Expensive Belgian gas prompt premium may be short-lived

High demand for Belgian gas, both domestically and for export to Britain and France, caused a spike of the Belgian ZTP Day-ahead contract over its Dutch TTF and German NCG counterparts in recent sessions.

The spike is likely to be short-lived, however, as greater LNG supply to northern France and the return of Britain’s largest storage site could weigh on Belgian prices.

The ZTP Day-ahead contract was assessed at a premium of more than €0.50/MWh to the TTF and NCG at the start of week 48 – its highest premium since the first quarter of 2015.

A cold snap drove a demand surge across northwest Europe, boosting domestic Belgian consumption by 46% between 23-30 November, operator Fluxys’ data shows.

Demand surge

Similar increases were seen in France and Britain, which increased the draw on Belgian gas via the Taisnieres interconnection points on the French border and the Interconnector pipe linking Belgium with Britain. Belgium is a key transit market for gas flow through northwest Europe.

Belgian exports to France jumped 33% to 48 million cubic metres (mcm) between 23-30 November, while exports via the Interconnector hit a 44-month high of 39mcm on 29 November.

This pushed up the ZTP price in relation to the TTF and NCG, and prompted higher flows from Germany and the Netherlands to the higher-priced Belgian market. Combined imports from the Netherlands and Germany climbed 61% to 114mcm between 23-30 November.

The changing flow patterns also caused a spike in prompt contract liquidity at the ZTP hub, as traders adjusted their positions (see graph). Traded volume at the ZTP in November averaged 105GWh per day, the highest since the hub’s creation in 2012.

Price outlook

But forward prices suggest the ZTP’s premium over the TTF could be short-lived, with the ZTP December ’16 contract assessed at a premium of just €0.15/MWh to its TTF equivalent on 29 November.

A number of supply-side factors in France and Britain could lessen the demand for Belgian gas and pressure the ZTP premium in the coming weeks.

The supply picture in France may ease at the start of December with greater LNG send-out on the horizon.

Combined send-out from the Montoir and Fos LNG terminals is forecast to average 30mcm/day between 6-31 December, compared to just 13mcm/day between 23 November and 5 December, according to terminal operator Elengy’s shipper nominations.

Meanwhile, the return to operations of Britain’s largest storage site Rough on 9 December could lessen Britain’s reliance on Interconnector imports. Traders priced in this sentiment on the morning of the Rough announcement. The Belgian Zeebrugge December ’16 contract’s discount to its British NBP equivalent fell from 2.65p/th to 2.25p/th, trade data seen by ICIS showed. A lower discount is typically an indicator of lower IUK flows.

Risky business

However, there is still potential for volatility in the ZTP-TTF spread. A risk premium is priced into most December ’16 and Q1 ’17 northwest European gas contracts, to reflect the uncertainty over Rough and low levels of British gas in store.

The fragile nuclear power situation in France, which has sent shock waves through energy markets in recent weeks, also has the potential to put stress on northwest European supply and move ZTP prices. alex.thackrah@icis.com