curve. But these retained a premium over the back half of January that traded down to 36.5p/th. The backwardation in the market would continue to incentivise high flows over the coming week of big demand, said counterparties.

The front two months both fell by over 1p/th.

"The price is irrelevant as long as contracts move in tandem as they did today. We might see some rise in demand from power generation if the market stays around the mid-30s p/th," said a second trader.

The premium against Zeebrugge and TTF hubs continued to make Interconnector flows towards the UK attractive. Over 44Mm3 was expected to flow on Friday - just below Thursday's levels. BBL has also been flowing at extremely high rates - around 8Mm3/day higher so far this January than last year.

The reliability of storage was again demonstrated, as Rough continued to withdraw at record levels. The site was due to send over 40Mm3 into the system. Both Hornsea and Aldbrough were withdrawing at high levels, but short-range sites were quieter, with only a brief sign of action from Glenmavis in the afternoon.

At the start of the gas day, medium-range sites had been 61.1% full - a fall of 3.3 percentage points from the previous day. Fullness dipped below last year's corresponding levels as a result.

The flexibility of LNG, especially Grain NTS2, played a major role in balancing the system over the week. Grain NTS2 flowed at 20Mm3 on Friday, with South Hook maintaining above 30Mm3.

The Lijmilya was due into South Hook on 10 January with the Methane Kari Elin scheduled to arrive on 15 January. There was speculation the Al Rekayyat could be heading either for the UK or the US, with the Al Ghuwairiya also expected to come to the UK. Sonatrach had not offered its 14 January slot at Grain to the market, so sources expected the company would bring in a vessel.

National Grid's second gas balancing alert of the week expired at the end of the gas day on Thursday.

The curve was softer, but also illiquid after Summer '12. Weak prompt sentiment played its part, as did a dip in US Henry Hub contracts and falling oil ahead of the close also driving down sentiment. EC