The below article was updated to include UK power market comment and data.
Forecasts of a second blast of cold air from Siberia drove British natural gas prices over 50% higher on Monday morning compared to Friday’s close, brokered deals seen by ICIS showed.
Prompt power prices followed suit, as the Day-ahead Baseload traded as high as 36% above its equivalent in Friday’s session.
Gains filtered down the curve as far out as the two forward seasons but one source suggested the front summer product on both gas and power markets held “more than enough premium” based on expectations of gas storage injection demand.
The NBP Day-ahead traded as high as 83.10p/th mid-morning London time on Monday, almost 30p/th above its equivalent’s close on Friday. It softened to trade at 69.30p/th either side of the ICIS 16:30 close.
Products for delivery through the end of March lead the gains. The Working-Days-Next-Week (WDNW) dealt at 95p/th and Balance-of-Month (BOM) as high as 87p/th.
At the UK power market trading on daily products delivering later in the week and the week-ahead was also volatile, with Wednesday’s Baseload trading in a wide range between £62.00/MWh and £70.00/MWh.
The week-ahead dealt throughout the morning at £70.00/MWh, before also softening a touch later in the day.
Return of the Beast?
Updated weather forecasts on Monday showed another wave of below average temperatures was due to hit European markets towards the end of the month.
“Beast from the East reappearance looks to be a lock. Another significant cold wave and delay of spring likely for the European nations,” Michael Ventrice, a meteorologist at forecaster WSI said on Monday.
There is still a degree of uncertainty in the cold outlook, but models are in close alignment that there will be significant downturn in temperatures going into the week starting 19 March, until the end of the month.
Temperatures are unlikely to reach the absolute lows of the cold wave that hit Europe at the end of February, driving within-day and day-ahead gas prices to all-time highs .
But a sustained cold period will still pressure on shippers to draw from already-low stocks.
Stocks in Britain – structurally low due to the cessation of storage operations at the Rough site – have plummeted to their lowest level in almost five years. Just over 250 million cubic metres (mcm) sat in British stores on Sunday.
The demise of Rough has left British shippers with little choice but to access capacity on mainland Europe, moving volumes through two interconnectors. But low stocks across the market could cause another scramble for gas if the cold forecasts hold steady.
Over 4.75 billion cubic metres (bcm) of gas sat in Germany – the largest storage market in Europe – on Sunday. Despite the relatively high inventory, this also marked the emptiest sites have been since March 2013.
The Dutch TTF WDNW and BOM contracts traded at €29.20/MWh and €27.75/MWh on Monday morning, around 6p/th and 10p/th lower than NBP equivalents.
In the lead up to the cold spell, shippers will try to hold onto as much stored gas as possible. Pipeline imports from Russian and Norway are likely to run close to maximum as the market tries to preserve flexibility.
The risk at the front of the UK power market filtered through to the curve, with the Summer ’18 Baseload reaching a fresh high after closing at its highest for over three years on Friday , according to ICIS data. Pricing of the contract was only consistently higher when the Brent crude oil benchmark was in the process of crashing from above $100/bbl in late 2014.
However, the level of risk premium in the front summer might have been over-estimated by both gas and power markets, one source at a continental trading house said.
“If we assume MRS [medium range storage] goes to zero, then we are missing 400mcm from normal injection start level, which is 2.5-3 mcm/day in the injection season,” he said “I think there is more than enough premium in it right now.”
LNG to the rescue?
Monday’s high prompt gas trades meant WDNW and BOM contracts were dealing above $11.00/MMBtu, over $2.00/MMBtu above East-Asian LNG prices (EAX) for April ’18 delivery.
A premium northwest European market could entice some LNG cargoes to Britain, Belgium or the Netherlands, with Norway and Russia the two most likely sources.
But limited cargo availability could prevent an influx of tankers replenishing LNG stocks.
Long-term contracts tied to the Russian Yamal plant are due to come into force around April. The plant has exclusively offered cargoes for spot purchase since December 2017, but that window may be coming to an end. A Yamal cargo would take around six days to reach Britain.
The Norwegian Hammerfest plant could offer spot cargoes with a relatively quick turnaround but contractual obligations could also hamper availability.
A Norwegian vessel dropped off less than a quarter of its cargo at Britain’s Isle of Grain on 9 March, delivering the remaining volumes to Lithuania.
Hammerfest shipments take around three days to reach northwest Europe. email@example.com and firstname.lastname@example.org