Belgium H-gas exports to the Netherlands likely to continue

Belgian high-calorific natural gas (H-gas) exports to the Netherlands are beginning to ramp up as the ZTP Day-ahead contract has established its greatest discount to the Dutch TTF in over a year, a trend that could continue over the summer.

On 5 and 6 May, Belgium exported a combined 7 million cubic metres (mcm) of H-gas to the Netherlands, with a further 6mcm due to be shipped on 9 May, according to data from Belgian grid operator Fluxys. Aside from a two-day spell on 21-22 April, these were the first Belgian exports to the Netherlands since October 2015.

Dutch demand for H-gas has increased significantly in the past year following heavy restrictions on Groningen low-calorific gas (L-gas) production. This is because H-gas can be blended with nitrogen to create a source of L-gas to cover the shortfall in production.

May’s Belgium to the Netherlands flows are indicative of a wider trend which has seen the share of Dutch H-gas in Belgium’s supply mix fall and be replaced by rising deliveries from Norway and Britain – a trend which is set to continue this summer.

Summer 2016 Outlook

The ZTP Day-ahead has traded at a consistent discount to the Dutch TTF equivalent since 18 April, acting as a price incentive for sending H-gas from Belgium to the Netherlands. On 9 May, the discount was €0.150/MWh, slightly higher than its 4 May yearly-low of €0.387/MWh. Net Belgian exports to the Netherlands are likely to continue this summer, driven by high demand for storage and quality conversion in the Netherlands.

The Dutch government has permitted 11.3 billion cubic metres (bcm) of L-gas production from the Groningen field between May and September 2016, which would be a 6% increase year on year, although this additional output is likely to be diverted to boost L-gas storage injections.

Since 30 April, Dutch shippers have begun injecting gas rather than withdrawing, with a 10-month high of 76mcm of combined H- and L-gas injected on 5 May.

As Groningen production will be unable to cover all of the Netherlands’ summer L-gas consumption, storage injections and exports, quality conversion of H-gas will remain crucial to meeting L-gas demand. In April 2016, 2.2bcm of H-gas was converted in the Netherlands, up from 2.1bcm the previous year. Last summer a total of 8.5bcm of H-gas was converted in the Netherlands.

As a result of the above factors, we are likely to see similar, if not slightly higher, demand for Belgian H-gas this summer. In summer 2015 (1 April-30 September) Belgium exported a net total of 182mcm of H-gas to the Netherlands at an average rate of 1mcm/day.

Changing Supply Mix

Belgian imports of H-gas from the Netherlands have dropped to 2.8bcm so far in gas year 2016, down 33% year on year. This drop has led to a change in the supply mix of the Belgian H-gas system, with Belgium importing increased volumes from Britain and Norway to make up for the drop in Dutch supply.

British imports in winter 2015 (October 2015-March 2016) rocketed three-fold year on year to 2.9bcm, a four-year high. Norwegian imports rose 4% year on year to at least a five-year high of 7.6bcm, according to data from Belgian system operator Fluxys. This has helped to offset the drop in Dutch supply to Zeebrugge.

Dutch supply accounted for 15% of physical imports to Belgium during summer 2014, but only 5% in summer 2015, and a similarly low figure can be expected this year. alex.thackrah@icis.com